Importance of private sector in infrastructure

Infrastructure is one of the key growth industries for the private sector. The rapid demand for infrastructure development is because the population is growing substantially in both the developed and developing countries. This has created a huge infrastructure deficit, which the public finances are unable to meet. There is an urgent need for debt relief to counter this deficit, which has resulted in the growth of infrastructure finance in the regional and international markets. The private sectors are adopting a wide range of infrastructure finance strategies in response to these developments. One such strategy involves the private sector in infrastructure development projects through Public-Private Partnership (PPP) financing.

Public-Private Partnership (PPP) financing involves a set of financial transactions between a public body like a government or a non-government organization and a private organization, usually a company. The main objective of PPP is to create a stable market environment for financing infrastructure development by allowing companies to partner with other companies involved in infrastructure development. These companies offer their specialized expertise in procuring large contracts, handling negotiations with suppliers, handling the construction process, and finalizing the project. They use their expertise and economies of scale to obtain major contracts, while other companies get the contracts on available projects. In the end, the profit created by the PPP company is shared by the public sector.

Today, there are many instances where the PPP model is successfully applied to different types of infrastructure projects. One of these is developing nations where the private sector in infrastructure is becoming an increasingly important part of the infrastructure development sector. Most governments in developing nations rely on foreign aid to finance their development projects. This has created a dependency on the government on foreign organizations for its financing needs, thus creating another competition source for the private sector in the emerging economies. Using this strategy, several companies from Asian countries like India, China, and Malaysia are entering the emerging economies to acquire contracts for infrastructure projects, ultimately helping these economies develop.

Private financing in the form of a Public-Private Partnership has also been used in several infrastructure development projects. This method involves a third-party investor that provides risk transfer and financing for an urban development sector project. This type of financing has been quite beneficial for projects focusing on infrastructural projects and is proving useful for urban growth in many countries. It is an important step taken to increase a country's urban development sector's competence and competitiveness. Whether it involves private financing or public financing, such measures are bound to increase urban growth competitiveness in the future.