PPP: Not as Advertised
So, a few years back ‘we’ thought we had found the holy grail of development aid: Public Private Partnerships (PPPs). This structure was being sold as a win-win-win for everybody. The corporates, governments and, the local populace were all set to benefit. The idea is that, by supporting sustainable and viable businesses in developing regions, both financial and development agenda’s were fulfilled. That, together with an envisioned ‘longer term/sustainable impact over traditional development aid programs, made this sound like an absolutely great and incredible find. No no, Madoff is not back in business, this is actually for real!
Yet, the reality may be far from that ideal. While the websites from the bodies (often themselves PPP mix ups) in charge of distributing the funds often look like they are administered by the pope himself, their real interest is usually far from actually maximising development impact. Many in the ‘industry’ know these bodies to go by the mantra:
”Finance FIRST, Impact LAST (!!!) Ladies and Gentleman”
The result? Projects have to return big bucks and, the actual development impact often doesn’t go further then overinflated promises (we all know these are just little
white lies) in fancy and beautifully designed brochures. PR spins, window dressing, green washing all means are acceptable for as long as it give us that ‘good feeling’, without actually paying for it! In many cases the overal negative impact actually exceeds the positive, yet, whenever anyone starts asking questions, all of a sudden the responsible people in charge change into aspiring politicians, as you will see in the documentary below.
The bottom line: Large and often already financially healthy corporate bodies are scooping up huge sums of ‘cheap’ money to expand their activities under the false pretence of delivering development impact. For that reason PPPs are sometimes referred to it as actually being ‘Trade Aid’. They therefore don’t deliver the promised positive impact and in some cases even have a negative impact. On top, companies often benefit from huge tax incentives and, in the event they ever have to pay up, they have already set up nice tax efficient structure in cosy tax havens like Luxembourg and Mauritius. In some cases they even upset the local market mechanism (I mean we can all see there may be a bit unfair advantage here i.e. unfair competition going on!!) pushing out local entrepreneurs who can’t possible compete.
By now you may be a little upset by how your tax dollar is spend, yet, you may be comforted by the though that, if it’s all about the big bucks, you, the tax payer, will at least rake in some of the profits! Well not quiet. If despite everything the company is unsuccessful, the public will bear the losses. In case of a success the private investors often takes all. Just so you know.
Hey let’s be clear: The above is a bit of cynical, one sided write-up, and a consequently a half truth, in part based on the documentary below. Please note that I don’t think we should ”throw the baby out with the bathwater”. A lot of thought went into PPP structures and they certainly have merit. They have also made many projects, with great positive impact possible that otherwise would have never come off the ground. We basically need to get our ‘hit ratio’ up/cut our losses where needed. What we need to do is get our priorities straight and implement the correct checks and balances to ensure the ‘right’ businesses/initiatives get the support these structures were designed and intended for. This can start today by ensuring greater transparency and accountability, together with clearer and stricter mandates for the responsible distributing bodies.
Bitching is nice, but we also need to think in solutions. I get that doing business in developing regions is challenging and most investors overlook, in many cases probably even unintentionally, the costs of doing business in developing regions. Yet, soft loans can come with terms and conditions. I think we should get of our high horse and drop the ICSR mumbo jumbo and forget about promises for schools and perhaps just be ‘good citizens’ and conduct business abroad as we would conduct them at home. I would suggest:
- First and foremost we need greater transparency and accountability, together with clearer and stricter mandates for the responsible distributing bodies.
- Get promotors to incorporate locally and or encourage partnerships with local entrepreneurs if and where this is reasonable possible. Build in safeguards, perhaps from local government, where there is a risk.
- Give ultimate beneficial owners the option to pay any dividend or income taxes derived from the local business locally at least for portion they would be liable for in their home country.
- Get development banks involved with the negotiations with the local chiefs and stakeholders prior to granting any loans. This should be part of their DD.
- Whatever the company undertakes, there must be a domestic/regional market and demand for the output product as well as an international market.