PPPs for post-COVID-19 recovery

The coronavirus-19 (COVID-19) pandemic has upended plans and budgets the world over. In the Philippines, public funds are being increasingly directed toward health and social amelioration programs. So far, P245 billion has been spent for COVID-19 response efforts, with another P140 billion of planned spending under the proposed Bayanihan Act extension.

With the number of confirmed cases breaching the 100,000 level and millions unemployed, mitigating the pandemic’s effects is the government’s top priority, and rightly so. However, there remain many essential spending areas—infrastructure chief among them—that cannot fall by the wayside, and in fact need to play a central role in our recovery. If anything, the pandemic has only intensified the need to invest in sectors that can no longer be neglected in a world of social distancing, e-commerce, and work from home.

As President Duterte put it in his last State of the Nation Address, infrastructure is an “effective tool to help spur high growth, attract investments, create jobs, and achieve financial inclusion.” Investing in infrastructure is also key to ensuring that we are better prepared the next time a pandemic or another external shock, such as a natural disaster, rattles our country.

But how can the government sustain its Build, build, build agenda amid extreme fiscal and capacity pressures?

Beyond bayanihan. Public-private partnerships (PPPs) represent one solution. The past few months have broadly demonstrated the value of tapping the private sector in addressing societal challenges. Businesses have been vital in equipping hospitals, procuring and conducting tests, and supplying food and equipment to frontliners.

In the realm of infrastructure, PPPs pertain to more formal contractual arrangements for the delivery of a public asset or service. Rather than relying on the goodwill of donors, which cannot last forever, PPPs reward private sponsors that use their technology and expertise to deliver social goods with reasonable returns.

The government likewise stands to gain from PPPs. Perhaps their most appealing benefit at this time is that they can require limited to no government cash-out at the outset. With private sponsors responsible for raising project financing, implementing agencies can preserve their balance sheet for more urgent spending needs, such as the COVID-19 response. Balanced and well-structured partnerships also allow the government to benefit from knowledge and technology transfer, mitigate project risks, and attain value for money (thanks to limited cost overruns and typically superior service quality).

Looking behind, forging ahead. The Philippines is no stranger to PPPs, and actually has one of the most sophisticated institutional set-ups for PPPs among emerging economies. Notable projects in recent years include the Mactan-Cebu International Airport, the Bulacan Bulk Water Supply Project, and the PPP for Schools Infrastructure Project.

There is much to learn from these examples. But given the dramatically different world we find ourselves in, there is also a case to be made for being more visionary in the scope and scale of the projects we pursue moving forward. PPPs in the country have largely been restricted to big-ticket projects by national agencies in traditional industries such as transportation and power.

The reality, though, is that government entities of all stripes—from municipalities and water districts to government corporations and state universities—are legally empowered to undertake and can benefit from PPPs. And the PPP approach can be applied to a multitude of other project types.

We believe the following sectors present the greatest opportunities for PPPs in the years ahead:

Health care—hospitals, health centers, emergency command centers

Information and communications technology—digital public infrastructure, cell towers, fiber networks

Social infrastructure—economic housing, schools adapted for distance learning, public parks, adaptive reuse of underutilized government assets

Agriculture—slaughterhouses, cold chain, logistics networks

Utilities—renewable energy, local water supply, sewerage systems

As we aspire toward a post-COVID-19 world, cross-sector collaboration and bold bets are needed more than ever. By leaning into the spirit of bayanihan and leveraging the power of PPPs, building a better, more resilient normal is within our grasp.

Ma. Angela Ignacio is a managing director at Polestrom and a former commissioner of the Governance Commission for GOCCs, the agency that regulates state companies. Raya Buensuceso is an analyst at Polestrom. She was formerly a research fellow at the Asia Center of the Milken Institute, a US-based economic and policy think tank. Polestrom provides advisory services for infrastructure projects in the Philippines and emerging markets.

Business Matters is a project of the Makati Business Club (makatibusinessclub@mbc.com.ph).