PPPs are now used in more than 134 developing countries, are on the rise in the aftermath of the 2008 global financial crisis, and have moved from physical infrastructure into the provision of “social infrastructure,” such as schools, hospitals and health services. Much of the PPP growth has been in middle-income countries in Latin America, and the Caribbean, East Asia and Pacific region.
The example of a new public hospital in Lesotho illustrates that the public sector tends to carry all the financial risks of a project, providing cash subsidies or guarantees of payment or revenue – 99% of the money paid to build the new hospital was “public” money – while the financial profits extracted invariably go to the private sector and out of the country.
Raising the finance for infrastructure now involves multiple new institutional actors – from private equity and venture capital funds to hedge funds, private banks and pension funds, each taking fees and profits along the way.
Indeed, for the private sector, “infrastructure” is not so much about bricks and mortar as stable, long-term, contracted cash flow. A PPP project provides this: a stable, guaranteed income stream. Projects are devised to create multiple avenues for a flow of money that is transformed into private profit through loans, derivatives, shares, securitised income streams, and contract sales that anyone can buy and sell. A PPP project enables millions of dollars worth of ancillary trading, mainly for the purpose of hedging risks.
The choice of what infrastructure to build is thus heavily influenced by what serves the long-term profit-making interests of the private sector – and the state or public sector becomes more and more aligned with the interests of infrastructure investors and private companies.
PPPs are not about building and providing public services: they are about constructing the subsidies, fiscal incentives, capital markets, regulatory regimes and other support systems necessary to transform “infrastructure” into an asset class that yields above average returns of 13-25%.
In sum, PPPs are less about financing development (which is at best a sideshow) than about developing finance.