One of the ways in which you can make tidy profits, as a financier, is by funding public projects. This is possible under the Public Private Partnership (PPP) arrangements, which have become very popular in recent years. You may, for instance, get involved in funding the construction of a public road, under the said PPP arrangement. Normally, the roads that are constructed under PPP arrangements are tolled. This is to say that people would be paying tolls, for them to use the road. And it is through the money from the tolls that you, as a financier, would be able to recoup the money you spent financing the construction of the road.
Chances are that over the years, you’d end up recouping the entire sum of money you spent financing the construction of the road, and also get a nice profit on top. There are, of course, governments that abhor the idea of tolling their citizens. So they opt for direct taxation measures, including fuel levies, through which they are able to raise the money that is necessary for them to repay private financiers. If you are lucky enough to encounter such an arrangement, it would be even better: because, under such direct taxation arrangements, chances of you recouping your investment are actually much higher.
It is not just road construction projects that are financed through the public private partnerships. All sorts of other infrastructure projects, ranging from ports to railroads and onto stadiums, bridges and lots of other things are often financed through public private partnerships.
Identifying the public projects to finance
Governments usually advertise the projects that they are seeking to finance through public private partnerships. You just need to know where such adverts are normally placed, and ensure that you check from time to time, to see if there are projects you may be interested in.
Public private partnerships are usually international in scope. This means that if you are a financier with adequate money to get into public private partnerships, then you shouldn’t limit yourself to exploring projects within your country. You may find that there are projects, open to PPP funding, in other nations that are potentially more lucrative. In a globalized world, it would be crazy to limit yourself to a small pond, while the whole sea is open for you.
We even have some private financiers who are known to be so aggressive that they take the initiative to approach governments, looking for PPP opportunities. This too is something you can think about, if you are that aggressive. It entails visiting various countries, looking for public utilities that need to be built, rebuilt or repaired. Then, once you have identified such public utilities, you can approach the relevant public authorities, and ask them whether they’d be open to the idea of partnering with you, in the said projects.
Public private partnerships can be potentially lucrative. This, unfortunately, also means that there is room for corruption in these sorts of partnerships. Sometimes, governments won’t be open to proposals for funding, under PPP projects. That is because the people who run the governments prefer to keep the projects for themselves. They form shell companies, and use them to fund the projects under PPP. Then they get to enjoy the profits. That is very common in third world countries.
Sometimes, the advertisements for PPP projects are only made to fulfill legal requirements: but by the time the ads are done, the government agencies already have preferred financiers. So you have to be awake to that reality.
These are the sorts of niches where you need certain connections, if you are to be successful. Of course, getting connections is not too hard. At its core, it is just a matter of networking with the relevant people, and coming up with mutually beneficial proposals.
On the need for you to look at the feasibility studies
It is important for you to ensure that you only get involved in financing projects that are feasible. These are projects that would generate enough revenues for you, as the financier(s) to recoup your investment, and subsequently make some profit.
One way of ensuring that you only get involved in financing projects that are feasible is by studying the feasibility studies. But then, you need to ensure that the feasibility studies you look at have been generated by objective and credible people. Sometimes, feasibility studies are carried out by people who have vested interests – people who are inclined to make projects that are not feasible look as if they are feasible. So those are things you need to be careful about.
On the need for you to study the political risk
Another important thing for you to study, before getting entangled in PPP arrangements, is political risk. You should only make PPP investments in countries where the political risk is low – countries that are reasonably stable. The challenge here is in the fact that the nations with the best PPP investment opportunities tend to be those that are not 100% stable. So you end up in a situation where, under a PPP financing arrangement, you can invest in country X, with potential to earn very good returns – but also with the potential to lose all your investment if things go wrong politically. It is really upon you to work out the level of risk you are ready to live with.
What you need to have, to finance public projects
To finance public projects under public private partnership arrangements, you will need to have a good amount of money. The required investments are usually huge. If you don’t have such huge sums of money personally, you can rally other like-minded investors. The objective would be to pool funds together so as to end up with enough money to finance public projects. This approach is good, because it ensures that no individual investor ends up being too exposed. No individual investor ends up putting too much money into the PPP financing arrangement, under this scheme. However, collectively, you end up with a sum of money that is enough to get a public project going.
You may also need to have good connections with the people who control the levers of power, to succeed as a financier in public private partnerships. It is through such connections that you will be able to get the public private partnership opportunities which, as we noted, are potentially lucrative and hence open to corruption. If you have good connections with the people who control the levels of power, you’d have another advantage in that your interests, as an investor, would be well protected. And that is important, because you can’t afford to leave yourself exposed. You could quite easily end up being scammed off your investment. As we noted earlier, if you don’t currently have such connections, you don’t need to worry too much. You can embark on an aggressive networking exercise, to end up with the necessary connections.