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What are the new trends driving private infrastructure investment in emerging markets?

Paul da Rita's picture


Photo: USAID | Flickr Creative Commons

Over $4.5 trillion a year will be spent on infrastructure between now and 2020. A recent article by PwC identified a number of themes likely to guide that investment in a world where politics, technology and markets are changing fast.
 
The five themes are:

  • Investors broadening their horizon
  • New political leadership unveils ambitious goals
  • Future-proofing against obsolescence
  • Sustainable infrastructure for the long term
  • Commodity-rich regions prioritize infrastructure
Of these themes, I think three are particularly relevant, with each having its own specific drivers and impacts. However all three are now converging to move private-sector involvement to the top of the infrastructure planning and development agenda in regions such as Africa and Latin America.
 
The first shift is the new political leadership in countries such as the United States and the United Kingdom, with the prospect of more change to come as the national election season kicks off later this year in continental Europe. Given the shift towards a more internal focus there’s potential for reductions in the amount of aid flowing into emerging market infrastructure across the world.
 
With this possibility, uncertainty now surrounds initiatives such as Power Africa, funded by the U.S. Agency for International Development (USAID). Launched in 2013 by President Barack Obama, this project brings together the private sector and governments worldwide with the aim of adding more than 30,000 megawatts of cleaner, more efficient electricity generation capacity in Sub-Saharan Africa, together with 60 million new home and business connections. As with many projects linked to international aid investment, if the funding is reduced or withdrawn, the burden may fall back onto emerging markets’ national governments. At the same time, we may see the transparency and competitive processes usually embedded by international donors falter.
 
The second shift is the evolving need to build infrastructure that’s sustainable for the long term. The megatrends transforming our planet – rapid urbanization, climate change, shifts in global economic power, demographic changes, and technological breakthroughs – can cause even traditional assets to lose relevance quickly, with the possibility of existing technologies in areas like power generation becoming obsolete. As questions are raised over whether the costs of creating a ‘green’ future are justifiable, many are asking whether emerging markets – rather than copying the progression followed by mature markets – might leapfrog the carbon-based generation and go straight to renewables like solar power.
 
The opportunity to do this has been underlined by recent experience in some markets. Examples include Africa's Renewable Energy IPP Procurement Program (REIPPP) – a transformational public-private initiative described in this video aimed at making the country’s energy mix more sustainable.
 
The third shift is the recent roller-coaster ride for global commodity prices. Countries rich in natural resources have suffered as a result, with governments’ budgets taking a big hit. And while many of these countries see infrastructure as a way to revive growth, protect living standards and reduce their dependence on commodities, money for investment is short. So governments are increasingly considering innovative private financing options, and are turning to the private sector to support these plans. In many cases however, structural reform and regulatory change may be required.
 
These trends are all driven by different factors, but their convergence is likely to have a significant impact on the ability of many emerging market and developing economy (EMDE) governments to invest in much needed infrastructure. Those governments that embrace the benefits that private finance can bring and have in place the appropriate regulatory structures, are likely to fare better. The rest are likely to continue to struggle to deliver on urgent infrastructure programs through a lack of strategic planning and availability of finance.
 
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Disclaimer and Editor's Note

The content of this blog does not necessarily reflect the views of the World Bank Group, its Board of Executive Directors, staff or the governments it represents. The World Bank Group does not guarantee the accuracy of the data, findings, or analysis in this post.

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Comments

Submitted by richard rwatooro baguma on

Paul i follow but i don’t know whether i understand your arguments. you see forgive me but if u are to familiarize yourself with the workings of government in Uganda interestingly you will discover that we have very good planning, policy, institutional and legal and regulatory framework in the infrastructure sector but they are efficient to the extent permissible by the political, civil service and lately the military elite given that the Uganda peoples defence forces is lined up to participate in the construction of our newest white elephant the standard guage railway explaining away why we have a military general immediate former chief of defence forces in cabinet as minister of works. infrastructure deals are sealed in foreign capitals where the head of state as chief diplomat represents the country and when prospective investors in the sector come to Uganda instead of going to Uganda investment authority they go to state house and come out with instructions and orders to these institutions charged with the responsibility to get the country start off on our infrastructure on what to do what incentives to afford them and the much touted land giveaways a subject of another discussion now that we have a commission of inquiry on land on going even as i type away and alongside it a presidential verification committee and audit in the land estates of sir H.H daudi chwa a deceased king in Buganda kingdom who made the famous frivolous Uganda agreement with our colonial masters Britain a source of the current land problems Uganda is facing shooting to crisis proportions.

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