The Role of Public-Private Partnerships in Building Sustainable Cities

Every year, around the world, millions of people leave their rural communities in the search of opportunities in urban cities. This is evident in many fast-growing economies like Turkey, which have seen rapid growth in the number of people living in urban communities. Today, near 80%[1] of the Turkish population lives in a city and while this presents major opportunities for development, it also poses many challenges. To respond to rapid growth in urbanization and migration, cities need to build critical resources, such as infrastructure, to support the population growth and to ensure sustainable development.

The United Nation’s Sustainable Development Goal (SDG) 11 calls on governments to build cities that are economically and socially resilient by investing in infrastructure, green public spaces and improved planning.[2] In an ideal world, cities would have all the necessary capital to embark on projects that provide better access to electricity, water, public transport and affordable housing. However, the reality is that they continue to suffer financial gaps that prevent them from doing so.

Nowhere is this more pressing than in Turkish cities, which according to the World Bank, have witnessed the most “dramatic and transformative urbanization experiences of any country in the world,”[3] as it deals with a rapid pace and scale of expansion. In response, the World Bank in partnership with the European Union has recently provided Turkey 500 million euros to support the sustainable development initiative, such as transportation, quality water, energy efficiency and waste management, just to list a few.[4] However, sustainable development, as the UN has stated, also requires private-sector financing and support.[5] This paper seeks to outline three ways private financing in Turkish cities can guide public investment, and in the process, enhancing opportunities for French-Turkish business and civil-society co-operation.

In its quest to build sustainable communities, Turkey has identified multilateral funding as one of the methods for creating projects in areas like renewable energy.[6] While it is true that governments must take a leading role in building infrastructure, the private sector can also play an important role in the management and capital financing of projects through public-private partnerships (P3). The benefit of such a partnership is that the public outlines the project and provides a portion of the financing. Once the public interest has been defined, private companies (or consortiums) enter a competitive procurement process, allowing the government to choose the best deal. The consortium then agrees to a fixed contract and provides additional financing through equity and/or debt, receiving a portion of future cash flows as compensation. When the project is well designed, it can result in a project done on time, on budget and which meets the defined public interest. In a speech at the International Economic Forum of the Americas in May of 2019, Casablanca’s mayor, alongside the Minister Head of Moscow City, talked about how partnerships with the private sector are allowing their cities to do more, taking on projects that public financing cannot always complete alone.[7]

As part of its development strategy, Turkey has embraced partnerships with the private sector. The country is now the leader for the P3 market in Europe, in terms of the number and value of the projects, followed by France at number two (Figure 1). Transportation and energy infrastructure are the leading projects in the Turkish market, with over 100 billion-dollar investments from institutional investors in those sectors over the past 30 years (Figure 2). L’agence francaise de developpement (AFD), has taken an active role by financing line 2 of the Istanbul Metro,[8] working alongside the European Bank for Reconstruction and Development (EBRD) which has deployed a €97.5 million loan for the city, in addition to the €11.5 billion of investments since 2009.[9] Moreover, the AFD has been providing technical support to cities in Turkey on energy and is working with a hundred municipalities to encourage investments in critical city infrastructure.

By partnering with the private sector, cities can draw on strategic expertise to deliver projects for its citizens that it may not always be equipped to complete on its own. In that regard, French and European companies are uniquely positioned to work with Turkish cities to identify opportunities for investment in areas where French companies have competitive advantages, like energy infrastructure. The geographical proximity as well as the strength of French-Turkish ties creates the possibility for enhancing the bilateral relationship, through mutually beneficial public-private infrastructure agreements.

Moreover, partnerships between the private and the public sector should not just be limited to physical infrastructure. Digital technologies create the possibility of creating smart cities that can deliver on the SDG goals. According to the OECD, smart cities can leverage digitalization to improve the standard of living of citizens and deliver urban services and environments that are inclusive and efficient through a multi-stakeholder process. Smart cities have the potential to use data to reduce emissions and provide services that are more inclusive and responsive to the ever-evolving changes occurring in the city ecosystem.

A 2018 UN Ministerial Declaration reiterated on the need to embrace “innovation-driven development, digitalization and new technologies, especially information and communications technologies, in managing cities more effectively and holistically, including intelligent and resource-efficient transport systems and new efficiencies in energy consumption and waste management.”[10] The opportunities for digital technologies in cities are endless. For example, Cape Town implemented a sensor in water utilities and electrical smart meters, a technology that has reduced emissions, improved customer satisfaction and paid for itself through higher revenues from improved analytics.[11] Technology can be harnessed to feed every part of the city ecosystem, whether that is water, energy, waste management or transportation flows. Moreover, digital connectivity allows cities to better communicate with citizens about public health and key public services. This transformation will help urban planners better manage every part of the city in a more sustainable manner leading to improved urban management “in participatory and inclusive ways”, a key element of SDG 11.

In that regard, funding startups and French technological innovation can lead to positive knowledge spillovers in Turkey and play a key role in creating a sustainable private-public framework.

Photo courtesy of UNDP Turkey website.

Finally, investments in social impact bonds can help Turkey deal with migration trends that often have critical effects on the city. The country currently hosts four million refugees who have been displaced by war and conflicts.[12] Delivering services that aid refugees integrate into societies and create businesses will help to provide meaningful opportunities and aid in the economic development of cities. For European investors in Turkey, social impact bonds have been utilized by agencies like the EBRD to finance business ventures, improve gender equality and renewable energy and efficiency.[13] Social impact bonds are contracts that rely on private financing to provide services that must achieve certain outcomes for the investor to get repaid.

This is a new financing technique that is being explored in many countries from Finland to Jordan, to help refugees integrate, start a business or get access to education. Social impact funds focusing on refugees could be complementary to the Emergency Social Safety Net (ESSN) in Turkey by working to help women gain language training skills, vocational training or to improve educational outcomes for children. These investments take investors initiative but nonetheless are aligned with the record of the EBRD and French agencies in the investment of social impact initiatives. Moreover, strategic investments could draw in private sector investors and NGOs who could profit from developing programs that help Turkey’s growing refugee population.

The bilateral relationship between France and Turkey is important and growing in size. Both countries have expressed their desire to increase co-operation, trade and investment flows. The geographical proximity of the countries, their deep historical relationship and cooperation is an asset that can help in achieving shared objectives. A move towards building sustainably requires concentrated effort from government and multilateral institutions, as well as institutional investors that can unlock tens of billions of dollars in critical capital. Financial partnerships through P3, digital enhancement of cities and social impact bonds offer French and Turkish investors and civil society meaningful opportunities to co-operate on the development of sustainable cities and communities.

[1] Statista, Turkey: Urbanization from 2008 to 2018, 2020

[2] UNDP, Goal 11: Sustainable Cities and Communities, n.d.

[3] World Bank, Turkey Urbanization Review, 2015

[4] World Bank, More Cities in Turkey Benefit from Sustainable Municipal Services, 2019

[5] UNDP, UNDP Launches Standards to Guide Private Sector in Achieving SDGs, 2019

[6] UN, Turkey’s Sustainable Development Report: Claiming the Future, 2012

[7] Conference de Montreal, Towards a Sustainable Mobility Future, 2019

[8] AFD, Turkey: Supporting Urban Development, n.d.

[9] Olga Rosca, EBRD: Financial Package for Istanbul Metro Expansion, 2019

[10] UN Economic and Social Council, High-Level Political Forum on Sustainable Development, 2018

[11] SAP GA, Holistic Approach of SAP Urban Matters Program Delivers Sustainability Results for Cape Town, 2013

[12] Shelley Inglis, Syrian Refugees in Turkey Are There to Stay, 2019

[13] Presidency of the Republic of Turkey, The Impact Investing Ecosystem in Turkey, 2019

Figure 1 (France and Turkey are the leading P3 markets in Europe). Bentley, Zak. “France and Turkey Lead European PPP Market as Italy and UK Plummet.” Infrastructure Investor, 19 Feb. 2019, www.infrastructureinvestor.com/france-turkey-lead-european-ppp-market-italy-uk-plummet/.
Figure 2 (Breakdown of P3 partnerships in Turkey). “Investing in Infrastructure & Public-Private Partnerships in Turkey.” Presidency of the Republic of Turkey, Investment Office, May 2019, www.invest.gov.tr/en/publications/lists/investpublications/infrastructure-industry.pdf.

Originally submitted March 2, 2020 for the Bosphorous Institute essay contest on sustainable cities and communities

Undergraduate Student at Sciences Po Paris & UBC.