Syoron-syoron 20141105 Increase GDP through new PPP Initiative

Syoron-syoron 20141105 Increase GDP through new PPP Initiative

The G20 was held from 20 to 21 September in Cairns.  Japanese mass media did little attention to this meeting; however it is noteworthy that “Global Infrastructure Initiative (GII)”, which is a private investment policy, was agreed internationally.  In this meeting, each member countries brought economic vitalization strategies to achieve “additional 2 percent growth of the world economy over 5 years”, which was agreed in Sydney February this year; the total number of the strategies was 900.  According to the International Monetary Fund (IMF), if these strategies are to be implemented, 1.8% of global economic growth could be achieved. We can recognize the importance of the GII from the fact that 27% of these growth strategies (240+) were infrastructure related strategies.

 

On the other hand, the past Galapagosized Japanese PPPs, including PFI projects, Shijoka-test (market testing), and Shitei-kanri (designated manager assignment), etc., were methods that would reduce the GDP.  With using private know-how, government saved investment amount and reduced labor costs by switching the civil service to private operators; if the life cycle operation cost is reduced without adding any value, GDP will be reduced accordingly.  According to the official figures, from 1999 to 2013, 418 PFI project were financially closed; the total amount of public works of \4.2 trillion and they could create VFM of about ¥ 800 billion; however the styles of the PFI projects were mostly financed lease style BTO and BOT scheme, therefore, public debt was increased about \4.2 trillion and GDP was reduced in the amount of ¥ 800 billion.

 

Japan introduced PFI 1999 in this way, and promoted 14 years especially to build new public facilities through installment payment method.  As the result, the PFI applicable new public facilities had almost disappeared.  In 2011, PFI law was amended and concession method was introduced, and allowed to private companies to be delegated to do the operation of existing infrastructures.  Mechanism of this concession is similar to existing Japanese PFI; while public entities keep the ownership of public facilities, private companies operate and obtain the permission of user fee collection, the profit of the operation of PFI project is obtained from the reduction of the labor costs by switching the operation by civil servants to private operators.  In other words, it can lead the further reduction of Japanese GDP.  These Japanese Galapagosized PPP procedures, are against the Sydney agreement. We are now in a turning point that Japanese PPP strategies can be changed to international PPP approach such as GII to increase the GDP.

 

GII is an initiative to support linkage between infrastructure business and investors, by establishing information sharing platform, and integrating a database of infrastructure projects in each country.  In addition, GII is a policy to change the finance of the public infrastructure investment from public debt to private investment; this policy has a mechanism to raise GDP without increasing the debt of the government, by creating public infrastructure projects invested by private sector with a reasonable profitability.

 

It is important to promote international development accordance with the concept of GII, using private investment and assigned in the social infrastructure development using Japanese technologies in the future global market.  In the countries of emerging economies, global infrastructure development demand is about 3.7 trillion dollars each year, however the actual infrastructure investment has only 2.7 trillion dollars annually; that means the lack of investment is $ 1 trillion each year.  This investment shortfall is required to be covered by private investment domestically and internationally.  Such international private investment can be covered by Japanese investors with Japanese government support.

 

In November G20, Japan also has to submit proposals to raise global GDP, with a promotion of the private investment. For example, with co-financing and grant aid of multilateral development banks such as JBIC, ADB, and JICA, and loans of private financial institutions, long-term investment and loans from GPIF and insurance companies, to activate the infrastructure investment in developing countries; which can create new mechanism to promote global private investment.

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