CHAPTER 1: GENERAL INTRODUCTION TO THE THESIS
2.8 PRIVATE-PUBLIC PARTNERSHIPS (PPPs) IN COMMERCIALIZATION
2.8.2 The Role of Private-Public Partnerships in Commercialization
Mustafa (1999) writes that PPPs are critical especially in tackling the widespread challenges and problems that are associated with public sector procurement; challenges such as soaring construction
costs, construction overruns, and some identified operational inefficiencies, poor design, in addition to general community dissatisfaction. PPPs are thus mostly grounded on the notion of private-to-public sector transfer of risk, the assumption being that private players are better equipped to manage risk comparatively well (Jefferies, 2006). Earlier on, Grimsey and Lewis (2002) however, noted that this transfer calls for some profit incentive if the desired outcome is to be achieved.
2.8.2.1 Innovation Risks Sharing
Past studies reiterate that risks are inevitable in the development and commercialization of TIs (e.g.
Mohr et al., 2005). In cognizance of modern day’s economic environment, Witters et al. (2012) argue that PPPs rather entail the formulation of contractual agreements and these are formulated between an appointed public sector agency or public-sector authority and a private-sector entity. These contracts permit for greater private involvement and participation public services delivery, or in developing an environment that improves the public’s standards of living. Under such a “legal construction”, the PPP players can share everything from risk, and the rewards, right through to sharing responsibility for investment (Akkawi, 2010). PPPs are therefore not merely paraphernalia for project funding - they call for full dedication from all parties involved to ensure that minimum risks prevail.
2.8.2.2 Facilitating Commercialization Innovations
According to Witters et al. (2012), the legal framework for a PPP formation entails a tripartite arrangement, and these go a long way in facilitating commercialization of TIs. “First, it can be used to introduce private-sector ownership into state-owned businesses through a public listing or the introduction of an equity partner. Second, it can become a private finance initiative, where the government takes advantage of private-sector management skills by awarding long-term franchises to a private-sector partner, which assumes the responsibility for constructing and maintaining the infrastructure and for providing the public service. Third, it can cover the selling of government services to private-sector partners, which can better exploit the commercial potential of public assets.
In these three arrangements, the private-sector consortium typically forms a special company, called a
‘special purpose vehicle’ (SPV) - to develop, build, maintain, and operate the assets for the contracted period. In cases where the government has invested in the project, it is usually - but not always - allotted an equity share in the SPV” Witters et al. (2012: 81).
By exposing the technological innovations invented in the public research institutes to the natural market forces of demand and supply and to competitive bidding, PPP’s allow the TI’s quality, value and cost to be compared to the prevailing international market standards (benchmarking), hence enhancing efficiency and effectiveness (OECD, 2003; 2002).
2.8.2.3 Economy Sustainability through PPPs
Past studies reveal and demonstrate how PPPs improve living standards through enhanced innovativeness and “forward-thinking policies” from governments, and support from nonprofit organizations (Crozier, 2010). Witters et al. (2012) support this notion as they qualitatively qualify and affirm this assertion. Of PPPs and living standards, Witters et al. (2012) state: “…today’s cities too can be transformed by forging PPPs that encourage new ways of doing things…”. The authors further pronounce a blessing upon PPPs through technologies (ICT), which they say are helping in strengthening and growing PPPs outside past limitations. Thus these partnerships can revive the economy and improve living standards through employment creation, education, economic development, public safety and security, medical, and other social services. Instead of reducing expenditure on these critical public services, the government may encourage the involvement of private players and transform the manner in which such products and services are developed, commercialized and distributed.
2.8.2.4 PPPs Drive Innovation
Regarding innovation and PPPs, Witters et al. (2012) posits that PPPs are the key ingredient for driving innovation. The co-authoring team whose study particularly focuses on “the role of Public- Private Partnerships in driving innovation” has strong reasons defending this position. The authors (Witters et al., 2012: 82) expressly state:
“PPPs help governments become more inventive by creating a space outside the government structure that allows innovation to flourish. They also help to inject a broader set of skills and talents, as well as a more diligent and responsive work culture into the government machinery and to create a solid foundation for innovative thinking and creativity. PPPs also help private companies embrace innovation and bring together new financial resources and business capital to help open the door for the creation of new industry clusters, thus ultimately helping to facilitate innovation in increasingly competitive environments.
Moreover, PPPs allow private companies to engage in large-scale projects that go far beyond their traditional capacities. PPPs have gained particular relevance in the ICT sector”.
2.8.2.5 Use of Private Sector Expertise
Besides provision of quicker and long term private financing options (NCPPP, 2003), PPPs ensure that the private sector’s know-how in terms of general management, technology management,
marketing, and customer relationship management is fully utilized in the achievement of the public sector objectives (Brinkerhoff & Brinkerhoff, 2004; Sedjari, 2004). Thus it can be concluded that PPPs provide a platform upon which the state can provide capital resource outlays that will help in R
& D, for example the infrastructures and natural resources; while the private players will use their marketing skills to allow the TI to successfully enter the market. In this way, commercialization is enhanced.
2.8.2.6 PPPs visas-vie Innovation Policies
Nurturing relationships in the National Innovation System (NIS) has become one of the R & D, and commercialization major policy focus areas, with PPPs being the main policy instrument. Recent research (Witters et al., 2012; Akkawi, 2010) begins to appreciate the essence of PPPs in the commercialization of TIs and the need to embed such in innovation policies. For instance, the European Commission has worked towards establishing a legal framework for creating PPPs and ensuring risk and responsibility sharing (European Commission, 2011; Europa, 2010).
Back in Zimbabwe, a study by Akkawi (2010) reveals that in some parts of the Middle East and North Africa, the PPPs concept is too taking centre stage. It is apparent from these observations that any commercializing policy should revolve around linkages and PPPs make the policy complete.
Zimbabwe can thus derive some lessons from the above case studies through making a move to establish a legal framework to develop and make the use of PPPs transparent and incorporate tehse into the national context for the betterment of the economy.
2.8.2.7 PPPs Improve Economic Competitiveness & Modernize National Infrastructure
The concept of PPP’s recognises the law of comparative advantage in that the arrangement acknowledges the fact that certain activities are performed better by one partner while the other can perform better in another set of activities. Through permitting each partner to focus on their strengths, infrastructure is improved (Caerteling, Halman & Doree, 2008); quality is enhanced and in turn these boost the economic competitiveness as the local innovations become increasingly acceptable to the foreign market. The Price Waterhouse Coopers Report, (d.u.) on PPPs stresses that when designed appropriately, PPPs could go a long way in ensuring that the public sector benefits from the private sector’s commercial restraint, incentives, experience and expertise. They also enable the public sector to deliver its objectives better and to focus upon its core activities of procuring services, enforcing standards and protecting the public interest”.
2.8.2.8 Faster and Increased Project Delivery
PPPs have proven to be reliable agents of speedy project delivery including the so-called “complex capital projects”. Such is achieved especially when using finance from the private sector, when it is appropriate to do so (Hellowell et al., 2008). This might be due to the fact that private sector finances do not have many protocols compared to state funding. Thus speedy R & D and commercialization can be enhanced through PPPs.
Hellowell et al. (2008) however offer a precautionary note which this study finds quite useful. While increased private sector partaking, especially in public service delivery, can be quite advantageous the authors caution that PPP’s are not necessarily a universal solution or the sole means to providing quality public services on a value-for-money base. Thus PPPs are generally viewed as one of a myriad means of public service delivery and should never be taken or perceived as replacement for required levels of accountability and proper governance.