Why the IFC is upbeat about PPPs in Latin America and the Caribbean

The International Finance Corporation (IFC), a member of the World Bank Group, sees potential for more public-private partnerships (PPPs) in Latin America and the Caribbean.

Private sector participation has become more accepted as citizen demands are rising.

Emmanuel Nyirinkindi, the IFC's vice president of cross-cutting solutions, responsible for overseeing services globally, including PPP and corporate finance, talks with BNamericas about the institution's initiatives and the broader scenario.

BNamericas: What are the IFC’s main initiatives to support PPPs in Latin America and the Caribbean?

Nyirinkindi: We are the part of the World Bank Group that supports the private sector. We can do that through our own lending, but also through advisory.

Our team that works with PPPs essentially advises governments. We have a group that also [offers] corporate financial services advisory. But on the PPP advisory side, essentially, we work with governments to help them meet their ambition regarding their infrastructure development programs.

Typically, governments are looking for [an answer to] ‘How can I bring in the private sector so they can provide financing, bring innovation, efficiency, they can lower costs, help deal with the fiscal side [and] enable me to provide the resources for the other parts that don't lend themselves to private sector financing?’

The whole concept of private capital mobilization is why the governments want to do it. They can get capital inside; they can get capital outside and then they're the ones who get to choose which pieces to bring to which sector, whether it's going to be urban, rural, it's going to be water, it's going to be telecoms. That's the overall framework.

If I look at Latin America, where we operate, we have a strong track record.

Actually, our group within the IFC started in the 1980s working in countries like Mexico and Argentina when they were going through a crisis.

Over the years, we've been very involved in supporting the big transitions, particularly energy, renewable energy, based on the climate agenda and transportation.

We have an extensive program… right now in Brazil. We are at the federal level, we are in states, and we are at the municipal level.

We advise across the spectrum of infrastructure, transportation, mainly in Brazil, across roads, highways. We are also engaged in metro services, urban transportation. In addition, we act in social infrastructure, mainly buildings that house students, healthcare.

In other countries in Latin America, it is very similar; in countries like Jamaica, Colombia, Mexico. Telecoms would be the other sector that comes to mind. But Brazil is the [IFC’s biggest PPP] program.

BNamericas: Which problems do PPP contract face? Where are the opportunities?

Nyirinkindi: In Latin America, there's huge momentum for development but also through the private sector.

Infrastructure development is on everybody's mind because it opens up the economy, it makes countries more competitive. It allows new and good jobs, it's great for economic development, infrastructure development.

The region is well endowed with resources, agricultural ones, minerals.

In a country like Brazil that throughout history has been very good at opening up in sectors like mining as well as agribusiness, there is a huge and increasing commitment to doing that, in addition, bringing in the private sector; and then bringing the private sector into social infrastructure.

In terms of the challenges… I would say productivity challenges, taxation tends to be on the high side in the region. In addition, I would say the cost of capital is higher than what one would want for this region.

Industrial policy is a little weaker than it could be and social inclusion. I think these are the big issues that we see at a macro level that, as part of the World Bank Group, we want to really work on with companies to help them.

Now, looking at infrastructure, I think the big story, particularly if we look at a country like Brazil, [is that] we've been able to attract a lot of capital or transactions.

We see a strong private sector in the country, a good track record and good resilience of the economy, strong regulation. This is what's going right.

When I was talking to other financiers [in Brazil last year], they were [talking about] the scale of what Brazil wants to achieve through the private sector, in addition to the public sector. This is so massive today when you look at needs, so it is necessary [to have] more companies, more players, more operators who bring capital.

It would be good to get other players because then they can associate.

So that piece of bringing more equity players, more operators, not only brings that economic capital, through equity that you can leverage, but it also brings competitiveness for opportunities, which, as we've seen in many of these transactions, is very beneficial for the government. It's good for public acceptability.

BNamericas: What other aspects do you see in the region?

Nyirinkindi: I think that the other challenge is about creating more innovative instruments. So we need more capital, we need more private sector capital, but actually we need these instruments. So there will be debentures, incentive financing.

Another aspect that quite positively surprised and pleased me, was the recognition that 20, 30 years ago, the questions were: ‘Should we bring in the private sector and where? And should we even allow it in infrastructure?’ Certain infrastructure, like roads, was price sensitive.

I think that debate is over in many countries. But this question of sustainability and inclusion, for me, was really powerful to hear from the private sector, from operators, from financiers. They say we need to really work on environmental and social standards.

BNamericas: How are PPPs being perceived by the public in Latin America, and how does that perception differ from other regions?

Nyirinkindi: It's really been a transition and I've been in this field for a long time.

Back in the early 1990s, the big concern was bringing in the private sector, particularly into infrastructure. Then, when you looked at infrastructure, it should be public. Why? Because the public protects us, and then it's affordable, and it was really difficult for sectors like transportation and water.

So we saw a lot of transition in energy, and we saw even some reversals. What we have seen across the board now in Latin America is this recognition that development is not for one or the other. There's a space for both, and a need for both – this concept of a partnership.

You’ll bring in the public, you’ll bring in the private sector, and we'll see it really has a lot of traction across Latin America. So we see it in countries such as Brazil, most obviously, because you see the size of the program.

Brazil is one of the largest countries in the world, I think it's the second largest in the world that is actively doing PPPs, across federal, state, and municipal levels and you see it is also quite active in Latin America and the pace is picking up. We see that in Colombia in particular.

We will see it in countries like Peru. We will see it in countries like Jamaica, where we have been very actively involved as an adviser.

[Countries in the region] are starting to do huge programs because they feel traction. You get the word out that the country is open for business.

BNamericas: Which are the sectors with more PPPs and where is room to expand?

Nyirinkindi: I would say the core infrastructure would be transportation. This is really where we see lots of traction.

If I look at Brazil and I see roads such as Nova Raposo and Rota Sorocabana, the roads program in Paraná state, the impact is massive in terms of billions of dollars that you can bring into the economy and number of jobs.

We are currently [advising on] Panama’s road program. We also see Jamaica quite advanced; they want to implement a system of roads. We see metro and urban transportation quite big.

When we look at social infrastructure, we see a lot of health or education infrastructure being built.

The other one that I would mention is water and sewage services, along with energy.

The question with renewables is if we can do them at scale and affordability. So that's coming up and then it takes different formats. For example, we're helping Barbados with a wind energy project.

Also, energy transmission. We're seeing quite a lot of appetite to do things with transmission.

BNamericas: In which countries in the region will the IFC be more active in the next few years?

Nyirinkindi: Brazil will remain big for us because of our ability to really provide development and mobilize capital, do something in a locality that wants to do it.

The question then is if we do more at the municipal or the state level. So that's the ongoing conversation, and then which sectors.

We are very active in the Caribbean and there, I would mention Jamaica, where we have a massive program. Barbados, Jamaica, these are key to us.

We are also supporting Peru quite a bit, but we are looking at countries that have not done as much before. Ecuador is working on programs and facilities and we are looking at countries like the Dominican Republic.