A Toolkit to Build Climate Resilience and Enhance Public-Private Partnerships
Financing infrastructure projects brings about a multiplier effect: every dollar invested generates up to four dollars in return. However, there is a huge gap that can only be bridged by actively engaging private-sector players and providing them with the right tools.
The international community’s efforts to address climate change are commendable but insufficient, and extreme weather continues to have a dramatic impact on communities and economies of Latin America and the Caribbean.
It is estimated that the annual cost to the region, from climate events and natural disasters,was 2% of the region’s GDP over the last two decades, potentially causing an economic decline of up to 16% of its GDP by the end of the century.
To give an economic dimension of this impact, suffice is to say that the recent pandemic had a negative effect of 7% of the GDP (2.8% globally).
As an engine of economic growth, the infrastructure sector is particularly vulnerable to extreme weather events, causing tremendous impacts on all aspects of life.
According to our estimates, Latin America and the Caribbean needs to invest 3.12% of its GDP in the coming years to achieve the Sustainable Development Goals (SDG) and overturn the economic infrastructure deficit, neither considering the increasing social infrastructure requirements nor other investment challenges.
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If countries in the region do not increase their investments in a resilient and strategic manner to develop new projects and maintain their existing infrastructure, they could lose up to 15% of GDP over the next 10 years.
This would also have a major impact on inequality, largely affecting the most vulnerable groups.
In contrast, investing in sustainable infrastructure produces significant positive effects on growth: every dollar invested generates up to four dollars in return. Investors seeking social returns should seize this unprecedented opportunity.
The Public-Private Opportunity
Investing in climate resilient infrastructure that is responsive to extreme weather events is vital and addressing the critical investment needs in a challenging macroeconomic scenario demands efficient, sustainable, and innovative solutions.
For this reason, it is essential to enhance private sector’s participation in closing the sustainable infrastructure gap. According to the recent United Nations Climate Change Conference (COP28), Latin America needs to invest between 3.7 % and 4.9% of regional GDP to meet its climate financing needs.
Against this backdrop and considering projects with proven socioeconomic returns, well-structured Public-Private Partnerships (PPP) become essential to close these gaps sustainably.
During the infrastructure planning phase, innovative contractual agreements can be provided to ensure efficient asset development, operation, and maintenance, as well as a strong focus on providing quality services.
The IDB Group recognizes the need and opportunity to actively support Latin America and the Caribbean in leveraging sustainable infrastructure..
Sustainability is at the center of IDB’s PPP Single Window core activities: from strengthening regulatory, institutional, and planning sustainability frameworks to preparing and structuring sustainable roads, ports, hospitals, parks, public lighting, or treatment plants.
Along these lines, we provided technical assistance to create sustainable PPPs in Jamaica—a critical component for an agreement between the country and the International Monetary Fund based on the Resilience and Sustainability Facility.
Similarly, we updated the PPP sustainability guidelines in Peru, reviewed the concession tender documentation in Chile to identify and address sustainability gaps, and developed a sustainable financing strategy, among other initiatives.
A Regional Toolkit
How can we effectively incorporate all sustainability dimensions in PPP projects? In 2020, IDB’s Public-Private Partnership Single Window and Rebel created a toolbox that would help develop sustainable PPPs in the region. In collaboration with the Development Bank of Jamaica, the initiative was adapted to the Jamaican context.
The regional needs are growing, and so is the demand to offer more sustainable, innovative, and efficient solutions.
That’s why we designed a regionally oriented toolkit that encompasses all the phases of a sustainable infrastructure project, from early project identification, preparation, structuring, and contract management to financing.
From the IDB Group, and through all our windows, we will continue to advance sustainable development in the region. This endeavor couldn’t be more relevant, or the need more urgent. There is no other way out but having the society, and the private and public sectors work hand in hand to face the greatest challenge of our time.
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Authors
Ancor Suárez-Alemán
Economist, PhD., BA., with over 15 years of working experience in the field of infrastructure economics and policy. Public-Private Partnership (PPP) Senior Specialist at the Vice-presidency for Countries at the Inter-American Development Bank Group. Currently leading the infrastructure PPP upstream public-sector support at the IDB, advising 26 Latin America and the Caribbean Governments on upstream (PPP regulatory and institutional framework, infrastructure planning and prioritization, coordination between Public Investment Management and PPP Units, Capacity building); downstream/operations (infrastructure project preparation and structuring, with a focus on port transactions); and infrastructure PPP knowledge development and dissemination activities. Manager of the LAC Regional Network on Analysis and Best Practices on PPPs. IDB Project Manager for the Infrascope development – analysis of the enabling environment for efficient and sustainable PPP in LAC social and economic infrastructure (energy, telecom, transport, social infrastructure, water and sanitation), an IDBG and The Economist Impact joint initiative. In the past, I worked at the Infrastructure and Energy Department at the IDB developing and coordinating key infrastructure knowledge and strategic products related to infrastructure investment, financing, governance, regulation, and performance, among other areas. Before that, I worked at The World Bank in the transport practice, where I developed transport knowledge outcomes such as the first port competitiveness report for the South Asia region. I have advised public and private sectors in Europe, South Asia, and Latin America and the Caribbean. Prior to my career in Washington D.C. (USA), I contributed to various European Cooperation in Science and Technology projects on business models for enhancing funding and enabling financing of infrastructure projects, as well as national and regional infrastructure investment projects. I completed my PhD focusing on Port Competitiveness and the European Maritime Transport Policy. I have authored and coordinated general and sector studies, and published over more than 100 works on infrastructure economics, policy, investment and financing, and PPP in various journals and other specialized publications.
Enrique Domínguez
Economist, MSc., BA., with over 19 years of experience in applied economics, infrastructure and public policy. Public-Private Partnership (PPP) and Fiscal Specialist at the Vice-presidency for Countries at the IDB. At the moment, working with multiple governments of the IDB's country members in Latin America and the Caribbean (LAC) on sustainable PPP infrastructure schemes, with focus on gender and vulnerable groups inclusion, project evaluation and prioritization, and impact assessment to identify and foster high-value projects, guaranteeing fiscal sustainability and expanding public-private investment opportunities. In the past, in Mexico, I led the PPP Department at the Water National Commission, worked to efficiently allocate fiscal resources in economic and social infrastructure development (transportation, water and sanitation, energy, health and education) in the Ministry of Finance, and developed significant energy regulations to drive private investments in the sector at the National Hydrocarbons Commission. Recently, I have authored and co-authored publications on PPP prioritization, resilience, fiscal sustainability and inclusion, and worked on several dissemination strategies to foster PPP infrastructure knowledge.
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