Public/Private Sector Collaboration Can Promote Trade Growth
| Author | Daniel Riordan |
| Published date | 01 September 2019 |
| Date | 01 September 2019 |
| DOI | http://doi.org/10.1111/1758-5899.12716 |
Public/Private Sector Collaboration Can
Promote Trade Growth
Daniel Riordan
President Global Political Risk,Credit & Bond Insurance, AXA XL
Abstract
As risk and uncertainty arise, there is a bright spot of hope for mitigating Political and Credit Risks: Public Private Partnerships.
As evidenced through multiple successful collaborations, the public and private sectors are able to align the complementarity
of their competitive advantages to promote trade and economic growth.
Risk and uncertainty are words that have been appearing fre-
quently together in forecasts of global trade and economic
growth –especially lately. For 2019, the World Trade Organi-
zation predicts that real GDP growth in nearly every region
will slow and developing countries will tighten their monetary
policies, which may further restrain trade. In the second half
of 2018, tensions increased among major trading partners,
adding uncertainty to future conditions. That is worrisome for
the public and private sectors. What can they do to turn the
trend around? Trading partners may or may not resolve their
disagreements quickly, but three steps come to mind that can
make a material difference in promoting growth and support-
ing needed development around the world.
These include: Collaboration, namely, public and private
sources of capital for economic development can join their
strengths by working together, generating an even greater
impact than either sector can individually; strategic risk-tak-
ing, namely, risk is an intrinsic part of economic growth and
innovation. Low-risk investments tend not to offer high
returns. Conversely, a project with above-average risk often
provides an opportunity for above-average returns. When
aligned with risk appetite, a strategic approach to identify-
ing and managing risk in development projects is critical to
their success and sustainability; and protection, that is, the
political risk and trade credit insurance industry offers the
public and private sectors sophisticated and proven meth-
ods of analysing and envisioning the risks involved and new
ways to protect against the downside. In essence, this spe-
cialized form of insurance preserves opportunities for future
growth and investment.
A virtuous cycle
Growth in trade and innovation creates a virtuous cycle in
which jobs are created, standards of living rise and econo-
mies prosper, in turn leading to further investment and
opportunities for growth and innovation. Achieving these
outcomes, however, requires thoughtful planning and effec-
tive risk management.
The United Nations’Human Development Index (HDI), a
composite index comprising metrics for a long and healthy life,
knowledge and standard of living, has steadily increased
worldwide since 1990. In 2017, HDI for the entire world
reached 0.728, which equates to high human development.
Among the reasons for this improvement is sustained growth
in GDP. Data from the World Bank show that global GDP
between 1990 and 2017 –a period that included a worldwide
recession –still grew. Trade volume and investment helped
the global economy rebound after one of the worst financial
crises in the modern era. With that resilience, standards of liv-
ing have continued to rise, fuelling further development.
The ability to promote more growth in trade and devel-
opment, while mitigating the downside risks that can impair
growth, is important for every nation and should be a prior-
ity for governments as well as private enterprises. Working
together, the public and private sectors can build and sus-
tain momentum in trade flows and economic growth.
The power of collaboration
The larger the development project, the greater its need for
capital to fund it. In developing countries, many infrastructure
projects have the potential to be transformative. From road-
ways to airports to power generation, such projects are expen-
sive and difficult, if not impossible, to achieve with public
financing alone. For a variety of reasons, many governments in
the developing world are simply stretched thin. Decades of
debt and entitlement programmes, not to mention the devas-
tating impact of rampant corruption and protectionist fiscal
policies, have taken a toll. Similarly, the burden on taxpayers is
too high to saddle them with the bill for major domestic pro-
jects. Foreign investment is a critical source of capital. Collabo-
ration between the public and private sectors, therefore, is a
necessity to bring transformative projects to life.
An example of such collaboration is the Export-Import
Bank of the United States’announcement in March 2018 of
a risk-sharing programme with private-sector reinsurers.
EXIM’s programme provides an additional $1 billion of
Global Policy (2019) 10:3 doi: 10.1111/1758-5899.12716 ©2019 University of Durham and John Wiley & Sons, Ltd.
Global Policy Volume 10 . Issue 3 . September 2019 443
Special Section Article
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