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Financing and anti-corruption

Print (optimised for IE8)

 The ‘value added’ of engineers
Financing infrastructure – using private finance

•  The ‘value added’ of engineers

  Card 71
  Topic: Financing and anti-corruption
  

  • Can the engineering profession make a difference in the investments of donor agencies?

    • We need a ‘systems’ and co-ordinated approach
      ■ Donor agencies have shown various levels of commitment to help alleviate poverty in developing countries, by investing in infrastructure and other systems. Some of the donor agencies focus on small town infrastructure systems while others look at huge trans-regional/national projects
      ■ Recent trends in infrastructural developments point towards building critical infrastructure, not just more development. A systems co-ordinated view of projects to derive the maximum synergy from them is therefore imperative to meet the UN MDG targets by 2015
      ■ But, how much development is enough? Financial resources have not been unlimited for any donor agency, while substantial capital investment is still required to make a real impact. Besides, the 2007-10 economic crisis has left the economies of many donor countries in difficult situations
       
    • ■ Planning and execution of projects today have a lot more constraints. Issues such as climate change, energy efficiency, environmental impact assessment, sustainability and anti-corruption are high on the agenda. Value for money is critical for the success of any infrastructure project
      
      
      
      
       

  • Engage engineers in donor agencies to bridge the policy/financial planning and design gap

    • "Doing a job unsatisfactorily and then getting someone in to sort it out can be much more expensive than getting someone in to do the job properly in the first place” - Sarah Beeny
      
      What do engineers bring to the table?
      Failure to engage the engineering profession in meeting international development needs will impact negatively on the MDG targets.
      
      Engaging engineers, especially in donor agencies/banks, will bring the following benefits:
      ■ Effective management of cash-flow and budgets on projects to minimise cost overruns and variations
      ■ Environmental sustainability through the selection and review of projects prior to funding
      ■ Value for money on projects
      ■ Designs and design modification that potentially can arrest corruption
      ■ Synergy in project selection by using a systems approach
      ■ New schemes compliant with energy efficiency ratings and requirements consistent with best practices
       
    • The engineered road to the donor agencies/banks
      
      1. Most engineers have not positioned themselves strategically to lead this field
      
      2. Working effectively in such an environment requires knowledge in project planning and management, financial administration /management and policy planning
      
      3. Engineering knowledge alone does not bridge this gap
      
      4. Engaging the development community in the role that engineers can play in development is important
      
      
      
      Further reading
      Foster, V, Overhauling the Engine of Growth: Infrastructure in Africa
      World Bank, Unit Cost of Infrastructure Projects in Sub-Saharan Africa

•  Financing infrastructure – using private finance

  Card 72
  Topic: Financing and anti-corruption
  

  • How can we attract more private finance for infrastructure?

    Why is private sector finance required?
    
    392 senior public sector officials across the globe were asked this question: "How concerned are you that the following factors will inhibit your organisation's ability to provide the relevant infrastructure to support the long-term growth of the economy?"
    ■ "Availability of financing", 69% were "very concerned"
    ■ "Economic conditions", 67%
    ■ "Governmental effectiveness", 59%
    ■ "Political environment", 58%
    ■ "Availability of relevant skills/people", 56%
    
    When asked about what is preventing them from delivering infrastructure more effectively, 50% of the officials chose "lack of funds" (see Figure 1).
    
    Public funds and aid money in developing countries are far from meeting development needs, even with significant new resources from China and India.
     

    

    
    
    
    Source of statistics and background reading: KPMG International (2010) The Changing Face of Infrastructure: Public sector perspectives.
    
    Private sector finance can fill the "funding gap", given the political will. However, there are interacting obstacles to private sector investment, including:
    ■ Political, economic and commercial instability, plus
    ■ Exposure to opaque, corrupt or inappropriate procurement practices, so
    ■ Poor profitability, leading to
    ■ Risk of not obtaining return on investment
    
    These obstacles must be removed or minimised to attract private investment.

  • Use fair risk sharing and transparent governance in procurement and contracts

    Key benefits of using more private finance:
    
    ■ Scale up infrastructure investment to meet needs
    ■ Transfer risks from the public (tax payer's money/government borrowing) to the private sector
    ■ Introduce more flexibility to supply chain management and business processes, to improve efficiency throughout the project whole life cycle
    ■ Utilise private sector expertise and innovation to achieve local capacity building by including "learning by doing" in the contract
     

    

    Source of Figure 2 and more detailed reading:
    Presentation by John Walker AM (2007) Private Financing of Infrastructure Assets – The Virtuous

    

    Figure 3 PPP contract and risk sharing options (ICA, 2008).
    
    Further reading, for action:
    
    Degrees of engagement of private sector and risk transfer:
    1. ICA (2008) Infrastructure Public-Private Partnerships in Africa.
    2. The Water Page – PPP Debate
    What is required at government level, to enable Public Private Partnerships?
    3. ICA (2008) Infrastructure Public-Private Partnerships in Africa
    Selecting the right finance and risk sharing mechanism
    4. Chiu,T.Y.C. and Bosher, C.B. (date unknown, approximately 2004/05) Risk Sharing in Various Public Private Partnership Arrangements for the Provision of Water and Wastewater Services
    Lessons learnt and case studies – where has PPP been successful in providing pro-poor services?
    5. DFID (2007) Literature Review on Private Sector Infrastructure Investment