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The Public Private Partnership (PPP) is emerging as their model of choice, allowing government development to be funded and operated through a partnership of government and one or more private sector companies. And it's a model which is granting private sector giants from around the world access to lucrative Arab markets, as well as ensuring that regional governments are increasingly able to offer their citizens the very latest in state-of-the-art infrastructure.
The urgency with which some MENA governments are pursuing ambitious infrastructure development schemes has been exacerbated by the unrest which spread across the region in 2011. And the Arab Spring has not just incentivised Arab governments to fast-track infrastructure development in order to keep their people happy, but it has incentivised them to do so by using mechanisms such as PPP, where financing and payment models are very transparent and are tracked with great precision by lenders to the project.
Tight controls help reduce corruption
In a PPP scheme every last dollar is accounted for and so there is less risk of money being diverted away from the project - or into the pockets of crooked individuals. Using the PPP model, with its checks, balances and globalised procedural standards, indicates to the public that governments are clamping down on corruption or overpayment on large-scale infrastructure projects that otherwise may have been open to abuse.
"For countries in the MENA region that do not have the enormous wealth of some of the Gulf states, adoption of the PPP model has meant that more capital projects can be undertaken for a given level of public expenditure," adds Adrian Creed, Partner at Clyde & Co. "Public service capital projects can be brought on stream earlier, although of course this increased level of activity must, of course, ultimately be paid for by higher public expenditure in the future, as the stream of payments to the private sector grows.
"Other benefits include access to private sector know-how and management, increased visibility and accountability in public procurement, and a transfer to the private sector of all project risks relating to design, construction and operational matters, both cost and performance," he continues. "For the private sector, meanwhile, the main benefit is the smoothing of revenues."
Developers with downtime between major projects are often forced to cut jobs and then re-hire staff, as well as deal with the uncertainty of inconsistent cashflow. The prospect of a 20 or 30-year concession, on the other hand, offers companies present and future security - and it's a prospect which has attracted a host of international firms to the Gulf, particularly in light of the global economic downturn, and the dealflow potential of previously closed markets such as Saudi Arabia.
"We believe that Saudi is most likely the biggest potential market for PPPs over the coming years because it has significant infrastructure demands, a strong credit rating, a successful PPP track record and liquidity in the local banking sector," Creed told AMEInfo.com. "All of these factors are required in order to ensure a healthy PPP deal flow.
"The less wealthy MENA countries outside the Gulf are keen to push forward with their respective PPP programmes but many are currently constrained by political risk issues and lack of banking and financing support for their projects," he adds.
Energy sector embraces PPP model
One sector which has already embraced the PPP
model is that of energy infrastructure.
Staff
