Public-private partnerships (PPPs) have become popular globally because they allow governments to achieve development goals without investing scarce public resources at the outset. According to the World Bank, PPPs contribute 15-20 percent of all infrastructural development in over 134 developing countries in the world.
Universal healthcare is one of the pillars of a strong society. And yet, many countries in Sub-Saharan Africa, including Kenya, are struggling under the weight of an overburdened healthcare system. Limited public resources to improve healthcare infrastructure create a gap that private providers can adequately fill for symbiotic good. This is the backdrop against which public-private partnerships for the healthcare sector have developed.
Even before delving into the PPP framework for healthcare development, it is helpful to understand what PPPs are and their benefits for the stakeholders. Keep reading to learn more.
What Is A Public-Private Partnership (PPP)?
There isn’t just one definition of a public-private partnership. The World Health Organization (WHO) defines PPP as a long-term contract between a government entity and a private organization to provide a public service or asset, where the private organization bears considerable risk and management responsibility and payments are linked to performance (paraphrased).
A PPP merges the resources and expertise of both bodies to provide mutually-beneficial pubic services or infrastructure. Most often, the public entity will engage a private company to build an asset or supply products/services. In turn, the private company owns and manages the asset/service for a predefined period until they recover their investment and returns based on the PPP agreement.
The public entity does not manage the asset/service directly, but it oversees operations to preserve the public interest (governance and oversight). In Kenya, a ready illustration of the PPP model is the construction of the Nairobi Expressway. The China Roads and Bridges Corporation (CRBC), a private entity, invests its financial and technical resources to build an expressway on behalf of the national government. In turn, CRBC will manage the Expressway and collect road tolls for 30 years to recoup their investment.
Government entities and private companies have awakened to the gains of sharing resources towards a common goal. Therefore, the scope of PPPs continues to widen in developing countries, modelling after successful PPPs in developed nations. It is this growth that led their adoption for healthcare services and systems, although these are still in their infancy in Kenya.
Benefits of PPPs in Developing Countries
The popularity of PPPs is the result of the promise of mutual benefits for both parties. Some of these include:
Ready Access to Financing for Capital Projects
Developing countries often find themselves stuck in a vicious cycle – they need to make heavy infrastructural investments to boost their economies. However, they cannot afford these projects without external funding, which gets very expensive. The result of debt funding for infrastructural investments is a huge repayment burden. In future, debt repayment stifles further development by taking up a sizeable chunk of the national budget.
Suppose the government needs to build a hospital. Through debt funding, the government builds this hospital, staffs it, and offers free or heavily subsidized services to citizens. In addition to the operational cost of running the hospital, the government must budget funds to service the debt that facilitated construction. Therefore it takes a while before the government can afford to build the next hospital.
Under a PPP arrangement, a private organization can absorb the initial cost of construction and acquisition of equipment. Private entities typically access private capital for such projects. The government (national or local) seconds and pays staff to run the hospital, and it oversees operations to protect the interests of the population. The private entity takes over the day-to-day administration of the facility until they recover their investment.
Access to Better Technology and Skillsets
Private entities, in the quest for profit maximization, typically heavily towards research, development, and innovation. They benefit first from emerging technologies, to which governments often have limited access. Private entities also recruit and retain the best talent with specialized skillsets.
Through PPPs, governments can avail themselves of the skillsets and technologies already in the purview of private entities. Through these technologies, they can minimize cost, build more advanced assets, and provide better and more efficient services to citizens. The PPP creates a synergistic model where citizens benefit from the latest advancements, which may not have happened had the government undertaken the projects themselves.
Risk Reduction and Transfer
PPPs thrive because they create a sweet spot that balances risk and cost for a public entity and risk and reward for a private entity. The public entity does not bear the innate risk of ownership of the physical asset; the private entity bears this risk. This transfer of risk offsets the high cost of private finance, which increases the financial sense behind PPP investments.
A good example of how the PPP model works comes from the education sector. In most governments, the education sector is the largest land owner and controls the largest number of buildings. This alone creates a lot of bureaucracy and their management uses up a significant chuck of government resources. These resources can be freed by transferring operation and maintenance to the private sector.
Investment and Development for the Private Sector
Outside of government infrastructure, few private organizations would have an opportunity to undertake large-scale infrastructure projects. Projects of such magnitude help private companies to broaden their knowledge, skills, and capability, and later plough back the gains to future endeavours, both private and public. Well-executed, these projects provide lasting and significant monetary and non-monetary rewards for both parties.
Final Thoughts: Collaboration is the Future of Development
Public-private partnerships can be applied to almost every sector of government – healthcare, education, infrastructure and development, and even prison systems. The citizenry benefits from well-maintained and well-run assets and institutions at subsidized costs. The government entity meets development goals to better the economy and livelihoods of its citizens, while the private entity recovers its investment with handsome profits and experience.
In its purest form, the PPP serves the collective interest of all parties involved.