PUBLIC PRIVATE PARTNERSHIPS AND THE REDUCTION OF UNDERNUTRITION IN DEVELOPING COUNTRIES: BETWEEN DR

PANGLOSS AND THE DEVIL

Stuart GillespieIFPRI

John HoddinottCornell University and IFPRI

Two Quotations

We won’t solve this [malnutrition] by just the private sector improving crops and improving markets, we won’t do it just through government programmes; it is both these things and others beside. It is a shared responsibility.

David Cameron, Launch of SUN Business Network, December 2012

… particularly for the Public-Private forms of partnership … we need to reflect about what kinds of accountability will create an enabling environment with

both regulations and incentives for the private sector to “behave better”Etienne du Vachat, Global Forum on food security and nutrition, October

2013

Structure of Presentation

• Why do we need Public Private Partnerships (PPPs)

• What are PPPs

• Examples of PPPs: Successful and unsuccessful

• PPPs for Innovation and Finance

• A summing upA caution: Data on PPPs are thin and largely case-study based

Why PPPs?

• Three forms of market failures:– Markets underprovide certain types of goods. Knowledge and information and

especially relevant examples– Underprovision because of coordination problems– Contractual incompleteness

• Innovation

• (much more speculatively) Finance

What are Public Private Partnerships?

A collaboration between public- and private-sector actors within diverse arrangements that vary according to participants, legal status, governance, management, policy setting, contributions and operational roles to achieve

specific outcomes. WHO, 2011.

• This is not a standard procurement arrangement (financier, implementer)

• But this definition is so general as to be unhelpful

What are Public Private Partnerships?Non-Contractual

• Representatives from the public and private sectors coalesce around a set of shared goals (eg expressed through a Memorandum of Understanding)

• Partners contribute time, money, expertise, or other resources to the partnership

• Partners share decision-making and management responsibilities

• There is no legally binding contract between partners and the partnership can be dissolved at any time.

What are Public Private Partnerships?Contractual

• Formal contract between public and private sector entities.

• They are characterized by: – An objective of advancing a public goal– A long term partnership arrangement– A bundling of activities; and – A blurring of lines between financier and implementer and concomitant with

this, a shifting of risk from the public to the private sector.

• Contractual PPPs are increasingly found in infrastructure, including the provision of water and sanitation

Case study of a successful PPP:Fortifying Cooking Oil with Vitamin A in Tanzania

• In 2002, the Government of Tanzania committed itself to a food fortification strategy in conjunction with the private sector and a National Food Fortification Alliance (NFFA) was established in 2003

• Nothing happened for the next four years

• Fortification efforts given new life in 2008 through links developed with external donor and an external private sector firm:– Discussions on which foods to be fortified;– Technical issues associated with the level of fortification and how this is

implemented, labelling, standard setting and testing.– Social marketing of fortified products

• Fortification began in 2012

Illustrative quotes on this PPP(from Gradl, 2012)

… the advice of BASF … convinced oil companies that fortification would make good business sense. Even though the higher cost will not be passed on to consumers via the price, both main oil producers supported the new regulation and the process toward it.

Without regulation in place, they did not see themselves in a position to start fortifying standard cooking oil individually, or to get the whole industry, including smaller producers, on board.

Without awareness-raising consumers did not understand the value of fortification and were not prepared to pay any extra for it.

Although hesitant in the beginning, cooking oil company representatives aome to appreciate the value of vitamin A fortification for their customers. [They saw] standardized fortification as a competitive advantage when moving into neighboring markets.

Case study of an unsuccessful PPP:Improving handwashing techniques in Central America

• Four year PPP between bilateral donor and hand soap producers and distributors

• Participants signed an MoU– Firms provided inputs into social marketing campaign (but were somewhat

reluctant to do so)– Donor provided financing for social marketing campaign

• Social marketing campaign introduced

• Private sector participation collapsed once campaign started and social marketing ended when external financing ran out

PPPs to stimulate innovation

• Use both “push” and “pull” mechanisms– (Biomarker development could be an example of a push mechanism)

• Advanced Purchase Commitment is an example of a pull mechanism

• Under APCs, sponsors commit to purchase a specified quantity of an item that meets specified technical criteria at a specified price– For private firms, addresses “hold-up” problem– For sponsors (eg governments), reduces risk as payments are results based

• APC pull-type mechanisms work best for innovations where the basic product exists but either it is too costly or where relatively minor modifications are needed to make the product suitable.

• RUTFs are an obvious example where an APC would be helpful

PPPs for Finance• In standard procurement models, the public sector (as financier) enters

into contracts with private and not-for-profit entities who implement interventions.

• An alternative approach is a Social or Development Impact Bonds. These have the following characteristics:– Project financing is provided by investors who assume risk for project

performance;– An outcomes funder pays for pre-defined results only after they are achieved;– Financial returns to investors are tied to the achievement of social outcomes;– Outcomes funders do not specify interventions, only outcomes. Investors work

directly with implementers; – Outcomes are independently verified before payment is made.

PPPs for Finance• Private sector financiers have a powerful incentive to ensure that

interventions actually work.– If they do not, they do not get paid. Thus risk is transferred risk from the public

to the private sector. – There is an incentive for the investors to encourage innovation and to monitor

implementers.

• They are likely to work best when interventions operate over shorter periods of time and when the relationship between the effort of the implementer and the outcome to be achieved is relatively direct.– Possibly more suitable for addressing certain forms of micronutrient

deficiencies than chronic undernutrition

Summary

• Discussions regarding PPPs need to move beyond excessive optimism and excessive pessimism. All groups should recognize that the evidence base on the effectiveness of these is limited

• PPPs should focus on those aspects of undernutrition where market failures (in the economics sense of the word) are present

• PPPs are not quick

• Sustainable PPPs require long term benefits to all participants

• PPPs to stimulate innovations that address undernutrition are underdeveloped

Funder: Department for International Development, UK