Imagine traveling along the Pan-American Highway (47,958 km), Australia’s A1 Ring Highway (14,500 km), and the Trans-Siberian Highway (over 11,000 km), and spending $2.5 million every kilometer. This dizzying figure is precisely what private sector activity has accomplished in the last two decades. Since 1990, by our count, the private sector has been involved in 731 road public-private partnerships (PPPs)—building, rehabilitating, and managing 78,150 km and investing over $193 billion in developing countries.
Investment by region
Between 1990 and 2011, Latin America and the Caribbean (LAC) attracted the largest share of all private investment in roads in the developing world, totaling $92.5 billion—only $6 billion less than all private investment in all other regions combined.
The most common contract types during the same period were brownfield concessions, greenfield projects, and a (very) few management contracts or divestitures. More recently, we see trends toward more greenfield projects. In the early 2000s, for example, there were about as many brownfields as greenfield projects, while in the last five years, about three-quarters of the projects have been brownfield concessions versus one in five projects being a greenfield.
For the 276 road projects for which revenue source information was available, over two-thirds (64 percent) were funded via user fees. Twenty-three percent were funded via a combination of user fees and government payments, while only 10 percent were funded exclusively by fixed payments from the government.
Major trends in road PPPs
There are three distinct periods in the global road PPP market, distinguished by shifts in regional predominance: the 1990s, 2000-2005, and 2006-2011.
In the 1990s, East Asia and Pacific (EAP) had the largest number of road PPPs (135), closely followed by LAC (127). South Asia ranked a distant third (28), and Sub-Saharan Africa (SSA) came in after that (eight). Although more road projects closed in EAP, the projects were smaller, both in length (km) and investment (dollar amount). In LAC, 27,064 km of roads were built, rehabilitated, or managed, while EAP only covered 5,769 km. LAC attracted 42 percent more private investment: $41 billion compared to $28.7 billion in EAP. The largest road PPP projects in the developing world closed in LAC: Argentina (Intercity Roads corridors 1-9, 11, 17, 18), Chile (Santiago-Colina-Los Andes Toll Road), and Brazil (Ecosul)—all highway concessions of more than 500 km. In the same period, only one large project closed outside of LAC: a 545 km highway divestiture in Jiangsu Province, China in 1997.
The first five years of the 2000s signaled two important changes: activity in EAP slowed down significantly and LAC activity picked up, with 50 percent more projects over the five year period than the entire previous decade.
Most significantly, South Asia showed a steep increase in investment in PPP activity. Forty-two projects closed, implying, on average, a twofold increase in the number of projects per year. Private sponsors invested a total of $2.8 billion, meaning that, on average, the annual investment equaled the combined total investment of the previous decade in South Asia.
The increase in PPP activity in South Asia was driven by India. At the time, India had a “very large network of low-standard roads,” which were “mostly two lane, with high traffic, low service, and slow speeds,” according to a 2004 World Bank report. This led to a focus on highway brownfield concessions, which represented 76 percent of all road PPPs closed in India.
Sub-Saharan Africa also saw an increase in the number of projects. On average, twice as many projects closed each year compared to the previous period, while investment levels remained steady.
In 2005-2011, South Asia continued to rise to the top position with an impressive 189 road projects closed, while LAC ranked second with 88 projects (almost a twofold increase from the previous period). They were followed by EAP with 27 new projects. During this period, India adopted the National Highway Development Program, which helped spur PPP activity in the road sector. While 100 more projects closed in South Asia as compared to LAC, investment levels in both regions were fairly similar—$40.5 billion for South Asia and $39.2 billion for LAC. This confirms an earlier trend, where road PPPs in LAC generally involved a larger capacity and more investment. On average, road projects with private participation in LAC had a capacity of 288.4 km, while the capacity per project in South Asia was three times lower, or approximately 87 km. Road activity in SSA, however, saw a steep decrease: only three projects closed compared to eight in the previous period.
So where are road PPPs not happening? The answer is in the Middle East and North Africa (MENA) and in Europe and Central Asia (ECA) regions. Only two road PPP projects closed in ECA since 1990, involving just $2.6 billion in investment, while there have been no road PPPs in MENA since 1990.
South Asia and Latin America, specifically India and Brazil, will continue to be the center of road PPP activity in the developing world. The government of India intends to increase PPP activity on a state level and Brazil recently announced an ambitious program to modernize and expand the country’s road infrastructure. The national Programa de Investimentos em Logística will involve the reconstruction of 7,500 km of highways. Given the constrained global financial market, the emergence of other road PPP hot spots is difficult to predict.