Mon | Jan 18, 2021

Ayanna Campbell | Private financing – A tool for infrastructure development

Published:Friday | December 4, 2020 | 12:10 AMAyanna Campbell/Guest Columnist

Investment in infrastructure such as water supply, hospitals, electricity generation, roads, airports and ports is a very important element of a country’s economic growth programme. Research has shown that sustainable infrastructure directly supports economic activity, creates jobs, and helps to eradicate poverty by improving the welfare of citizens.

Although many countries have recognised the importance of infrastructure development, developing countries, in particular, have found it difficult to finance these projects on their own because of fiscal constraints. Therefore, private financing, through public-private partnerships (PPPs), has become an important tool to fill this gap. Private financing comes in two forms, debt (loans) and equity (ownership in a company) from the private sector.

A Host of Benefits

The involvement of the private sector in the provision of infrastructure in Jamaica has a host of benefits. First, it provides an opportunity for different players to compete to implement the project and this encourages innovation, drives value for the Government, and results in improved quality of services to Jamaicans. Additionally, the private sector is often better able to deliver projects on time, within budget and more efficiently over the duration of the agreement.

However, it is important to note that when public infrastructure is financed and operated by the private sector, ownership is retained by the Government and regulation becomes an important element of that arrangement to ensure that the public interest is protected. For example, under the public-private partnership transactions involving Jamaica’s major airports, the Airports Authority of Jamaica monitors the private operator’s performance against the contract and the regulator, Jamaica Civil Aviation Authority, continues to regulate tariffs (fees charged to the users) and compliance with safety rules.

The Government of Jamaica (GOJ) has taken several steps to facilitate private-sector investments in infrastructure. Among them are the establishment of a robust and internationally recognised Public-Private Partnership and Privatisation Programme managed by the Development Bank of Jamaica (DBJ); and a supporting policy and institutional framework to identify, properly develop, implement and monitor infrastructure projects involving the private sector. As well, the recent liberalisation of pension investments regulations allows pension funds and retirement schemes to invest up to five per cent of their assets in the equity of private companies. As such, private companies investing in infrastructure projects may be able to obtain financing from Jamaican pension funds. In fact, in recent times, there has been increased participation by local financiers in infrastructure development projects.

Since 2009, the GOJ, through PPP arrangements, has improved road networks to reduce travelling times and improve intra-island logistics, and expanded and upgraded airports and seaports to improve global connectivity and facilitate increased trade. The GOJ has also facilitated private investments in infrastructure assets via the Jamaica Stock Exchange. Two recent transactions were Wigton Windfarm Limited and TransJamaican Highway listings, which gave Jamaicans, pension funds and equity funds the opportunity to participate in infrastructure development. The DBJ is currently assessing and developing several opportunities in the health, water, energy, housing and education sectors, and looks forward to the continued partnership with the private sector and all Jamaicans in the pursuit of creating world-class infrastructure for Jamaica.

Ayanna Campbell is manager of the Public-Private Partnership & Privatisation Division, Development Bank of Jamaica.