How public-private partnerships drive sustainable growth

Public-private partnerships (PPPs) are powerful tools for driving economic progress, particularly in rapidly growing economies like the Philippines. To sustain this high-growth trajectory and achieve the economic goals embedded in AmBisyon Natin 2040, the government recognizes the significance of infrastructure development and the vital role of the private sector.

According to the Public-Private Partnership Center, a PPP is a contractual agreement between the government and a private company targeted toward financing, constructing, operating, and maintaining infrastructure projects that traditionally fell under the public sector. The PPP model ensures that risks are optimally shared between parties, underscoring its cost-effectiveness and alignment with developmental objectives.

PPP arrangements leverage the expertise and efficiency of the private sector in delivering public goods and services. This strategy, enshrined in the 1987 constitution and initially codified through the Build-Operate-Transfer (BOT) Law, has contributed to the robust infrastructure pipeline and positioned the country as one of the regional leaders in PPPs. This intersection between the private and public sector as engines for national development and economic growth was the focus of the SGV Knowledge Institute event last week, “Philippine Economic Outlook: Public and Private Partnerships as a Catalyst for Sustainable Growth.”

PPPs are more than financial solutions for public ventures; they are catalysts that boost productivity and streamline processes for faster implementation and improved service delivery.

THE ROLE OF THE MAHARLIKA INVESTMENT FUND (MIF)

The Maharlika Investment Fund, established through Republic Act (RA) 11954, has as its main objective the stimulation of economic growth and social development while generating optimal returns.

With its focus on balancing profits with societal benefits, the MIF has the potential to foster socio-economic integration. Acting as both a catalyst and magnet for Foreign Direct Investment, the MIF aims to achieve significant financial returns and facilitate national development. This fund provides additional flexibility for the government — with an option to finance infrastructure projects in sectors like green and blue projects, sustainable development, healthcare, road networks, water, energy, and telecommunications, thereby enhancing economic growth and creating more jobs.

PPP PROGRESS IN ASEAN

The Philippine PPP program has consistently drawn participation from local conglomerates, as they flock towards the large-scale infrastructure offerings of the government. However, there is much work to be done to establish the country’s infrastructure sector as a reliable investment destination for foreign capital. Despite this, there is an estimated $53.3 billion worth of PPPs under implementation, and another $48.4 billion in the pipeline. This underlines the scale and scope of private sector involvement in nationbuilding projects.

Considering the limited fiscal space caused by the government’s muchneeded response to COVID-19 pandemic, the country is currently focusing on key PPP projects to bridge the infrastructure gap and revitalize economic growth. Notable examples include the recently awarded and long-awaited rehabilitation and optimization of the Ninoy Aquino International Airport (NAIA) PPP, the Metro Manila Subway (MMS) Operations and Maintenance (O&M), and the NorthSouth Commuter Rail (NSCR) O&M. The MMS O&M and NSCR O&M projects are expected to be submitted for approval within the year.

Implementing PPPs used to involve navigating a complex legal framework, spanning various guidelines set by the BOT law, National Economic and Development Authority, the government-owned and -controlled corporation regulator, and ordinances set forth by local government units (LGUs). The recent enactment of RA 11966, or the PPP Code, aims to cure that by unifying and streamlining PPP development and implementation both at the national and local level.

AREAS OF OPPORTUNITY FOR PPPs

Healthcare. Healthcare is a prime sector where PPPs can facilitate growth. Given that out-of-pocket expenditure comprises nearly 45% of healthcare spending, there is a crucial need for more innovation. PPPs could play a pivotal role in attracting investments, enhancing the quality and accessibility of essential healthcare services. Healthcare PPPs in the pipeline include the University of the Philippines Philippine General Hospital Diliman and the Cagayan Valley Medical Center Hemodialysis Center.

Education. PPPs could drive considerable advancements and elevate the country’s global standing in this crucial sector. For a country striving to improve its position in international educational rankings, private capital can become an indispensable tool in uplifting national education. According to the 2022 Program for International Student Assessment (PISA), the Philippines placed 77th out of 81 countries, necessitating the need for more investment. The Philippines has utilized PPPs through the PPP for School Infrastructure Projects (PSIP), where the Department of Education (DepEd) was able to construct additional classrooms to help reduce the classroom backlog. In 2012, SGV & Co./Ernst & Young Australia Infrastructure Advisory provided transaction advisory support for the development of PSIP 1.

Energy. The PPP Code enables implementing agencies to enter into contracts on power generation and transmission, as well as projects relating to energy efficiency and conservation. This cooperation could lead to greater diversification of energy sources, boosts in renewable energy production, and advancements in energy-efficient technologies.

Transportation. Transport infrastructure projects continue to be a key driver of overall economic growth. With government initiatives to improve connectivity, transport systems, and reduce traffic congestion in urban areas, the private sector can either participate in various projects in the pipeline of the Department of Transportation or submit their own unsolicited proposals. Two PPP projects being provided with project preparation support services are the Manila Bay-Pasig River-Laguna Lake Ferry System and the North Integrated Transport System.

Water. Access to clean water and sanitation remains a challenge for a lot of our countrymen, especially in rural areas. Water and sanitation PPPs can be a viable solution to address basic needs while promoting the sustainable use of water. One water PPP currently in the pipeline is the Bislig City Bulk Water Supply and Septage Project.

IMPLEMENTATION CHALLENGES

The Philippines is no stranger to the implementation challenges hounding PPPs. As with any other innovation in policy, growing pains are always expected. The key therefore is ensuring that we absorb the learnings and insights from these real-world encounters.

Financial constraints. Given the scale and gestation period of most infrastructure projects, securing adequate and sustained funding remains a major issue. Economic uncertainties can adversely impact budget allocations for ongoing projects and subsequently affect private sector confidence.

Transparency and accountability. Maintaining transparency is critical to fostering trust. Ensuring accountability on both sides is crucial for the longterm success of PPP projects, and issues in this area can significantly impact the efficiency and effectiveness of PPPs.

The successful execution of PPP initiatives depends on a robust regulatory environment and technical support from entities like the PPP Center, the lead agency for PPPs. Newer players, like the Maharlika Investment Corp., can stimulate project development and attract private-sector financing for sustainable development projects and further accelerate national growth.

FISCAL POLICY DEVELOPMENTS

As mentioned earlier, one crucial fiscal policy development is the recent enactment of the Philippine PPP Code. The PPP Code unifies disparate legal frameworks, streamlines the approval process for projects, and safeguards public interest. It aims to address current challenges and encourages more PPPs by clarifying uncertainties and streamlining requirements.

THE ECONOMIC TRANSFORMATION AGENDA

The journey to sustainable growth is underscored by strategic pivots against a changing world. The Philippine Development Report 2023 represents a transformational blueprint emphasizing digital transformation, improved connectivity, PPP maximization, and an enhanced role for LGUs in accelerating development.

Building investor confidence is crucial for PPPs, not only for attracting investment but also for socioeconomic development. The Philippines must demonstrate its credibility by meeting obligations while promoting transparency, good governance, and trust. This provides an attractive investment climate and ensures the sustainable growth and effectiveness of PPPs.

Driving sustainable growth in the Philippines involves the concerted efforts of public and private stakeholders. PPPs serve as powerful enablers in guiding the country toward economic security and long-term development. For executives, harnessing the potential of PPPs presents a unique opportunity to engage in nation-building while generating significant business growth.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co.