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27/07/2016

A fresh look at public-private partnerships

Innovation & Industry

A fresh look at public-private partnerships

China's Hangzhou Bay Bridge is an example of a how not to go about a PPP.

[Lauren Jong/Flickr]

Public-private partnerships remain an invaluable tool for driving progress, but the unwillingness of governments to collaborate with private businesses has to change, writes Erin Huntington.

Erin Huntington is Vice President of International Corporate Affairs at Eli Lilly and Co.

The European Commission has announced that it will launch a public-private partnership (PPP) this year to bolster the continent’s cybersecurity industry, combining the expertise of the business world with government resources to make the transition to a digital EU economy safer and more secure.

Indeed, PPPs have emerged as a highly effective vehicle for tackling complex socioeconomic challenges and they hold perhaps the greatest promise in low- and middle-income countries, where governments are increasingly open to international collaborations with industry.

Yet, success is far from assured. For every PPP that makes progress, dozens more are fraught from the start. A new study provides valuable insights into some large-scale international PPPs conducted in recent years. European leaders could benefit from these learnings as they work to strengthen cybersecurity and deepen the impact of Europe’s extensive development work around the world.

Conducted by the Johns Hopkins University School of Advanced International Studies with support from the Lilly Foundation the study focused on development programs in two growing economies in transition: India and China. They’re both facing significant public health challenges—and they’ve both recently come under political leadership that actively embraces PPPs.

According to the study, India already accounts for over 40% of all PPP-related spending in the developing world and that slice is set to expand dramatically. Prime Minister Narendra Modi is soliciting the local business community to contribute half of the €930 million to finance his government plans to spend on infrastructure upgrades. Likewise, China’s Ministry of Finance regularly teams up with business interests to help underwrite crucial public projects.

Despite such encouraging commitments, translating these types of initiatives into results on the ground has proved a challenge.

Hopkins researchers analysed a partnership between India’s public SMS Hospital, located in the major metropolitan area of Jaipur, and private manufacturers of diagnostic equipment such as MRI and CT scanners. Firms would provide scanning at a deep discount: MRIs are priced at $40, CTs just $11. About 80% of Indian patients would pay out-of-pocket for these services, with the goal of providing percent of services to people living below the poverty line.

This set-up did provide real benefits to patients: tens of thousands have used the program to purchase crucial medical services. But long wait times and complex administrative requirements pose ongoing challenges to access and prevent many patients from getting the care they need in a timely fashion.

There have been similar challenges with the Hangzhou Bay Bridge, which connects two major commercial hubs along China’s coastline. Seventeen private companies provided over half the financing used for the bridge’s construction. They have worked closely with local government officials to clear away excessive regulatory roadblocks and boost bridge traffic flows.

However, local public authorities opened up alternative transportation routes around the bridge, which resulted in lower traffic volumes. As such, revenues from tolls have come in well below projections.

The Hopkins team, led by Professor and Principal Investigator Alan M. Trager, identified a common thread here: based on these countries’ histories and modes of government, the Chinese and Indian public sectors (especially at the local level) have limited experience in engaging with the private sector to design and implement PPPs. In the same vein, public officials tend to be uneasy about for-profit companies and are unwilling to commit fully to any partnerships with business.

To address this, the researchers recommended advanced skills training programs for government employees, with a focus on critical thinking and negotiation skills, so that China and India can reap the maximum benefit from PPPs in their countries.

Another major challenge in optimising these partnerships is what the researchers deemed an “innovation gap”. In developing and transitioning economies, PPPs rarely incorporate new technologies and innovations to deal with the specific social or economic challenges they are meant to address. Instead, many governments tend to view PPPs merely as financial instruments that support traditional solutions to contemporary challenges.

But well-designed PPPs that embrace technology and secure full public buy-in can be transformative. For example, China’s population is rapidly aging and its traditional infrastructure to meet senior medical needs is limited. New PPPs could fill that gap by providing home-based medical care that incorporates innovative technological solutions. This treatment would also better align with Chinese culture, which shies away from institutionalised senior care.

PPPs have demonstrated immense potential in tackling some of the world’s toughest challenges and they continue to fuel progress here in the EU. But the Hopkins study highlights the gap that remains between business and government in many parts of the world. Indeed, we face similar obstacles here in Europe and would do well to heed these lessons as it can work not only to bring business and government together behind cybersecurity for a safer, more secure EU, but also to lead Europe’s international development partnerships into 2016.

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