Public Private Partnerships (PPP) in the Developing World: Mitigating Financiers’ Risks

Abstract

A major challenge for foreign lenders in financing PPP infrastructure projects in an emerging market is the bankability of country-related risks. Despite existing studies on country risks in international project financing, perspectives of foreign financiers on bankability of country-specific risks in an emerging market is yet to be explored. Hence, using a mixed methodology approach to research, three PFI/PPP projects in Sub Saharan Africa (Nigeria) were used to investigate the bankability requirements for political risk, sponsor, concession and legal risks in PPP loan applications. Focus group discussions and loan documentations obtained from foreign project financiers with experience in PPP financing in Nigeria were used as sources of evidence. Results identified 22 bankability criteria for evaluating country-related risks (political risk, sponsor, concession and legal risks). These criteria were later put in a questionnaire survey to local and international project financiers with experiences in PPPs within Nigerian. Reliability analysis and significance index ranking were carried out. The significance index ranking helped ascertain the top 7 criteria influencing bankability of country-specific risks in emerging market PPPs. A conceptual “Risk and Bankability Framework” was then constructed from the findings and validated with new data from other PPP financiers in emerging markets. The proposed conceptual framework represents critical parameters for winning foreign financiers’ approval for PPP loan applications from emerging market.