Enhancing bankability: strategies for lucrative PPPs

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Hamzeh S. Al-Alayani

The writer is a board member of a Jordanian public-sector government investments management company and a regular commentator on regional energy and industrial matters.

Jordan, through its investment environment laws and public-private partnerships (PPP), aims to build a sustainable economy based on knowledge, innovation, competitiveness, expertise, and diversity that aligns with the implementation of the economic modernization vision. اضافة اعلان

In a world facing geopolitical complexities, economic setbacks, and various crises such as global fluctuations in prices and supplies, resulting in market disruptions, public-private investors are constantly seeking financeable projects. This equitable risk distribution between the government and the private sector is crucial. However, beyond mitigating project risks, it requires an ambitious and comprehensive vision to reduce the general risks faced by the country and a clear program for public-private partnerships.

Lastly, this plan must take into account financial reforms, and must emphasize developments in the banking sector, facilitating money transfer and investment in the Kingdom.

Jordan’s investment environment
Therefore, it is essential to create an investment-friendly environment that encourages partnerships between the public and private sectors to execute major projects, adopt unconventional financing methods, and leverage the technical expertise of the private sector in infrastructure and public facilities projects. This diversifies economic sources, drives development, maximizes productivity, governance, and accountability.

According to the executive program of the economic modernization vision, significant projects and public-private partnership projects with a total value of approximately JD10 billion will be developed and executed. Additionally, initiatives to boost the investment sector have been announced, including 21 investment opportunities with an investment volume of around JD1 billion.

According to World Bank data, the infrastructure sector in the Middle East and North Africa has witnessed a significant contribution from the private sector, reaching $2 billion, an increase of 214 percent from 2021. Nevertheless, it only constitutes 0.13 percent of the gross domestic product and significantly lower than the global average over the past five years of $3.1 billion.

The Arab Banks Union has committed to encouraging banks to mobilize $1 trillion to support the implementation of Sustainable Development Goals in the region by 2030. This ambitious initiative, in partnership with the UN Economic and Social Commission for Western Asia (ESCWA), seeks to accelerate the achievement of Sustainable Development Goals in all Arab countries and support major transformations in six areas: social protection, energy, education, food systems, digital transformation, environmental diversity, and nature conservation.

Advancing infrastructure provisions
Typically, in developed countries, two-thirds of infrastructure projects are funded by the private sector, with the remaining third handled by the public sector. The private sector provides significant freedom to design and construct high-quality structures, enabling efficient operation and maintenance, and thus effectively managing the risks it bears. This can also result in lower fees and better deals for governments.

Investors seek a stable environment that allows them to predict returns on their investments and earn reasonable profits. This necessitates a public-private partnership framework that maximizes value for money. When designed and executed well in a balanced regulatory environment, these partnerships can achieve greater efficiency and sustainability in delivering public services such as water, sanitation, energy, transportation, communication, healthcare, education, and tourism. Moreover, these partnerships can facilitate better risk sharing between the public and private sectors.

Creating an enabling environment for private sector participation in infrastructure provision is the responsibility of the government. Consistent and stable policies regarding ease of doing business, including transparent and stable taxation, company registration, and ease of repatriating capital for foreign investors, are essential. Credit ratings and anti-money laundering indicators are also fundamental requirements to make project more bankable, including foreign investment. Additionally, local financing should be incentivized to facilitate deal structuring and reduce associated financing costs.

Balanced investment facilities and preparations
An essential factor in encouraging investors is the existence of an effective project database that enables them to plan and manage resources within a proper timeline. Furthermore, risk mitigation in projects has become easier due to the availability of various credit enhancement tools. While this may entail additional transaction costs, it allows governments to implement vital infrastructure projects and structure innovative deals, thanks to multi-party development institutions that enable low-rated countries to financially launch and close critical infrastructure facilities.

For public-private partnerships to become a key government agenda, they must be pursued through a balanced programmatic approach. This approach should be accompanied by sectoral strategies and reforms to ensure impact, generate momentum, and yield benefits, especially for procurement and contracting entities (executive ministries, departments, and authorities). Proper project preparation, with absolute transparency regarding incentives, privileges, and funding sources, is essential. Otherwise, financiers will add extra costs, including potential payment delays, affecting overall financing costs, private sector confidence, and commitment.

Hamzeh S. Al-Alayani is a Jordanian public-sector government investments management company board member and a regular regional energy and industrial commentator. Hamzeh holds an MBA from the University of Aberdeen, UK, and a BSc in Mechanical Engineering.

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