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New Dimensions of the Public-Private Partnership: Private Equity Options in Developing Countries. Alan G. Straus Skadden, Arps, Slate, Meagher & Flom LLP Istanbul November 8, 2006. Investigating New Dimensions. Meaning of “infrastructure” Meaning of “private equity”

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new dimensions of the public private partnership private equity options in developing countries

New Dimensions of thePublic-Private Partnership:Private Equity Options in Developing Countries

Alan G. Straus

Skadden, Arps, Slate, Meagher & Flom LLP

Istanbul

November 8, 2006

investigating new dimensions
Investigating New Dimensions
  • Meaning of “infrastructure”
  • Meaning of “private equity”
  • Reasonable targets of private investment in a developing economy
  • How the public sector can assist
  • Investing in a “bottoms-up” manner instead of from the top down
traditional private equity
Traditional Private Equity
  • High-profile financial investor/ major corporation
  • Taking target operations “private”, no public reporting
  • Stock market exit at high multiple
infrastructure investment in developing countries urgently needed
Infrastructure Investment in Developing Countries Urgently Needed
  • Infrastructure investment can directly assist the poor by
    • Enhancing economic activity
    • Removing bottlenecks in a local economy
    • Generating distributional effects by increasing the access of the poor to product markets
infrastructure
Infrastructure
  • OECD defines as power, telecoms, roads, and water supply
  • More really constitutes “infrastructure” that is suitable for PPP investment
    • Political and social constraints
expanded infrastructure
Expanded Infrastructure
  • Small and medium sized businesses where a relatively small, targeted private equity investment can have a general multiplier effect
  • More targets for investment
  • Maintains local ownership of resources in the host country
sme targeted private equity investment
SME-targeted Private Equity Investment
  • Stresses the importance of small and medium sized enterprises (SMEs) to produce economic growth and human security
  • Portfolio investment
  • Jumpstart a business that needs development capital but for various reasons can’t access more traditional capital
  • Stimulate growth in the SME sector that in itself will be able to have a greater opportunity to expand and build infrastructure, as widely defined
sme targeted model
SME-Targeted Model
  • Not a controlling investment
  • High risk
  • Ties to Management Training
  • Usable with Islamic Financing Techniques
  • Lower Leverage
afghanistan renewal fund
Afghanistan Renewal Fund
  • Mix of European and Afghan management
  • $20 million committed
    • High-net worth individuals
    • Development finance institutions and donors
  • Pipeline: over 200 potential deals
    • Entrepreneurs seeking total investment of $380 million
    • Deal-pipeline growing at 10-20 deals/month
effective public sector participation
Effective Public Sector Participation
  • May come in various forms
  • Public sector participates as investor
    • Publicly funded development finance institutions can partner with private sector in investing
  • Public Sector as asset owner
    • Private sector participates with low capital and investment risk through service or management contracts
effective public sector participation1
Effective Public Sector Participation
  • Public sector participation in the form of financial project support, such as guarantees and insurance, can mitigate investment risk
  • Public sector participation, through tax or concession incentives, might encourage packaging of investment in infrastructure that has sectoral or regional significance with business licenses for tradable opportunities
  • Public and private interests to create a fundamental utility (for example, water, power and sewage treatment and development rights) might support
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