LPM 303:PUBIC-PRIVATE PARTNERSHIPS

UNIVERSITY OF NAIROBI

BACHELOR IN PROJECT PLANNING AND MANAGEMENT

LECTURER:JOHNSON KAZUNGU – CELLPHONE : 0721 234 507

EMAIL:JKAZUNGU66@UONBI.AC.KE
 CHAPTER TWO – LECTURE 1 of 2
PUBLIC PRIVATE PARTNERSHIPS AND
DEVELOPING COUNTRIES

UNIT: LPM 303- PUBLIC-PRIVATE PARTNERSHIPS

COURSE: BACHELOR IN PPROJECT PLANNING AND MANAGEMENT

 REVIEW:
In our previous lecture we looked at:
1. Parties to PPPs and their roles – SPVs, Government, Lenders, Equity shareholders,
Contractors, Advisors, Customers/End users, Trustees.
2. History of PPPs – Roman Empire 2000 years ago in Europe, France and Spain from the 1960s
financed by private consortia, Macroeconomic dislocation In 1970s and 1980s caused pressure
to change the standard model of public procurement , In 1990s Governments encourage private
investment in infrastructure due to growth of public debt.
3. Advantages of PPPs - Mitigates and properly allocates risks , incentives for lowering costs and
faster delivery of project, Ensures value for money , Reduced burden on taxpayers , technology
transfer and training, Attract the right skills and management expertise, Reduced politicization ,
Increasing government capacity , access to international finance ,Decrease cost of procurement.
4. Disadvantages of PPPs- more complex , route has more visibility and political exposure ,
Public controversy may arise due belief on high charges, higher transaction costs , route appears
more expensive in terms of financing .
 LECTURE OBJECTIVES
By the end of the lecture, you should be able to:

1. Define a developing country.

2. Outline criteria used to define developing countries.
3. Discuss challenges facing developing countries
4. Suggest possible solutions for challenges faced by
developing countries.
Definition of Developing Countries ~ 1 of 2
∙ There is no universally accepted definition of a developing country. However a

developing country is one with a less developed industrial base and a low

human development index (HDI) relative to other countries. Such countries

have low GDP per capita and rely heavily on agriculture as the primary

industry.
Definition of Developing Countries ~ 2 of 2
∙ Developing countries are characterized by: low levels of access to safe
drinking water ,sanitation and hygiene; energy poverty; high levels of
pollution; high proportion of people with tropical and infectious diseases; high
number of road traffic accidents.
∙ There is also widespread poverty, low education levels, corruption at all
government levels and a lack of so-called good governance. Effects of climate
change impact developing countries more than wealthier countries, as most of
them have high climate vulnerability.
Criteria used to define developing countries ~1 of 2
∙ There exist a number of different criteria used for defining whether a country is considered as
a developing or not. The definitions usually have to do with the country's right to receive
development aid under rules of a multilateral or bilateral agency. Some of the criteria include:
∙ Gross National Income Per capita level averaged over 3 years – If its below $1025 as of
2018 then that is a developing country.
∙ Export diversification whereby a country exporting more types of products is regarded as
developed.so oil exporters that have high per capita GDP would not make the advanced
classification because around 70% of its exports are oil.
∙ Degree of integration into the global financial system.
 Criteria used to define developing countries ~2 of 2
In the 2016 edition of its World Development Indicators, the World Bank made a decision to no
longer distinguish between “developed” and “developing” countries in the presentation of its data,
considering the two-category distinction outdated. Instead, the World Bank classifies countries
into four groups, based on Gross National Income per capita, re-set each year on July 1. In 2016,
the four categories in US dollars were:

∙ Low income countries: $1,025 or less.

∙ Lower middle income countries: $1,026 to $4,035.
∙ Upper middle income countries: $4,036 to $12,236.
∙ High Income countries: $12,237 and above
Challenges facing Developing Countries~ 1 of 6
1.Lack of adequate Infrastructure - absence of a dependable infrastructure can impose
severe barriers to economic development. For example transportation and
communications net-work necessary for efficient commerce since are needed to transport
people, materials, and finished goods.
Challenges facing Developing Countries~ 2 of 6
2. High Foreign debt - The 1970s and early 1980s witnessed explosive growth in the
external debt of many developing nations. Since the mid-1980s, most of these countries
have experienced difficulties in making the payments required to service their debt.
“Debt rescheduling”— putting off until the future payments that cannot be made
today—has been common, and many observers feel that major defaults are inevitable
unless ways of forgiving the debt can be found.
Challenges facing Developing Countries~ 3 of 6
3. Inadequate Domestic Saving/indebtedness – In Most developing countries the
living standards are at or near the subsistence level. This makes it difficulty to divert
resources from production of goods for current consumption to create more domestic
capital. At best, it will be possible to reallocate only a small proportion of resources to
the production of capital goods. Such a situation is often described as the vicious circle
of poverty: Because a country has little capital per head, and only can devote few
resources to creating new capital consequently the country remains poor.
Challenges facing Developing Countries~ 4 of 6
4.Inadequate Human Capital/Lack of skilled manpower –Most poor countries often lack a
well-developed entrepreneurial class of human capital , motivated and trained to organize
resources for efficient production. The cause may be that managerial positions are awarded on the
basis of family status or political patronage rather than merit or it may simply be an absence of the
quantity or quality of education or training that is required.
In today’s world, much production is knowledge-intensive, thus putting a premium on a
well-educated workforce. Failure to develop such essential labour skills such as operating
electronic equipment can be an important cause of lack of growth. Poor health is another source of
inadequate human resources. When the labour force is healthy, less working time is lost, and
more effective effort is expended.
Challenges facing Developing Countries~ 5 of 6
5. High Population Growth – This is one of the central problems of economic
development. Some developing countries have population growth rates in excess
of their GDP growth rates and therefore have negative growth rates of GDP
per capita. Many developing have made appreciable gains in aggregate income
over the years, but most of the gains have been literally eaten up by the increasing
population therefore less development of domestic capital.
Challenges facing Developing Countries~ 6 of 6
6.Cultural Barriers
Traditions and habitual ways of doing business vary among societies, and not all are equally
conducive to economic growth. In developing countries, cultural forces are often a source of
inefficiency. Sometimes personal considerations of family, past favours, or traditional friendship or
enmity are more important than market incentives in motivating behaviour. In a traditional society
in which children are expected to stay in their parents’ occupations, it is more difficult for the
labour force to change its characteristics and to adapt to the requirements of growth than in a
society in which upward mobility is a goal itself.
 Possible solutions for challenges faced by
developing countries ~ 1-2 of 9
1. Government should adopt sound fiscal policies that avoid large budget deficits.
In particular, persistent structural (or cyclically adjusted) deficits should be
avoided.

2. Government should adopt sound monetary policies, with the goal of

maintaining low and stable inflation rates. Exchange rates should be determined
by market forces rather than being pegged by central banks.
 Possible solutions for challenges faced by
developing countries ~ 3 -4 of 9
3. The tax base should be broad, and marginal tax rates should be moderate.
Subjecting more gross income to taxation and make marginal tax rates moderate
increases government revenue from taxes.

4. Markets should be allowed to determine prices and the allocation of resources.

Trade liberalization is desirable, and import licensing, with its potential for
corruption, should be avoided.
 Possible solutions for challenges faced by
developing countries ~ 5-6 of 9
5. Targeted protection for specific industries and a moderate general tariff, say, 10 to 20
percent, may provide a bias toward widening the industrial base of a developing
country. But such protection should be for a specified period that is not easily extended.

6. Industrial development should rely to an important extent on local firms and on

attracting Foreign Direct Investment(FDI) and subjecting it to a minimum of local
restrictions that discriminate between local and foreign firms. (Of course, restrictions
will be required for such things as environmental policies, but these should apply to all
firms, whether foreign owned or locally owned.)
 Possible solutions for challenges faced by
developing countries ~ 7-8 of 9
7. An export orientation (as long as exports do not rely on permanent subsidies)
provides competitive incentives for the building of skills and technologies geared to
world markets, permits realization of scale economies, and provides access to valuable
information flows from buyers and competitors in advanced countries.

8. Education, health (especially for the disadvantaged), and infrastructure investment

are desirable forms of public expenditure. Because future demands are hard to predict
and subject to rapid change, a balance must be struck between training for specific skills
and training for generalized and adaptive abilities.
 Possible solutions for challenges faced by
developing countries ~ 9 of 9
9. Finally, emphasis needs to be placed on poverty reduction for at least two
reasons. First, poverty can exert powerful antigrowth effects. People in poverty
will not develop the skills to provide an attractive labour force, and they may not
even respond to incentives when these are provided. Malnutrition in early
childhood can affect a person’s capacities for life. Second, although economic
growth tends to reduce the incidence of poverty, it does not eliminate it.
Common PPPs for Developing Countries
Developing countries have different needs and they are not at the same level of
development. Therefore there might be variations in terms of the nature and type of public
private partnership projects that can be recommended for each country. However, generally
public private partnerships in the following sectors are recommended for developing
countries:

∙ Water , Energy,
∙ Oil and Gas, Transportation,
∙ Manufacturing, Mineral
∙ Health, Education
 Typical features of PPPs ~1-3 of 6
1. Relatively long contractual relationships usually between public and private
sectors from 3-25yrs.

2. A single private body is responsible to engage in not in one type but in

complexity activity (such as designing, construction, renovation, repair, and
maintenance of assets).

3. PPP approach can bring value for money in public services delivery.
Typical features of PPPs ~4-6 of 6
4.Project-related risks are shared among partners and allocated to the party
best able to manage it.

5.Pubic sector payments to private partner only commences when the asset
required is first available for use to deliver services.

6.Ownership right of the asset, transferred to a private body enabling him

to use and manage them in delivering services ,remains with public sector.
Activity 2.1

Based on the above typical features of

PPPs, criticize whether the Standard Gauge
Railway(SGR) from Mombasa to Nairobi
is a PPP project or not?
 In our next lecture we shall look at the
Kenyan Experience with PPPs
We shall try to answer the following questions:
1. What led Kenya to embrace and pursue public private partnerships?
2. What are some of the successfully delivered Public Private Partnerships projects in Kenya?
3. What are some of public private partnership projects which are in the pipeline or at different
stages of implementation?
4. What is the role of a PPP policy and legal framework in improving the climate for public
private partnerships?

SO PLAN TO ATTEND TO GET TO KNOW YOUR

COUNTRY
THANK YOU
Komesha korona
“Wash your hands with soap , sanitize them and wear face mask in
public’’

BYE - BYE