Privatized Investment

When talking about developing countries, people generally assume less room for investment due to smaller economies and fewer opportunities. In recent years, we have seen the growth of an innovative and profitable form of public and private sector investment program – The Build Operate and Transfer System (BOT).

Build-Operate-Transfer works using a simple business model. Private investors invest in infrastructure projects, such as road, highways, railways etc., operate the project for a definite period of time and then transfer the control to the government. The government, while not investing directly in the project, safeguards the investment and insures the project for the private sector. Build-Operate-Transfer diversifies the risk in investment. Lenders are more willing to lend to investors to finance the projects as BOT ensures a steady stream of income to the investors. The government is able to provide insurance and security to the project without allocating funding for a project. At the same time, investors have a greater possibility of a profit. The biggest motivator for a BOT is that the host government does not have to provide any funding but can still provide a facility to the public. The Gwadar Deep Sea Port Project in Pakistan was funded and has been financed by China Overseas Port Holding Company since 2007. Despite Pakistan having significant security issues and low credit rating, the foreign investors were able to invest significant portions of money in this project. With the diversification of risk, the investors have a greater margin of profit. The concession period of each project varies with regards to its net present value and internal rate of return. The major source of finance in such projects is the revenue from services, tolls and transit fees. In projects like the Channel Tunnel, the operating period is 55 years due to the large initial investment. There may be other distinctions between projects such as the timeline of transfer and the variation among periods. Investors in developed countries should pursue BOT as primary investment projects. BOT programs offer large opportunities for growth in the coming decades. Low developed countries in Africa can benefit from these opportunities. Foreign investment through non-conventional means such as BOT will help in the infrastructure growth, enhance the stability of the government and would facilitate future investment in the country. There are, however, certain key factors necessary for the success of a BOT project. It is imperative for private and public sector to have strong contractual agreements, insurance of investment, reliable consortium, a solid business plan and reliable feasibility projects. In the wake of major fiscal shortcomings throughout the world, it’s imperative to increase the public and private sector corporation. Build-Operate-Transfer has facilitated the global economy many times over the years. The Suez Canal was also a form of BOT project, which has saved the shipping industry billions of dollars to date. The key to a successful project is a strong public-private sector relationship and reliable feasibility projects. Nevertheless, BOT remains a largely unexplored sector with high potential of growth, profit and benefit to the community.

  • Richard

    I agree. A wise businessman in the Caribbean named Sir Kyffin Simpson always said that the key to success is progression and humility, and clearly he’s done very well for himself as a self made man!

  • John Andrews

    The Airgain IPO launches this week, and they’re a one-brand company.

    Some investors don’t think it’s a good stock though:

  • Cincinnati World Cinema

    Well said, Joe, and worth rereading on a regular basis! Another advantage of small-to-midsize city living is pace and competition. Living in NYC, LA and SF entailed a hectic pace, hallmarked by capital S striving, as one realized there were a ton of others doing what I do. Spending so much time in one’s car in SoCal meant much less time for quality pursuits and pleasures. A smaller pond with relaxed pace allows one to savor life and special moments.

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