19 March, 2003
Public-Private Partnerships for Development

Jorge Braga de Macedo,

José Braz

and

Francisco Mantero

Note: This was presented at a seminar at the Macau International Institute, China on March 10 and 11, 2003. Earlier versions were presented at the I Business Forum of the Community of Portuguese Speaking Countries (CPLP) held in Lisbon by ELO - Portuguese association for economic development and cooperation in June 2002, at a conference in Luanda organised by the Portuguese Embassy on the theme "Development in Portuguese" in September and at a PPP seminar in Maputo promoted by the OECD Development Centre (DEV) in October. The support of DEV and of the Centre for Social Economics of the Institute of Tropical Research in Lisbon (CSE/IICT) is gratefully acknowledged. While the three authors are jointly responsible for the text, Section III draws on research by the first author carried out at DEV and the proposals in section V were prepared in the context of a consulting arrangement of the second author with DEV.

I. Introduction: partnership and good governance

Economic growth has been predicated on the process of economic reform that has been going on in developing countries alongside the emergence of a global economy. The prerequisite of institutional change revealed by such a reform process confirms the importance of good corporate, public and political governance, that is to say of a positive interaction between globalisation and governance (G&G).

Public-private partnerships (PPPs) reflect the quest for a positive interaction between G&G, which in turn insures that policies at the national, regional and global levels are capable of promoting the common good. The use of PPPs in promoting dialogue and reconciling seemingly divergent interests between the public sector and the private business sector is amply illustrated in the literature. The present note proposes that the underlying principles of PPPs be applied also to other areas in which all parties can gain from a concerted approach that openly discusses what the interests of various stakeholders are and where a solution is sought that best satisfies most interested parties.

The new paradigm for global development, based on good governance at the corporate and political level is introduced in section II, the promotion of PPPs being designed to sustain structural reforms in countries with very different economic and political cultures is one signal of positive G&G interaction. The fact that most Asian countries were able to substantially raise the standard of living of their population since 1950, unlike Africa and Latin America, is briefly documented in section III.

 In section IV, the promotion of the common good is presented from a Lusophone perspective – that of the community of Portuguese-speaking countries (CPLP). Section V focuses yet further on Timor Leste, the eighth Member State of CPLP, and the only one located in Asia. The conclusion proposes the use of Macau as the natural meeting place between China and the Lusophone community.
 
 

II. The new paradigm for global development

With globalisation, the stability, growth, and proper functioning of the developing economies increasingly impacts on the economies of the more developed countries. Developed countries thus stand to gain from contributing, bilaterally and multilaterally, to policies that turn developing countries into more open economies, better integrated in the world economy.

Globalisation can only bring lasting benefits if the governance response is appropriate. In particular, there must be trust between local and foreign partners. This trust is even more crucial in developing countries, where the population often is in a situation of absolute poverty and dependence on external assistance. Even in the absence of armed conflict in the country or surrounding region, trust between all the partners and entities that finance development must rest on policies that assure poverty eradication, sustained economic growth and sustainable development.

Trust between social and economic partners, an environment favourable to business development, and better co-ordination between development finance institutions are all positive governance responses. As such, they contribute favourably to the realization of the poverty eradication objectives of the Millennium Declaration, adopted by the United Nations along lines originally set out by the Development Assistance Committee of the OECD.

These objectives were translated into national and global policy proposals in the Monterrey Declaration, adopted at the International Conference on Financing for Development, promoted by the United Nations and held in Monterrey, Mexico, in March 2002. The declaration stressed the eighth internationally agreed goal: to develop a global partnership for development with targets for aid, trade and debt relief.

The Monterrey Declaration recognizes PPPs as an important instrument in creating an environment favourable to the normal functioning of business and the attraction of investment, an essential element in generating employment and creating wealth. To the extent that they broaden the knowledge base for policy dialogue between business and the public sector (points 24 and 25 of the Monterrey Declaration), PPPs help to define the common good and the best ways to bring it about in each country.

The longer-term objective of PPPs is to improve the environment for the domestic private sector and to build confidence and trust between all partners and the providers of finance for development. Broadly speaking, the PPP concept is applicable to a wide range of countries wishing to respond to the challenges of good governance and to develop the private sector. The commitment to PPPs varies from country to country, and experience has shown that the transition tends to be rather slow from the usual adversarial relation between the public and private sectors to the desired partnership relationship in search of the common good and the best forms of attaining it.

The social dialogue in the framework of correctly implemented PPPs has proven to be a successful investment in the progressive building of trust relationships between agents of the public and private sectors. For this to occur, the data and information that serves as a basis for such dialogue should be locally developed and not provided by external sources, so that the local public and private sectors can feel a sense of "ownership" of the information they use in their deliberations and decisions. The advantages of "ownership" do not override the need for the policies to have technical and economic merit. Only in this way will developing economies be able to attract the external public and private, bilateral and multilateral, resources that are indispensable for the local effort to be successful.

In general terms, PPPs aim to provide benefits at two levels – outputs and processes. Outputs may include a database of relevant economic and social indicators, regularly updated, or a composite indicator of economic activity that all economic agents may utilise as a common summary of the various indicators available. The aim is to facilitate dialogue between national agents and to provide locally produced economic information to foreign investors and other partners. In a subsequent phase, the output may include a model of the economy, useful for analysing new data as it becomes available and to make predictions of key economic variables. In terms of processes, it is expected that PPPs will lead to a closer and more effective communication between the public and private sectors. Experience shows that by participating jointly in working groups, seminars and conferences organised to discuss matters of common interest, both sectors gain a better appreciation of the concerns and interests of the other part. Over time, the initial defensive and adversarial positions give way to a partnership between different agents concerned with achieving a common objective.

This broadening of the knowledge base will in turn promote the adaptive capacity of society as a whole, a key to fast growth. The success of any PPP will naturally depend on the preparation and motivation of each party. The better organised and prepared is the private sector, the more easily it can take coherent positions and contribute positively to discussions and to decision taking. Similarly, a local private sector that is well-organised and technically competent can more easily be an effective partner to foreign investors, avoiding foreign capture of all good investment opportunities. The provision of technical assistance in the context of a PPP can thus help private sector associations to mature or, at very least, to point out the major shortcomings and indicate where assistance could most profitably be applied

In this regard, the new development paradigm (also referred to as the "Monterrey consensus", as opposed to the previous paradigm, known as the "Washington consensus"), proposes policies to facilitate the integration of the developing economies in the world economic system, with the objective of eradicating poverty.

The new development paradigm thus introduces a positive interaction between G&G, in terms of which the national common good meshes with the global common good, to ensure that all players involved, both national and external, are working in harmony to achieve a common goal. The results of this positive interaction between G&G need to be evaluated case by case. Such evaluation requires multilateral supervision mechanisms that in the "Washington consensus" were reserved almost exclusively to the IMF and the World Bank. The multilateral surveillance conducted by the OECD for its members, not all of which are developed, tends to be structural in nature, without any effort being made to apply it in a regional context (with the possible exception of the European Union).

Both the European Union (particularly the Euro zone) and the OECD, however, have shown that regional and global multilateral surveillance can mutually strengthen each other. Moreover, there are synergies between macroeconomic and structural surveillance that became evident during the financial crises that affected several emerging economies during the second half of the nineties.

This complementarity principle – at the core of the New Partnership for African Development (NEPAD) and other regional schemes in Asia and Latin America – illustrates well the difference between the "Washington consensus" and the "Monterrey consensus". NEPAD, in particular, was proposed by five African chiefs of state in October 2001 and is closely associated with the newly created African Union, intended to carry out voluntary multilateral surveillance between all African countries, with emphasis on economic and political governance and on the contribution of the private sector, namely through PPPs.

The same approach underlies the joint project of the African Development Bank and the OECD Development Centre (DEV), which has led to the publication of the African Economic Outlook (AEO) report in 2002 and 2003. The second AEO report was presented at the Economic Commission for Africa on February 27, 2003 and at the Business Council Europe Africa Mediterranean meeting in Paris on March 4. The AEO report includes comparable country notes for 22 African countries, which can serve as inputs to the African Peer Review Mechanism being designed by the NEPAD Secretariat, the Economic Commission for Africa, the African Development Bank and other institutions.

In practice, how can the new development paradigm be applied? There is no single answer to this question applicable to all countries but elements can be found in the experiences of lusophone countries, including some just emerging from armed conflict, that have moved in the direction of promoting the national common good.

III. Evidence of Eastern convergence and Southern divergence

That developed countries stand to gain from contributing to policies aimed at turning developing countries into better-integrated economies has been evident in Asia's overtaking the ratio to world income per capita it recorded in 1820. The annex table presents estimates of gross domestic product per head of population in a common purchasing power unit (1990 international dollars) in reference years and the extrapolation of trends in the last decade until 2015. These calculations are based on data assembled by Angus Maddison at DEV (The world economy: a millennial perspective, 2001 and "The West and the Rest in the international economic order", Development is Back, 2002, chapter 2).

According to these estimates, the growth process has been most rapid in Western Europe, its offshoots in Australasia and North America and Japan ("the West"). By 1820, per capita income in the rest of the world ("the Rest") was 51% that of the West, in 1913 23% and in 1950 19%. In 2001 it fell further to 15% but it is forecast to reach 17% in 2015 (this is depicted in the first chart in the annex).

The catching up of the Rest is in fact due to Asia (excluding the former USSR and Japan). The annex table contrasts Maddison's dichotomy of West and Rest with a three-way division between the West including Eastern Europe, the East including the former USSR and Japan and the South (Latin America and Africa). Using this classification, the second table in the annex shows the dramatic divergence of the South, falling from 78% of world income per head in 1950 to 30% in 2001 and the expectation of a further decline in 2015, threatening the attainment of the Millennium Development Goals (as evidenced in the AEO report 2003).

In contrast, the convergence of the East from 45% to 66% between 1950 and 2001 is expected to reach 75% in 2015, still below the 88% recorded in 1820. Besides rising per capita incomes, there has been a substantial reduction in poverty in China and India. In the case of China this has led to some forecasts of a GDP in 1990 international dollars equal to that of the US by 2015. At current exchange rates, the ratio would remain about a quarter, which underlines the difficulty in finding the appropriate valuation for explaining why some countries are so poor. In the case of China there is also great uncertainty about reported rates of growth, which suggests an enduring "Chinese enigma" (Olivier Giscard d’ Estaing, La mondialisation et la Chine, Paris: Fondation Singer Polignac, 2002)

For sure, differences in capital per worker cannot explain differences in output per worker, even after correcting for human capital (e.g. Daniel Cohen, "Growth in theory and practice", Development is Back, op. cit. Chapter 3). The strength of the resistance to the adoption of new technologies, which depends upon institutions and policy arrangements, is the key to differences in output per worker between rich and poor countries. These can be explained by differences in human capital stocks, differences in physical capital stocks, and differences in total factor productivity, each one of which having equal weight. When the capital share is assumed to be constant and equal to 1/3 (a standard assumption in growth accounting), output per worker in developing countries is only one quarter of that in developed countries even though the difference for each one of the three factors mentioned above is 1/3.

China in 950-1250 and Western Europe in 1450-1750 experienced a technology boom and China’s GDP per capita rose from $450 in the first millennium to $600 until 1820. On the contrary, in Western Europe, growth in GDP per capita was sustained from $400 in 1000 to about $1200 in 1820.

IV. Fostering the common good in Lusophone countries

Portugal and Brazil, the two more developed members of the Community of Portuguese-speaking Countries (CPLP), stand to gain from contributing to the integration of the other six members of the CPLP (Angola, Cabo Verde, Guiné-Bissau, Mozambique, SãoTomé e Príncipe, and Timor Leste) in the world economic system. Indeed, the vision of a Lusophone common good underpins the Lusophone activities (relating to Cabo Verde, Mozambique and Timor-Leste) of DEV's work programme on G&G.

In founding the CPLP, member countries recognised the importance of business co-operation and relations between social partners and civil society to attain the objectives of the new multilateral organisation. In accordance with a decision taken at the CPLP Summit in Maputo in July 2000, the first CPLP Business Forum was held in Lisbon in June 2002 and included government and business representatives of the various member states as well as from multilateral organisations. The Forum recommended that Finance and Economy ministers of the CPLP countries meet during the annual meetings of the IMF and World Bank.

The Forum also decided to set up a CPLP Business Council, with a permanent secretariat at ELO (the Portuguese Association for Economic Development and Cooperation) in Lisbon, and with the following objectives: (i) to enhance capacity building of business associations in member countries as well as to promote cooperation between them; (ii) to create a business network in the regions where Lusophone enterprises operate; (iii) to encourage strategic partnerships; (iv) to promote innovative financing methods, and (v) to support local private sectors in the public-private dialogue.

At the Brasilia Summit in July 2002, the Council of Ministers took note of the presentation made by the president of ELO regarding the work under way to create a CPLP Business Council. It is expected that the Business Council will become operational at the time of the II CPLP Business Forum, to be held in Brazil in June 2003.

DEV’s Cabo Verde project dealt with the reform of public administration and the fight against corruption. From the political, economic and social perspectives, Cabo Verde has registered remarkable performances. In a region where democracies have revealed themselves to be fragile or short-lived, Cabo Verde has maintained a democratic regime since the eighties. Despite its paucity in resources, the country’s levels of education and health services, and general security, are among the highest in Africa and the use that is made of external assistance and of private remittances has impressed donors.

However, the private sector in Cabo Verde continues to have a reduced weight and consists of micro and small enterprises with low job-creating capacity, providing a narrow tax base. The project concludes with the suggestion of establishing partnerships between national and local government, the private sector and civil society, namely associations of emigrants, aimed at promoting the creation of new enterprises and employment. This PPP could try to exploit Cabo Verde’s strategic geographic position between the African, European and American continents in attracting other investment, which also should be of interest to the Cabo Verde diaspora world-wide.

The Mozambique PPP culminated in the Maputo Seminar of October 2002, where the newly developed ICAE (composite indicator of economic activity in Mozambique) was presented, together with the Mozambique country note of the first AEO report. The main conclusions of the seminar were that a PPP should be institutionalised in Mozambique. In this way, social dialogue would be based on a deeper and broader knowledge of the economy and might help to improve the competitiveness of the private sector and the living conditions of the population.

For that purpose it was considered important to secure: (i) a good flow of information between the private and public sectors, (ii) a mechanism for policy coherence and transparency and (iii) a regular assessment of the public-private sector dialogue. Thus, transferring progressively projects such as the AEO to African economists through setting up a network of specialists and promoting suitable training programmes would foster the capacity of African institutions. The AEO also supplies information on the success of the initiative in reducing poverty in highly indebted poor countries and on the initial progress of the NEPAD.

The Maputo seminar also reviewed specific sectoral examples of the Mozambique economy and innovative financing methods – another priority of the Monterrey conference – based on the experience of loan schemes used in reactivating and stimulating the rural economy and micro, small and medium enterprises. When the second AEO report was presented, reference was made to the ICAE, as an example of a PPP that worked well in Mozambique and may soon be applied elsewhere in Africa (e.g. Democratic Republic of Congo and Angola).

Three applications of PPPs were proposed to DEV's lusophone programme in late 2002, with relevance for the case of Timor Leste. One was a "traditional" PPP to promote business development, another pertained to energy resource management and the third to the complex issue of reintroducing Portuguese as an official language. In all three cases, local stakeholders should be the prime players but external technical and financial assistance can play a crucial facilitating role. The next section presents a brief overview of the second and third applications.

V. Public-private partnerships in Timor Leste

Timor Leste, the first new nation of the twenty-first century, is a young country facing many of the most challenging problems of underdevelopment – illiteracy, malnutrition, low skills base and high unemployment. It also is on the threshold of facing the potential pitfalls of being a relatively large-scale exporter of oil and gas. Finally independent after centuries of colonialism and decades of occupation, the country’s public and private managers lack experience and skills. These daunting problems are exacerbated by the nation’s decision to re-introduce Portuguese as the official language, even though only a small percentage of the population (and virtually no under-30’s) has any fluency in that language.

Timor Leste provides an example of how a common objective of post-conflict reconstruction, political independence and social and economic development can lead different political parties and Timorese groups with a history of bloody conflict to work together within democratic institutions. In the economic sphere, a common historical and cultural identity allowed the new nation to dispense with the habitual trappings of independence, such as nationalised enterprises and its own currency, permitting it to opt for policies of greater economic efficiency and stability.

Initial conditions in Timor Leste are particularly favourable for PPPs to contribute strongly to the country’s economic and social progress. After centuries of colonialism and decades of foreign occupation, during which all positions of responsibility or of higher remuneration were held by expatriates, who have since left, the public and private sectors both face enormous shortages of technical and administrative skills. At the same time, the substantial offshore oil reserves present a potential source of own financing for development as well as being a crucial national asset requiring good management. It would be difficult to find a more convincing example of where the national common good demands an effective partnership between all sectors of society, to overcome the enormous difficulties and benefit from the substantial opportunities that are present.

A PPP in the area of energy resource management might involve a dialogue between official entities (presidency, parliament, ministries) and civil society on ways to promote community participation and transparency in decision-making regarding the utilisation of revenues from oil and gas. Donor countries with relevant experience could explain how their system work (or do not) and international agencies active in fighting corruption could provide their expertise. The objective would be to have an ample discussion focussed on ways to ensure good governance of a critical resource, with important decisions having to be taken by parliament, in a framework that ensures transparency of decision-making and full accountability.

When the colonial period came to an end in 1975, the language of education and administration in Timor Leste was Portuguese, even though the home language for the vast majority of the population was Tetum or another of the many local languages. (Tetum has incorporated many Portuguese words but someone fluent in Tetum is not automatically conversant in Portuguese). The subsequent Indonesian occupation changed the official language to Bahasa, a situation that prevailed for 24 years, while Portuguese continued to be the language of the local resistance movement and of the sizeable diaspora.

By the time of independence, almost all the people in Timor Leste with some formal education had been taught in Bahasa, with the proportion that speaks Portuguese estimated at about 5%. The political elite, however, consisted mainly of resistance veterans and members of the diaspora, to whom the choice of Portuguese as an official language seemed quite natural – it had strong historical arguments and was a form of asserting the new nation’s independence from its erstwhile occupier. The alternative of adopting English, favoured by the transitional administration and many international agencies even though less than 2% of the population speaks English, was not politically acceptable as that was the language of the other large neighbour (and perceived threat), Australia.

Since the language issue affects virtually all participants in public debate, a high level of interested participation is assured at the outset. A PPP on this issue would involve a dialogue between public entities (law-makers, education ministry) and civil society (students, Church, NGOs) on issues relating to official and working languages for the new nation. An important segment of this dialogue would involve the education authorities and local communities and their primary school teachers, to decide on the pace at which the chosen language should be introduced. Once this has been decided, a methodical program of teacher training needs to be put in place, with incentives for the teachers to reach defined levels of proficiency within pre-established time periods and penalties for those that fail to do so.

Donor countries (namely Portugal and other lusophone nations, if Portuguese is confirmed as the choice) can provide materials and personnel to train the local teachers. Teaching materials should be developed specially for the local environment, using examples that are meaningful, instead of importing schoolbooks with examples and names that are totally foreign to local students. The program to teach Portuguese in the Angolan hinterland in the early sixties was highly successful and could provide many specific examples relevant to the current situation in Timor Leste.

VI. Conclusion: the role of Macau

Macau is the obvious meeting place for the Lusophone community and China. According to news reports (Lisbon’s "Expresso", December 2002), president Jiang Zemin confirmed to the head of government of Macau, Mr Edmond Ho, that the Chinese government supports the approximation between Macau and the Lusophone countries. During his visit to Beijing, Mr Ho reportedly also met with future President Hu Jintao.

The discussions in Peking gave the go-ahead for the project of creating a forum of businessmen from China and the Lusophone countries, with the initial meeting of the forum to take place in Macau in September 2003.

China has confirmed that all the Lusophone countries have already accepted the invitation. The forum will meet annually and aims to strengthen China’s cooperation with the CPLP countries, using Macau as the natural link. By adding China’s input, this link would contribute to reinforce the Lusophone common good, along the lines we described in this note.
                 
GDP/POP ($90) 0 1000 1500 1820 1913 1950 2001 2015
westeur 451 400 774 1232 3473 4595 19197 24227
easteeur 400 400 459 635 1528 2119 5876 8883
westset 400 400 400 1202 5257 9287 27892 36401
west 453 400 702 1110 3570 5668 20716 27219
                 
latam 393 400 416 665 1512 2555 2539 3016
africa 424 415 400 418 585 1000 1411 1620
south 416 411 405 473 948 1654 1856 2135
                 
japan 400 427 500 668 1389 1927 20756 23468
soviet u 400 400 500 688 1488 2834 4631 6451
asia-jap 450 450 572 575 640 1000 3219 5487
east 448 447 565 587 791 958 3886 6046
                 
world 445 435 564 667 1510 2114 6043 8100
west (mad) 444 406 704 1130 3688 5663 22832 29156