The importance of physical infrastructure for economic development has been widely recognised. However, governments often face fiscal constraints on their ability to provide such infrastructure or are unable to keep up with growing demand. Historically, while public sector inefficiencies often lead to calls for the privatisation of national infrastructure, deficiencies in the service provision of privatised infrastructure often lead to calls for (re)nationalisation. Private Sector Participation (PSP) projects have emerged as one way to deliver effective infrastructure provision in low- and middle-income countries. PSP involves the joint investment in, or management of, infrastructure by both the private and public sector, thereby sharing risk between the partners and introducing substantial extra finance and knowledge into the sector. At the time of the review, no systematic review had looked comprehensively at the impacts of PSP on access to, and quality of infrastructure in low- and middle-income countries.
To synthesise the evidence on the impact of PSP in the electricity, telecom, and water supply and sanitation sectors on access to, and quality of, infrastructure products (the physical properties of the infrastructure system) and service delivery (satisfaction with the infrastructure service received), in low- and middle-income countries. The authors also aim to identify the underlying mechanisms by which PSP brings about changes in access to, and quality of, infrastructure, to identify any barriers to achieving these outcomes and to examine whether there are interdependencies with other reform components and outcomes.
The authors included both quantitative and qualitative studies that aimed to assess the impact of private sector participation in the delivery of electricity, telecommunications and water and sanitation supply, on access to and quality of product and service delivery in low- and middle-income countries. Specifically, they included studies looking at five forms of PSP: service contracts, management contracts, leasing, concessional contracts and divestitures (sales). The authors included both published and unpublished literature written after 1995 and available in English. They hand-searched relevant journals that were identified as publishing an extensive amount of research on infrastructure. They also searched electronic databases such as EBSCO, ProQuest, JSTOR, and websites of organisations such as the World Bank and Inter-American Development Bank, and conducted citation searches of included papers and of key authors who have worked on this topic. Finally, they contacted study authors and experts in the field to identify additional studies. Included studies were assessed for quality, using a critical appraisal. The authors used three different synthesis methods to analyse the results of included studies to account for the substantial heterogeneity in study designs, outcomes and interventions: a meta-regression analysis of t-statistics; vote counting assessment of significantly positive, significantly negative and insignificant findings; and a narrative synthesis.
Headline Findings: a summary statement
Private Sector Participation (PSP) as a standalone reform has not achieved significant improvements in access to, and quality of, infrastructure product or service provision in the telecom, water and sanitation (WASH) and electricity sectors. However, when accompanied by appropriate regulatory and competition reform, it can have positive impacts on these outcomes. Without support from government, PSP can have negative impacts on the infrastructure access of poor and rural populations.
Evidence BaseSixty-seven studies met the inclusion criteria for the analysis. The number of studies covering electricity, telecom, and water supply PSP interventions were 20, 26, and 25 respectively. Twenty eight studies took place in Latin America and the Caribbean, 16 in Sub-Saharan Africa, seven in East Asia, four in South Asia, and one in Ukraine. In addition, 11 studies looked at PSP across these regions. Of these, 35 used qualitative methods, 24 used quantitative methods, and the remaining used a combination of the two.
Implications for policy and practice
PSP as a stand-alone reform was not found to have a significant impact on access and quality outcomes. However, when considered as part of a package alongside other reform components, PSP was associated with more positive than negative outcomes. The overall evidence indicates that short-term forms of PSP, such as leasing and service contracts to private sector organisations, are more effective than long-term forms, such as full or partial divestiture (sale) or concessional contracts (often referred to as 'public-private partnerships'), at achieving improved access and quality of product and service. The strength of the positive evidence for all intervention forms and packages varied substantially across sectors and outcomes. In the electricity sector, the evidence on PSP effectiveness is relatively strongest for access and product quality outcomes. In the telecom sector, evidence is strongest for a positive impact of PSP on access and service quality outcomes, in comparison to product quality outcomes. In the WASH sector, evidence for a positive impact of PSP is strongest for service quality outcomes. The authors identify a number of factors across sectors that help to explain the variation in impact of PSP on access and product and service quality:
- The presence of accompanying support from governments has contributed to the success of PSP programmes in attaining equity objectives. It is often not in the interest of the private sector to provide services to isolated rural areas or highly populated poor urban areas, and if the government does not provide incentives for them to do so, those living in these areas are likely to face worsened access to, and quality of, infrastructure. It is therefore important that there is financial support from the government for the private participants in order to increase the returns for private investment in these areas.
- Evidence suggests PSP had the most consistent positive impacts on access and quality outcomes when there were longer-term benefits to the private sector provider. PSP has been more successful where there have been possibilities for additional PSP opportunities for the private sector within the public sector, following initial success.
- If regulatory regimes do not provide sufficient incentives for the private sector to make the large capital investments needed to improve the quality of their infrastructure, there may not be sufficient motivation for them to attempt to do so.
Finally, the authors present some key policy issues to be considered when designing a PSP programme. These include the following:
- There can be a trade-off between improving access and quality of the product and service provided. If the objectives of the PSP include improving access but not explicitly improving quality-related outcomes, quality of provision is likely to suffer.
- PSP benefits urban consumers more than rural consumers and the well-off more than poor consumers. This is likely to be because the private investor does not benefit much from the provision of infrastructure services to rural/poor consumers. If policy-makers wish to reach these groups using PSP, they must ensure incentives are in place for private providers to improve delivery to these areas.
- Governments need to provide an enabling institutional environment for the private providers to operate, both to allow the state to penalise private providers if they do not provide a sufficient quality of product or service and to provide the protection necessary for the private sector to operate.
Implications for further researchThe authors suggest further research is needed to understand the reasons why quantitative and qualitative studies report differing proportions of observations where PSP produces no significant impact. To more fully investigate this divergence, the authors suggest that future studies should undertake a more rigorous analysis of quantitative studies, including additional variables that more fully capture contextual factors. The authors also suggest that further research could investigate regional variations in the success of PSP strategies in different sectors. Finally, the team propose that future primary studies should include more in-depth analysis of the causal pathways between PSP interventions and outcomes, and consider the importance of contextual factors in the performance of this kind of reform. They suggest that a future systematic review might compare the experiences of developed and developing countries with PSP.
The review has clear inclusion criteria and makes considerable effort to reduce bias in the selection of studies for inclusion, through independent screening by two reviewers and a reasonably rigorous search. However the review has major limitations. The authors undertake a critical appraisal of included studies but it is not clear that they assess for important sources of bias, which is a concern given the broad range of quantitative and qualitative evidence included to assess effects of interventions. They also undertake a meta-analysis of t-statistics and a vote count of positive, negative and statistically insignificant evidence. Conclusions should therefore be taken with caution as these methods do not consider the magnitude of the effect size and are inherently subject to Type II errors, meaning the analysis is more likely to conclude incorrectly that the interventions are not effective. However, the authors undertake multiple methods of synthesis to account for the range of evidence types and include a considerable narrative exploration of the factors behind the success or failure of each reform type.