A. Inaugural Remarks

Dr. Michael Hofman
BMZ
Germany

Ladies and Gentlemen,

I would like to express my pleasure with having the opportunity to open this conference today on the occasion of UNDP's and CDG's first common conference on the subject of Public-Private Partnerships (PPP) for urban infrastructure - a very important subject in our opinion. The main question in this respect is whether PPP is the appropriate approach to solving the problems in the continuously expanding towns of our partners. In the eyes of consumers, the problems manifest themselves in the form of electricity breakdowns, rising mountains of waste, traffic jams, defective water and sewage systems, and overloaded telephone lines.

1. A new emphasis in the field of development cooperation

The subject of PPPs has become an important issue in ongoing discussions among German development policy decision-makers. In September 1999, we agreed to advance a new concept in development cooperation by focusing more on PPPs and taking the appropriate methodological steps to make them an integral component of all branches of bilateral development cooperation.

2. The greatest challenges to humanity can only be overcome together

The enormous challenges facing the world's populations cannot be overcome by governments acting alone. Development policy aimed at improving economic and social conditions in developing countries can only achieve lasting success if the economy becomes a motor for sustainable development in an environment of political stability, and if the economic and technical potential of the private sector is integrated in a constructive way.

Policy makers who are facing this challenge must include "global players" from the financial sector and from society at large - companies, local civic groups, international non-governmental organisations and transnational companies - who can shoulder their share of the responsibility for making our world sustainable. For this reason, we want to work towards the realisation of global sustainability hand-in-hand with our partners under the banner of "development partnerships with entrepreneurs."

3. Growing challenges facing development cooperation

The current scenario that has led to our new policy direction can be summarised as follows: The world faces the challenge of having to secure its own future at the threshold of the next century. The recent financial crises in Asia, Latin America and Russia aggravated social antagonisms and resulted in increased numbers of absolute poor in those countries. Environmental problems lead to migrations from threatened areas that have reached such a scale as to affect life even in remote regions. Political crises and armed conflicts can destroy the fruits of decades of development in many regions. Meanwhile, the proportion of short-term measures of emergency aid to the total volume of development cooperation capital flows has reached an historic high due to acute natural catastrophes and man-made destruction.

4. Acting alone, the State can only offer limited possibilities for overcoming the urban environment and infrastructure challenges

There are high expectations that development policies and public performance can facilitate capital transfer to developing countries and countries in transition to help address these challenges.

Against this background, the worldwide decrease in Official Development Assistance (ODA) is particularly critical. Collective public development assistance provided by all donors amounted to $50 billion in the years 1997 and 1998, which is the lowest in the last 50 years and constitutes only around 0.25% of the gross domestic products (GDP) of industrialised countries today.

5. The preconditions for constructive cooperation through partnerships are good

There is more room for a flexible private sector to maneuver within the economies of our partner countries today than in the past. At the same time, budget shortfalls and growing financial challenges are calling for innovative solutions by the private sector in fields that were hitherto the exclusive domain of governments.

Simultaneously, awareness is growing among companies that global sustainable development is in their best interest. The future of the world economy is shaky without a solution to global problems. Globalisation creates many new links for cooperation between public and private partners.

Furthermore, the volume of world trade has quadrupled during the last two decades, and export proceeds of developing countries now amount to almost $1,500 billion per year. At the same time, direct investments, which are not as affected by crises and do not lead to indebtedness, increased from $25 billion in 1990 to $155 billion in 1998. International production networks and multinational companies have assumed ever more prominent roles in the world economy, as their productivity comprises almost a fifth of the world's combined gross national product. Although globalisation is a tremendous challenge for German companies, it also presents golden opportunities. We therefore recognize the necessity of turning to the emerging markets in developing and newly industrialised countries in order to remain competitive and retain or expand market share.

6. What do we mean by development using Public-Private Partnerships (PPP)?

I would like to demonstrate, with the help of a few concrete examples, what we mean by development using public-private partnerships.

The case of Nigeria presents one such illustrative example. Nigeria's public sector is reaching the point where it is unable to guarantee the safe disposal of household refuse in towns across the country. A private firm with a German manager has expressed its readiness to assume responsibility for waste management in both capital cities of the country. Initiating the new arrangement is proving to be very difficult, however, as the machinery and vehicle fleets taken over by the governments of the Federal States were near ruin and could not be used. The former government employees lacked the necessary training required to run the organisation, maintenance, rubbish collection and waste disposal, as well as the collection of carting and disposal fees. As a result, it was clear that the first step in building up a functional and sustainable recycling company would require hiring an expert with the appropriate level of training and know-how.

Relying on the framework of development cooperation, the CIM found an expert who had been employed by a company and was receiving a local salary. The German Development Corporation is now paying a subsidy through the CIM in order to finance the high salary of expatriates and the costs of transportation. This arrangement represents the first case of a private sector operator assuming responsibility for an entire waste management system in Nigeria and is an excellent model for the privatisation of the recycling industry. The establishment of an efficiently functioning recycling company plays a decisive role in reducing environmental problems in the towns while improving the health conditions for local residents.

This example illustrates several characteristics of the PPP approach:

• The basic condition for successfully combining public and private development contributions is the shared interest of both sides in making sure the project succeeds.
• The state's participation must accompany a specific private and profit-oriented enterprise that is also in the public interest.
• BMZ's contributions must supplement and broaden the performance of the private company, which works towards achieving its own economic self-interest. In this way, BMZ can help to maximize the positive social and ecological effects in the partner country.

Private companies are ready to run projects using their own resources (capital, skilled workers, know-how, and so forth) when the long term economic success of the projects is also in their own self-interests. From the point of view of development cooperation, cooperation with private companies has many advantages. For one, it allows development cooperation efforts to be implemented at favorable costs, efficiently, and with a sustainable effect thanks to the commitments of private companies. The advantage that emerges from this kind of collaboration is far greater than the result of an investment undertaken purely by the public sector or the private company.

7. Is it only theory or is it practical development policy?

Although experience has shown that development processes require considerable time to bear fruit, we have already seen relatively quick and tangible achievements in our PPP efforts, many of which have been able to capture the dynamism of the market economy. The following are a few examples:

• KfW already has more than 30 financial cooperation projects, with a volume of more than 500 Million DM, based on the PPP concept. We anticipate that 1/4 to 1/3 of all new financial cooperation projects will contain a PPP component within two to three years.
• DEG can expect to receive approximately 600 Million DM for its PPP activities;
• DEG has developed 50 to 60 contracted projects as part of the so-called "PPP Facility" initiated in 1999. The facility refers to funds made available by BMZ for PPP measures that will be used in small portions in short periods of time and nationwide.
• GTZ is implementing 40 PPP measures and preparing roughly another 60 projects from its own PPP facility.
• Other implementing organisations like CDG or CIM are running nearly 20 PPP measures, with still others in the pipeline.

These numbers demonstrate a wide range of PPP measures of different varieties that promise to make a significant contribution to improving living conditions in our partner countries. Specific examples include projects to: prevent crises in the border areas of Rwanda, Burundi and the Republic of Congo; reduce the use of chlorofluorocarbons (CFCs) in China; purify ground water in Central America; operate telecommunications in Uzbekistan; and many others.

8. Development partnerships with private companies are model projects

Development partnerships with private companies are attempts to find exemplary solutions to problems. They start at the micro level (that is, at the level of a company or a single project), where an innovative solution can be applied to a concrete problem without any connection to basic legal or organisational structural changes. In projects at this level, for instance, we support the improvement of water supply and sanitation systems in one town; a reforestation effort in an eroded area in another; or the improvement of financial services in a disadvantaged rural region. We contribute to minimising problems by taking such direct measures without delay.

Because of their exemplary nature such approaches can be the beginning of solutions "from the grass roots," and we want to make use of them as much as possible. This means that we will use scarce resources of the State intelligently and with greater leverage to support appropriate private economic contributions.

The State's contribution to development cooperation must not be superfluous, however. In many cases, the legal and organisational preconditions for structural changes still need to be created. Our typical projects can remain at existing levels of activity and still serve this purpose because such projects are not affected by the introduction of PPP measures. Actually, they can help to create the necessary preconditions for a successful development policy for all private sector activities:

• At the macro policy level, where government advisors support the creation of frameworks which are favorable for development;
• At the institutional level, where we promote the development of important institutions between the State and its citizens (chambers of commerce, associations, or government offices, for example), with the aim of strengthening our partners' ability to help themselves.

These measures will be financed by the State, since private companies can offer themselves as partners only in exceptional cases.

9. German companies as a new target group in the field of development cooperation

To date, many entrepreneurs have approached BMZ with false expectations. The promotion of export is not the goal of German development cooperation, despite an IFO Institute report explicitly stating that development cooperation guarantees an additional 240,000 workplaces in the German economy. Our measures of support are not primarily oriented towards fulfilling the needs of German companies, but rather towards the contribution of projects for social and economic development in developing countries. Therefore, these partnerships should make long term entrepreneurial engagement in a developing country a prerequisite for their activity.

In the case of development partnerships with the private sector, we want companies who enjoy equal rights and who are active partners, but not passive contractors. The fact that these companies reap economic gains from their engagement and thereby strengthen Germany is self-evident and favorable. Such partnerships work on the principle of "give and take," where service is matched by return service. The results are effective development policy on one side and profitability and competitiveness on the other. This can result in a world which grows together, and in which borders are bridged for the well being of humanity in general.

Of course, German companies are a new target group for BMZ efforts under the new approach, which may be contrary to the assumptions of some critics. We want to speed up the change of consciousness amongst these companies as far as their ecological and social responsibilities are concerned. My vision is that the State and private companies will eventually work together for a socially just and ecologically sustainable future. I am convinced that social and ecological competence will become a decisive competitive advantage for successful companies as early as the next decade. At the same time, I still want to demonstrate to these companies, using successful PPP examples, that an appropriate engagement for development policy also pays off with regard to economic efficiency. I also want to appeal to the audience of this conference with the concrete examples I have provided, so that all of you will assume your social and ecological responsibility in promoting a unified world vision. But I do not say this for altruistic reasons alone. As the Americans have put it so well: "Doing good and doing well" do not have to be contradictory.

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