Bangladesh hopes to transform into a middle-income country by 2021, driven by infrastructure.
Bangladesh hopes to transform into a middle-income country by 2021. And it expects infrastructure to help drive that transformation. At the center of Bangladesh’s efforts to attract infrastructure investment is the country’s Public-Private Partnership (PPP) Authority led by Syed Uddin. While the unit faces massive challenges, it has also made significant progress.
It is no wonder that Bangladesh is known as one of the ‘Next Eleven’ emerging markets. The country boasts South Asia’s third largest economy and has enjoyed steady economic growth of more than 6 percent since 2011. Bangladesh’s textile industry is booming, representing more than USD25 billion in exports in 2014. And the country is rich in natural gas, coal and hydro-electric potential.
Yet Bangladesh ranks a mere 144th on the Human Development Index. GDP per capita, while up more than 60 percent since 2009, still ranks below that of Myanmar and Yemen. And around a third of the population still lives below the official poverty line of USD2 per day.
According to Syed Afsor H. Uddin, Chief Executive Officer of Bangladesh’s PPP Authority, the government knew it would need to further build on the already good economic growth if it hoped to impact poverty rates and transform the country into a middle-income economy. “Growth had been good up to 2009, averaging over 5.5% the previous decade, but we knew it had to be higher if we wanted to really impact development and there was broad consensus that the only way to achieve that growth was through investment into infrastructure,” noted Mr. Uddin.
With the 6th Five Year Plan (2011-2015) for national development setting a goal of tripling PPP infrastructure investment as a proportion of GDP (rising from 2 percent to 6 percent) by the end of the Plan period, Bangladesh’s government recognized that new sources of funding would need to be found. “For infrastructure development we started by sourcing financing from the various development banks and they remain a key partner in addressing our infrastructure constraints, but it was clear that we needed to attract much more investment if we wanted to achieve our goals,” noted Mr. Uddin.
In response, the government established what was then known as the PPP Office. “At the time, there was no centralized body in Bangladesh to champion the PPP program,” added Mr. Uddin. “We needed an entity that could act as champion, facilitator and regulator by working across both the public and private sectors.”
Bangladesh had some experience with PPPs in the past. However, the national government recognized that a more formal and transparent program meeting international best practices and norms would need to be in place if the country was to attract the scale of national and international investment required to meet the infrastructure gap.
Joining the team as the CEO in 2012, Mr. Uddin was encouraged to start fresh. “When the government set up the PPP Office, they left open the strategy for implementation,” he pointed out. “What they wanted was someone who could come in, define the holistic program for the next decade and then drive the program to success.”
Leadership would be key and Bangladesh’s government was keen to provide the new CEO with the scope to catalyze real change. The PPP Authority was established as an independent body reporting directly to the Prime Minister and supported by a board of governors that includes the Finance Minister and the Principal Secretary to the Prime Minister.
Bangladesh’s PPP Authority works across government departments to help bring alignment between economic, social and development goals. The strategic vision for the country is established through successive Five Year Plans which outline the development and social goals of the nation. Government departments are then tasked with creating programs to help achieve those social and development goals.
“There is certainly a national framework on the basis of which government allocations are divided between the departments in order to help achieve these goals,” explained Mr. Uddin. “But there is flexibility for some investment priorities to take into account current issues that are seen as particularly important to the sitting government or society as a whole.”
Interestingly, Mr. Uddin points to the fact that economic infrastructure forms the bulk of the PPP pipeline as proof that government is taking a more ‘hands-on’ approach to achieving social objectives. “For the most part, social projects, where commercial viability may be more difficult, are being delivered through public finances, which gives the government more control over affordability and ensuring access for all.”
In 2015, Bangladesh passed its first PPP law. Mr. Uddin argues that – while the law could have been passed much sooner – the PPP Authority wanted to take appropriate time to ensure that the law would not only provide a legal framework for PPPs but that it would also be flexible and workable across a variety of sectors and scenarios.
“The big danger of rushing to create a PPP law is that you may suddenly find that – in practice – it is actually unworkable and there have been examples of markets that have had to go back to the drawing board and rewrite their legislation which can take years,” he added. “We wanted to take the time to really test our approach on projects to find where we could adjust and improve before we went to legislation”. In line with this approach, the Bangladesh government first introduced the Policy and Strategy for PPP projects in August 2010, prior to enacting the PPP law in September 2015.
Standing up a new PPP unit in a country like Bangladesh comes with some unique challenges and opportunities. But there are also a number of lessons that can be shared from Bangladesh’s experience. The first is that each market is different and therefore requires a tailored approach to PPP. “You can’t just take another country’s experience and apply it to your own situation; you can take ideas and lessons but you need to recognize the difference – often subtle ones – that make each market unique.”
Mr. Uddin also notes the value of leveraging international experience and trusted advisors to help improve confidence in the process. “You need to think about what type of investor base you are trying to attract and then work to build capability and credibility in those areas,” he added. “We wanted to attract large international investors so we knew we would need to work with large international advisors that could lend another level of credibility to the program.”
Finally, Mr. Uddin advises the need for long term commitment to PPPs and patience. “The reality is that PPPs take time” It can easily take between 5 to 10 years to go from concept to operations, having navigated through feasibility, procurement, negotiation, approval, financial close and construction and during that period there can be major changes in strategy, personnel and policy. “With typical election cycles of around 4-6 years in most countries, this is a challenge faced by both emerging and developed countries. It is in this context that the PPP units can play a critical role in guiding their government towards selection of projects that deliver socio-economic value for the country over the longer term”
Bangladesh’s PPP Authority has made significant progress. When Mr. Uddin joined the PPP Authority in 2012, the group had just three PPP projects in the pipeline. Today, there are 44 projects across 7 major sectors worth an estimated USD14 billion including a USD3 billion expressway project, a new 220-kilometer transport corridor linking the capital Dhaka to the main port at.
Obviously, only time will tell if Bangladesh’ PPP framework and approach will have a significant impact on infrastructure investment and the achievement of social objectives. What is clear is that Mr. Uddin and his team are single-mindedly focused on removing any barriers to investment. We expect private investors to start to take notice.