Editorial by PPPLab’s Astrid van Agthoven: Financing strategies– Why a key topic for PPPLab?

From a focus on understanding the business case embedded in a PPP, the PPPLab has now shifted this part of its work to consider the financing strategies behind and beyond such partnerships. We plan to contribute to better understanding the potential of PPPs to help generate finance for scaling certain solutions as well as the practices and challenges of financing PPPs, including how to overcome these. Our overarching research question is: How can financing mixes be developed – and graduated over time – to enhance PPP effectiveness and scaling? Besides theoretical explorations and sense making, we will also make it actionable by developing a tool to navigate through choices and reasons for different ways of financing, at different phases in the lifetime of a PPP.

Why this shift? Because quite simply: “money makes the world go round”, also in the world of PPPs. But of course there is more to it.

From a public perspective, mobilizing additional financing from the private sector for activities that target public value generation is one of the reasons why PPPs can be attractive. From the private sector’s perspective, PPPs can be interesting for companies to de-risk investments where the public value goals add risks in terms of unsure or slow returns on investments and/ or improve the business ecosystem by lowering barriers that hamper the private sector to market their products and services.

Hence, PPPs are supposed to be a win-win for both the private and public sector, including from a financing perspective. But, this doesn’t mean that they are easily financed.

As we stated in our “Financing Public-Private partnerships” booklet: without a financial and societal business case, a PPP will not fly. To develop and strengthen complete and consistent business models and business cases for PPPs we created a tool, the PPPCanvas. The PPPCanvas is a basic tool that has shown to be handy and therefore popular with many professionals. We will complement the PPPCanvas with a navigation tool that will help raise essential financing questions, distinguish main financing dimensions and explore financing perspectives. Developing a sound financing strategy should be done with the long term viability of the underlying societal and business case in mind, as well as scaling of the solution that the PPP offers. From this perspective we see FDW/ FDOV[1] funding as an important but relatively short-term phase. From the onset, any PPP  will need to think beyond its start-up phase: where is it heading beyond the FDW/ FDOV project period, how can the initiative be scaled further and what does that imply for financing at different stages in the partnership?

The other two current PPPLab key research topics, Scaling & System Change and Working effectively with Public Partners, will complement the financing question. As of course, for PPPs to be successful there is more to it than finance. But “Money talks”. Reaching the Sustainable Development Goals will require a massive increase in finance for development compared to current levels. The private sector is looked to for part of the a solution; public-private partnerships will have a large role to play as we try to blend public and private objectives and funds. The money is there, but investable projects and appropriate financing strategies much less so.

[1] FDW (Sustainable Water Fund) and FDOV (Facility for Sustainable Entrepreneurship and Food Security) are PPP financing instruments of the Dutch government.