D+C Development and Cooperation (No. 4, July/August 2002, p. 8-11)

Public Private Partnerships - the development cooperation between governmental development agencies and the private sector - have become an important instrument in Germany’s development assistance. A special fund was set up three years ago to promote this cooperation, and in the view of the government it was so successful that the fund will be financed for another three years. The following article draws a balance of what has been achieved with public private cooperation.

It was an unusual meeting at the time. Thomas Roess, managing director of a medium sized enterprise in the North of Germany, had travelled down to Eschborn near Frankfurt where the German Agency for Technical Cooperation (GTZ), one of Germany’s largest governmental development agencies, has its headquarters. There, in a room equipped with cardboards and flipcharts, he sat among a dozen or so development workers. Some time earlier, his company and GTZ had launched a common project in Sri Lanca. They had started to train local staff so that Roess’ company would gain access to better-qualified personnel at its production site while GTZ was to make sure that the transferred know-how would find its way into a local vocational training centre. This cooperation was one of the first projects within Germany’s Public Private Partnership (PPP) programme.

The central idea behind the meeting was to make two very different parties meet. "We considered it important to bring business people in direct contact with our staff," comments one of the meeting’s organisers at GTZ. "Since Germany’s development agencies were and are supposed to work increasingly with private businesses, we felt the need to bring these two players together as often as we could and as closely as we could."

The need to do so was, indeed, pressing. In January 1999 the German Federal Ministry of Economic Cooperation and Development - better known by its German abbreviation BMZ - had entrusted a number of agencies with a new mission that was simple in its logic but revolutionary in its approach. The task was to go and find private companies as potential partners for cooperation in developing countries, to identify economic sectors in which joint efforts seemed tangible, and to implement common projects that could later be used as models for a future cooperation.

Lack of public funds

The reasoning behind the decision was clear and quite convincing. Public funds for development aid, worldwide, had been hovering at around the 50 billion US dollar mark for roughly ten years. In contrast, over the same period of time, private investments into developing countries had been growing steadily, coming close to 200 billion US dollars per annum in the late 1990s. While official development aid was no longer growing, the challenges for development cooperation remained as pressing as ever: widespread poverty, severe shortages of clean drinking water, crippled infrastructures, and increasing environmental problems. This meant there was more work with less money.

At the same time, the development community was witnessing with growing interest that private companies were expanding their activities in the developing world on an unprecedented level. The volume of global trade had quadrupled during the last two decades of the twentieth century. Private investments in infrastructure throughout the developing world had also increased by a factor of four during the same period of time. Where private companies invest - increasing numbers of analysts were arguing - they create jobs and new sources of income, train local staff, and transfer new technologies to partner countries. Thus, the private sector was - at least in some cases - initiating processes that were developmentally beneficial. The consequence of this thinking was obvious: why not try to join forces and cooperate in those areas where public and private interests might overlap?

The German Minister for Economic Cooperation and Development, Heidemarie Wieczorek-Zeul, once made the point very clear: "There is only one logical consequence to be derived from the growing challenges on the one hand and the increasing openings for collaboration with industry on the other," she said in a press conference in 1999. "Partnerships and co-operation between the private and the public sector must be intensified."

Germany sets up special fund

In order to translate these words into action, the Ministry created a special fund to finance public private partnerships over a trial period of three years. Monies and missions to bring the programme to life were handed over to three German development agencies: The GTZ was to cooperate with private businesses in the field of technical cooperation, including vocational training, transfer of technology, and environmental management. The German Investment and Development Company (CDEG) and its mother, the Reconstruction Loan Corporation (KfW), were concentrating their efforts on financial cooperation, including soft loans for projects in infrastructure and the financing of feasibility studies for private companies willing to invest in developing countries. All of these agencies were, thus, not only trying to put developmental issues onto the agendas of private companies already active in Africa, Asia, Latin America and Eastern Europe but also to encourage others to make the first step into these countries.

"We jumped into cold water", says Albrecht Graf von Hardenberg, director of GTZ’s centre for cooperation with the private sector. "And we considered ourselves to be working in a laboratory - to see where and how we can work with the private sector, and where we cannot. Our biggest task in the initial phase was to fight against fixed ideas and ideologies, to break up old clichés, and to create a spirit and a willingness to cooperate both within the German business and development communities."

But old prejudices die hard, especially if they have been "well cultivated" as one official put it recently. Within the development community, many considered the collaboration with the private sector as a "sell out" of development cooperation. How could private companies, working on a principle of profit-maximisation in which social and environmental issues are subordinate, be the right partners for development agencies? Within the business world, the image of public institutions as potential partners was equally ambivalent. In many a case, public agencies were perceived as bureaucratic machineries, moving slowly and inefficiently. How could agencies like these become partners of the private sector where decisions and actions must be taken swiftly?

900 project proposals
from private business

While critics continued to express doubts, the agencies moved ahead with the programme. Special units to work with the private sector were set up in each agency, new channels of communications were opened on various levels, and first ideas on how cooperation could work were gradually transformed into projects on the ground. "With the Public Private Partnerships programme we seem to have touched a nerve," says von Hardenberg. "During the first three years of the trial period GTZ has received almost 900 project proposals from private enterprises and business associations." In order to be able to react quickly to the incoming proposals, the agencies and the Ministry agreed on a clear-cut and simple set of criteria to enter public private partnerships: Projects had to run in line with official German development policy, interests between the private and the public partners must be compatible, the public side would only fund those aspect of the projects that go beyond the company’s core activities, and the private partners must make a substantial contribution to the projects, usually amounting to at least 50 per cent of the project costs.

Above all, small and medium sized companies have been keen to cooperate within this framework. As globalisation has forced many of them into the international business arena, some of them have been confronted with challenges they have not been able to handle on their own. As Roess put it during his meeting with GTZ staff: "As an entrepreneur running a medium sized company and being willing to make business abroad, you have no idea on who to turn to and what to watch out for." Development agencies, in contrast, do know exactly that in many cases, as their staff can offer long-term experience in project management under politically and economically difficult circumstances. Infrastructure on the ground, specialist knowledge on countries and economic sectors, as well as good contacts to governments, businesses and NGOs have thus become attractive assets that development agencies can offer private businesses. "In turn, the agencies can benefit from the financial resources that the private sector brings as well as the state of the art technology and know-how they transfer into our partner countries," says von Hardenberg.

Water cooperation in the Philippines

In the Philippines, for instance, GTZ and Getec Trade are currently tackling the issue of shortages in clean drinking water. As the country’s piped water infrastructure has gaps, the private and the public partners are going an alternative route to provide drinking water - especially in remote, rural areas. The solution comes with a water sanitation plant that has the size of a wardrobe. The plants treat rain and river water to be used as clean drinking water and serve to establish a network without the need to lay expensive pipes. In areas with little or no electricity, they can be powered by means of solar or wind energy. Getec Trade - which produces the technology in Germany and has an interest in entering new markets - provides some of the equipment and helps to train local staff in setting up and maintaining the plants. GTZ plays a crucial part in the training programme to secure the positive long-term effects of the project. "It is a typical example of a project in which each party benefits," says Thomas Finkel, project manager at GTZ. "We as a development agency are capable of setting up a water supply system with relatively little means, the company increases its sales potential, and a significant number of people in the Philippines gain access to clean drinking water."

Medical technology for South Africa

In South Africa, to take another example, the DEG and the private IFU company are introducing an electronic computer-based network for medical diagnoses. IFU had developed the technology so that clinics can quickly exchange data on patients, pass the information on to the corresponding medical experts and provide specialist diagnoses across long geographical distances. With the help of the DEG, IFU was able to conduct a feasibility study on how the technology would be received in South Africa and the neighbouring countries. Meanwhile, tests to operate the system have started in South Africa, a German-South African joint venture has been established, and production on a small scale has started. "The [PPP] concept has encouraged me in my decision to invest in South Africa," says Wolfram Scharff, managing director at IFU. "My proposal was handled in an unbureaucratic and uncomplicated manner."

In Peru, GTZ and Kraft Foods Europe have entered a partnership on a larger scale. In a joint PPP project, the two partners aimed at improving the quality of Peruvian coffee on a national level. To do so, they set up - in close cooperation with the government and the national coffee chamber - a training scheme for local exporters, traders and producers. Simultaneously, they established officially approved quality norms which are now being used by the coffee chamber for issuing its quality certificates. First international trade contracts, based on these norms, have already been signed. This had a drastic impact on the prices for Peruvian coffee on the New York stock exchange, which increased by more than 20 per cent. "This has provided Peru with additional revenues from the sale of coffee, amounting to approximately 16 Million euro per annum, compared to the former stock rating" says Ulrich Sabel-Koschella, agricultural expert at GTZ.

A flexible instrument -
also for poor countries

Some 400 PPP projects have entered the implementation phase during the first three years of the special BMZ programme. Out of the more than 100 million euros which were allocated to these projects, the private partners contributed the lion share of well over 50 per cent. "There are two important aspects that surprised us when we analysed the experience we had gathered in the first phase of the PPP programme," says von Hardenberg. "First, we discovered that PPP is a flexible instrument that can be used in virtually every economic sector. Second, we realised that private companies are not only willing to invest in the emerging markets like China or India, but are also becoming active in poor countries such as Mali or Bangladesh. So what we have developed here is not a tool that will replace the classic development cooperation but one that provides new ways in which we can help people in our partner countries."

Hard fronts are melting

Meanwhile, the climate between the public and the private sectors seems to have changed, the hard fronts seem to be gradually melting down, old clichés seem to be fading slowly. In May 2001, Franz Schoser, then Chief Executive Officer of the German Association of Chambers of Commerce and Industry, said in front of some 50 journalists: "In the seventies, German development policy worked against the private sector. In the eighties, it ignored the private sector. And since the nineties, it has finally been working with the private sector." Minister Wieczorek-Zeul, who was standing next to Schoser at the time, countered by saying: "In the seventies, we still believed implicitly in the state. In the eighties, we believed almost exclusively in the free market economy. And in the nineties, we recognized that neither side can cope alone with the huge challenges facing us."

How positive the German government is judging the experiences that have been gathered so far in the PPP programme became clear this January when the BMZ prolonged the programme for another three years. While the agencies are now continuing to support individuals projects with private companies throughout the developing world, they are widening their focus. GTZ, for instance, is putting increasing efforts into integrating more PPP components into its classic projects within the field of bilateral technical cooperation. In other words, the experiences gained so far in the special programme are to become a usual aspect of GTZ’s work. On another front, GTZ is trying to establish strategic alliances with specific companies that go beyond the project level. With the coffee industry, for instance, GTZ has initiated a strategic dialogue with the important players - companies and NGOs alike - to set up a pilot scheme that will introduce acceptable social and environmental standards on coffee plantations throughout Africa and Latin America. Simultaneously, contacts with business initiatives like the Global Compact are being intensified and common modes of cooperation are being sought.

"We are still facing challenges ahead," says von Hardenberg. "But we are definitely on the right track. For we see a trend that more and more companies are putting developmental issues on their agenda. They might do that for various reasons, but it is a very obvious development."