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What is Private Sector Participation?

By Osmand Vitez
Updated May 16, 2024
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Private sector participation occurs when a private company or investor engages in a project along with a public sector or other entity. This participation allows major risks to be spread among several different parties to ensure one group does not have full financial responsibility. In some cases, private sector participation can occur when an international company engages in a project that is not in its country. Projects for this type of business participation can be wide ranging, although public sector projects often include items that have close links to a nation’s infrastructure.

Starting major projects that require copious amounts of capital may mean participating in a bid or proposal selection process. For example, governments engaging in major infrastructure improvements may send out bids to private sector companies. In the terms defined or listed on the bid, private sector companies may need to place capital into a fund for the project. This capital may not have repayment guarantees, as the government desires private sector participation that will not leave the project. Governments that use an open-bid process, along with a cost-plus contract process can ensure they receive the best cost on major projects. Proposals represent the information sent to government agencies requesting the right to work on infrastructure projects.

International firms looking to enter a country for expanding operations may engage in private sector participation processes. Foreign-based firms can work with international government agencies or other private businesses during these projects. One way international companies can work their way into these projects is to start in a sub-contractor role. Although this does not represent direct involvement in private sector participation, international organizations can get their name out in hopes of securing future contracts with foreign contracts. A significant benefit brought on by international companies is the cheaper labor costs from workers. This lowers the cost for major projects.

Private sector participation is also evident where more developed countries attempt to bring aid to lesser developed countries, such as those classified as “third world countries” by global organizations. Government agencies will contract with private sector companies to build infrastructure developments in the third world country. Common developments include clean water initiatives, hospitals, schools or homes for orphaned children. To complete these developments, governments will pledge money for the projects and allow private sector companies to participate in the building phase of the development. This ensures that money pledged goes for the intended purpose and the companies involved have the requisite experience to handle tasks involved in the project.

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