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In the aftermath of the global financial crisis, policy makers focused on improving access to finance, missing the crux of the problem: governance.
In pursuit of achieving the Sustainable Development Goals through the 2015 Addis Ababa Action Agenda on financing for development, the Regional Roundtables on Infrastructure Governance* were created to promote a community of practice comprising government officials and the international development community to strengthen capacities within developing countries and establish good practices in infrastructure governance across various government sectors.
The inaugural roundtable, hosted by the Development Bank of Southern Africa, will take place in Cape Town on November 2-3, 2017, and aims to emphasize that for the commercial financing of infrastructure to be a viable option, governance reforms must happen.
Private Sector Development
Most of us carry out research and report our findings with the expectation—or at least a hope—of an audience.
Yet fewer amongst us are familiar with our audience, even though their feedback may help us improve our work.
We, the team behind the Private Participation in Infrastructure (PPI) Database—the most comprehensive database of private investments in infrastructure in the developing world—continue to strengthen the database and our ensuing analyses. Learning more about our audience is an important component of these efforts.
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The issue of bankability of infrastructure projects has long been a topic of discussion by the development and investors’ communities and is one of the key bottlenecks in attracting private capital to meet the global infrastructure gap and to provide millions of people with the key services they lack.
Under German presidency, the Business 20 (B20)—a platform that enables the global business community to contribute to international policy discussions—submitted 20 recommendations to Group of Twenty (G20) leaders under the theme “Building Resilience—Improving Sustainability—Assuming Responsibility.” Recommendation 14 is on boosting infrastructure finance and reads:
G20 members should boost infrastructure finance by developing and promoting bankable and investment-ready infrastructure project pipelines and by enhancing the role of Multilateral Development Banks as catalysts for private sector investment.
The B20 task force on infrastructure confirms “the investment gap in infrastructure is not the result of a shortage of capital. Real long-term interest rates are low, there is ample supply of long-term finance, interest by the private sector is high, and the benefits are obvious.” However, a number of factors hold back investment in terms of financing and funding. “The main challenge is to find bankable and investment-ready projects.”
Many countries are experiencing urbanization within the context of increased decentralization and fiscal adjustment. This puts sub-national entities (local governments, utilities and state-owned enterprises) in the position of being increasingly responsible for developing and financing infrastructure and providing services to meet the needs of growing populations.
However, decentralization in many situations is still a work in progress. And often there is a mismatch between the ability of sub-nationals to provide services, and the autonomy or authority necessary to make decisions and access financing—often leaving them dependent on national governments. Additionally, they may also contend with inadequate regulatory and policy frameworks and weak domestic financial and capital markets.
- sustainable cities
- municipal governance
- infrastructure financing
- Public private partnership
- Public Private Partnerships
- Urban Development
- Public Sector and Governance
- Private Sector Development
- Europe and Central Asia
- Latin America & Caribbean
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As in many regions, countries in Latin America and the Caribbean are underinvesting in infrastructure—spending in the sector is only about half of the $300 billion needed annually to encourage growth and reduce poverty. Addressing this issue involves the successful interaction between public officials and leading infrastructure actors, particularly in the private sector. Stimulating such public-private dialogue is a priority for the Inter-American Development Bank (IDB) Group, a technical partner of the Global Infrastructure Facility (GIF). Along with other partners, our recently established PPP unit supports governments, international financial institutions, and the private sector to develop infrastructure projects.
It was therefore a privilege for me to moderate a panel on country infrastructure programs in Latin America at the GIF’s annual Advisory Council meeting in April 2017. We covered three countries—Colombia, Argentina and Peru—at different stages of PPP market development. The findings were encouraging and illustrate a path forward for other countries in the region:
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When PPP investors are asked what they look for in a project, they would typically reply they like projects that are bankable, where risks are fairly allocated between the government and the sponsor. When one probes deeper though as to where they normally invest, you might elicit this response: in a market where there is deep commitment by the government to undertake an effective PPP program. This is a very telling answer sometimes lost to governments that want to pursue ambitious PPP programs. Bankability for a developing country involves more than de-risking projects. More importantly, it entails de-risking the country and its PPP program.
We’ve just released the 2016 update for the World Bank’s Private Participation in Infrastructure (PPI) Database and it makes for some gloomy reading. Investment commitments (investments) in infrastructure with private participation in Emerging Markets and Developing Economies (EMDEs) fell by a whopping 37% compared to 2015.
(Photo: Getty Images)
There is a huge need for new and upgraded infrastructure around the world, particularly in emerging markets. Policy makers like to talk about raising trillions of dollars to fund infrastructure, but the truth is that capital for good projects exists. Regulation and lack of policy clarity are inhibitors.
What lacks is a strong pipeline of projects that meet societal needs and are financeable. If we can increase the quality of projects, and encourage smart and efficient regulations, the money to fund them will follow.
We identified several areas that should be prioritized by the international community and local governments.
As infrastructure projects are increasingly decentralized to sub-national governments (SNGs) in many countries, policymakers are keenly interested in developing sub-national bond markets to open up access to private-sector financing. However, the transaction costs of bond issuance are still prohibitive for small SNGs.
Pooled financing—through regional infrastructure funds, municipal funds, or bond banks—is being explored as a solution. Yet, many questions remain:
Much is written about Public-Private Partnerships (PPPs) from the perspective of the public sector, but one often forgets the private sector forms its own perspectives based on national and domestic market perceptions as well. These perceptions are always based on the availability of reliable qualitative and quantitative information.
Discussions with private sector leads has revealed that information gaps, more often than not, have proven to be obstacles that have resulted in “no-go” decisions on poorly articulated procurements initiated by inexperienced public sector procurement officers. Overcoming private sector hesitation is pertinent to the success of a procurement.