Alternative Attractive Guarantees to Increase PPP
Literature Review
Public-Private Partnerships have existed since the 20th century and have resulted in immediate and fundamental success globally when it comes to project articulation, design, implementation and completion. As the world continues to revolutionize itself, demand for attractive alternative guarantees to increase PPP has emerged (UN-HABITAT; UNECE). The scope of the demand orbits on improved efficiency, quality, funding, risk sharing, experience and innovation (Almarri and Abu-Hijelh 21). In particular, the use of PPP is increasingly becoming popular, given the improved process of equity and equitability through public work procurement globally (Cepparulo et al. 290). The engagement of PPP is derived in four forms. Notably, they are build own operate (BOO), build operate transfer (BOT), design-build finance operate (DBFO) and build own operate transfer (BOOT) (Almarri and Abu-Hijjeh 21; Almarri). Each country has a specific adoption to each type given the success rate and risk management benefits that come with PPP.
The attractive alternative guarantees to increase PPP are through risk-sharing. In most scenarios, governments opt to involve the private sector as a means to reduce responsibilities, including designing, financing, and construction (Almarri). Abdul-Aziz and Kassim describe the PPP relationship in Malaysia as one set on risk-sharing (150). The specifications in providing affordable housing mandate with the developer to also include expectation in internal infrastructure, social and public amenities in addition to housing based in income groups (Abdul-Aziz and Kassim 151). Analysis of the report by Abdul-Aziz and Kassim shows no consideration of the different types of PPP in Malaysia (151). Significant factors on roles and responsibilities are emphasized. Accordingly, the public sector is mandated with the roles of providing output specifications such as housing types and types of communal activities.
Additionally, the government ought to allocate risks and profit-sharing amendments in addition to land. However, the relationship is noted to have a few difficulties along the way when developing housing. According to Abdul-Haziz and Kassim, the National Audit of Malaysia indicated that such PPP relationship allows the private sector to concentrate on high-end housing at the expense of the vulnerable communities that need to benefit from the generalized housing projects (152). There are legal ramifications to the PPP set-up in Malaysia. Among them is the reprieve that private companies gain from government policies that mandate financial institutions not to charge interests or banking fees when sourcing for finances (Abdul-Aziz and Kassim 153). Also, policies require the private sector to cross-subsidize low-cost housing for profit benefits. Due to the numerous issues surrounding the PPP in Malaysia, profit-sharing is a problem in the country. Zhang dictates that various problems exist globally when it comes to risks and uncertainties associated with PPP, either long-term or short-term contracts (3).
To alleviate the problem with financing, developing countries including Kenya, have resorted to implementation of a tri-partnership conglomerate. The partnership includes the use of private, public and voluntary partners. According to Bruggemma et al., more than one-third of the population in developing countries resides in slums (2). To mitigate the problems associated with slums, governments incorporate the trio-relationship with the approach to provide low-cost housing project. Knowledge of the right partner is crucial. The study report by Alfen et al. indicates different types of modified partnerships, including vertical and horizontal. A horizontal partnership entails both partners being stakeholders within the project, whereas, vertical dictates that partners have a concession agreement where one partner is responsible for required service provision (Alfen et al.). The logical partnership may explain why it is best to use trio-partnerships in developing countries such as Kenya in the development of affordable housing. Hence, proposed partnerships in Kenya include cross-partnerships that involve all stakeholders in a development housing project (Bruggemma et al. .3). The housing project in Kenya includes three types. The first is the low-cost housing from a public housing approach where the contractor builds houses on behalf of the government. The second is tenant-purchase where tenants can purchase their house while the third is the self-help program that allows site and service schemes were residents can buy land and build their house (Bruggemma et al. 5).
Contrary to the developing countries housing projects under PPP, the developed nations have a different approach. The approach is to provide a responsible and accountable partnership. In China, for instance, governments are prompted to evaluate the qualification of private partners. Qualifications include aspects of industrial relations, industrial demands, equipment maintenance and renewal, cost of operation and efficiency in value for money (Chan 7; Sobuza). The government finances the projects fully with the roles and responsibilities of the private partners revolving on the provision of affordable housing. America, Hong Kong (Cheung 64), and Germany (Ong and Lenard 3) and Canada (Moskalyk) share similar policies regarding housing development projects. Despite the scrutiny, various issues plague the success of the projects. Among them include misappropriation of funds, mismanagement of projects, overestimation of budgets, and delayed project submissions (Gunduz et al. 138).
In Ireland, the government offers two types of PPP. According to Reeves, a long-term contractual agreement is provided between the public and private clients for 20-30 years (376). An integrated model is used whose lifespan depends on the project life-cycle. Commonly, PPP in Ireland is based on financial risk-sharing between the private and public sector, unlike other countries (Rockhart). Preferably, the country implements the design-build-operate; design build finance operate modules (Reeves 376).
With regard to the United Arab Emirates, the emphasis on PPP has gained attention over the years. Unlike other countries, the UAE primarily provided affordable housing and associated projects through full financing and project development by the main government (Al-Saadi et al. 40; Almarri). The increased use of PPP has led to improved housing projects in the region. The UAE has the largest PPP financial support estimated at $USD 54.4 billion, followed by Saudi Arabia (Al-Saadi et al. 41). To date, the UAE government remains the highest contributor to the provision of public services despite increased campaign on PPP in the housing sector (Dulaimi et al. 397). The contributing factor to such a monopoly is to regulate the policy instruments regarding housing and real estate market due to the economic impact it has on UAE (Alteneiji et al. a). The issue, nonetheless, is the provision of affordable housing remains inadequate. Concurringly, Zhang indicates that the slow progress in the implementation of PPP has consequential effects on slow infrastructural development in specific nations (3). To mitigate the problem, the government, through the Vision 2021 plan, seeks to improve on affordable housing and cater to the housing shortages by the time (Alteneiji et al. b). Among the attractive alternative methods to achieve the vision and goals, is through emphasized PPP in the UAE.
Although there has been an increased emphasis on the creation of affordable housing in the UAE, there has been limited growth in affordable housing. The main reason is that majority of the partnerships formed with the national government are centred on financial contributions. Lack of project developers and partnerships that cater to supply is low. The rationale in the region is that most of the housing development types and structured have failed considerably with specificity to financing and success rate (Almarri; Alteneiji et al. b). Lessons from other countries have shown that adoption of PPP ought to take time to develop the framework (Alteneiji et al. a). In China, for instance, there lacks a sufficient legal framework and unclear roles and responsibilities in the PPP to determine the success rate and critical success factors for the public-private partnership projects (Yuan et al. 410).
Nevertheless, UAE has a history of success economically given the discovery of oil in the region, which caters for a considerable amount of government expenditure. But, issues regarding the provision of affordable housing in the UAE remain a conundrum given the control limitations and shortfalls associated with PPP. The UNEP dictates that the precise nature of the relationship between PPP is poorly understood (6). As a result, therefore, mechanisms for making PPP are necessary to achieve the required results.
Almarri and Abu-Hijleh, however, indicate that the inclusion of PPP has brought on success factors concerning housing projects. Among the critical factors of success include the local financial market. As noted earlier, the UAE boasts of improved economic growth in the MENA region ahead of Saudi Arabia. To this end, Almarri and Abu-Hijleh determine that UAE has high loading item onto projects which make the feasible. As such, they have success rates compared to other regions.
Additionally, there are multi-benefit objectives of stakeholders who have funded projects extensively in UAE (Almarri and Abu-Hijleh). Also, the local legal framework in UAE is supportive of PPP including policies, agreements, regulations and frameworks (Almarri and Abu-Hijleh). All in all, the inclusion of the government through the provision of guarantees to the PPP securing investment for infrastructural development.
One of the critical factors of success in any housing project is the housing factor. According to Ong and Lenard, the involvement of the private sector has played well for governments across the world (2). Interestingly, regions of Europe, Northern America and Asia have gained considerable strides in the provision of affordable housing over three decades as mentions Ong and Lenard (3). Housing comes in two major forms: for rent or purchase. Supporting factors on surge in population growth and increased unemployment rates are linked to increased government pressures to provide affordable housing (Adabare and Chan). The main approach in affordable housing is to promote a better quality of life and access to resources or efficient use of resources. The impact is the realization of socio-economic influence and social progress while maintaining a stable economy (Adabare and Chan). Different countries adopt diverse housing projects for their intended vision and goal success.
In Malaysia, housing PPP and housing joint ventures are the main types of housing projects in the region. Under the joint venture, private companies have different roles tot play compared to public agencies. For instance, the public stakeholders take an active role in the development process, including the planning phase, approval and relocations of squatters and construction stage. The risk in involving the private agencies is for financial risk investment and housing development (Abdul Aziz 4). According to UNEP, a PPP constitutes the method in which the public sector designs, constructs, operates and maintains the public assets from the private sector at a cost (5). The risk is that if the private agency fails to pay for any financial loan, the banking institution is mandated to claim the land and auction it. In the period between 2000 and 2006, the Malaysian government undertook an expansive project to resettle squatters, whereby 14 public agencies were involved and launched 41 projects (Abdul Aziz 8). Overall, the government and the private agencies developed housing PPP and housing joint ventures.
Another factor that determines housing projects is external and economic risks. Such risks include financial risks, scheduled delays, adequacy in funding and efficiency in technical skills and expertise by approved authorities (Zhang 5). In the Philippines, according to Ramos, housing is subjected to the Urban Development and Housing Act (UDHA) (12-2). In the agency, it includes the improvement of quality of life for the homeless and the underprivileged in urban areas. Primarily, the rationale to this is to bring the equitable distribution of resources, including lands in urban areas as well as optimization of resource utilization (Ramos 12-3). The scope of housing is based on government involvement in the Philippines, including land swapping, land consolidation, land banking, community mortgage, and joint venture agreements (Ramos 120-2).
In the UAE, housing schemes were developed through direct and indirect federal levels and individuals. According to Alteneiji et al. (a), the individual Emirates have been able to provide for personal housing programs. For instance, such programs include the Sheikh Zayed Housing Program, whose primary goal is to provide housing assistance to all UAE citizens. In the programs, public organizations, including Abu Dhabi Housing Authority, the MBRHE and DH provide housing facilities for the citizens (Alteneiji et al. b).
The affordable housing project is conducted purely under PPP. According to Almarri, PPP entails the inclusion of the private sector regarding expertise and technical competence. The UAE adopts extreme measures in ensuring that in the future, the growth spouts in population pre-determined will be addressed through affordable housing (Dulaimi et al. 397). Among the measures are the PPP model adoptions (Al-Saadi, Rauda, and Abdou 6). Based on the study, the adopted housing project is through social planning. According to the results of the study, PPP would guarantee affordable housing, but, most respondents were reluctant about the adoption of the social housing sector in UAE (Al-Saadi, Rauda and Abdou 6). However, the one limitation to critical success factors on the housing sector is lack of proper legal framework on the PPP (Alteneiji et al. a). According to the study, there current on-going legal frameworks have been established regarding the PPP in UAE. The proposals have been submitted to the Dubai Executive Council (Al-Saadi, Rauda and Abdou 7).
The objectives orbit around partnerships based on finance and development. Main approaches include the provision of low and middle-income earners who cannot afford full costs of housing or construction (Alteneiji et al. a). Housing projects in the UAE are provided under Islamic finance tools. The need to emphasize the Islamic tools of finance is critical, especially when supporting PPPs during the economic crisis. According to Alteneiji et al. (b), following the Sharia-compliant legal frameworks have worked well for the nation so far. These include aspects of Ijara, Istisma, and takaful. However, the main focus of the government has to be on the improvement of the legal framework. The UAE does not have a concrete and supportive legal framework concerning affordable housing on PPP. Compared to countries such as the United Kingdom, Germany, China and Nigeria, the UAE has to formulate a reputational, legal framework that orbits around the Islamic financial tools and incentive policies that encourage private participation in housing projects. Almarri corroborates that the development of a legal framework will provide structures in which the UAE will define its PPP. They include roles and responsibilities of how each stakeholder contributes to each project development.
In conclusion, the literature review above has conducted a succinct analysis of alternative housing using PPP in different countries, including the United Arab Emirates. Housing projects conducted under PPP in diverse countries fall under different types including build own operate (BOO), build operate transfer (BOT), design-build finance operate (DBFO) and build own operate transfer (BOOT) (Almarri and Abu-Hijjeh 21). However, the literature analysis has shown that each country has its defined operational mechanism on housing and PPP applications. The UAE has defined PPP relations but the conflicting legal framework and majority shareholder risk sharing on financial support from the federal government. Additionally, the literature has defined housing schemes in different countries, including America and Germany. Each country similarly, has its specific including UAE, which, as defined federal and individual contribution to the housing sector.
Work Cited
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