Photo: shplendid | Flickr Creative Commons
Talk of trade tariffs and heightened geopolitical tensions are dominating news headlines recently. As developed economies consider escalating protectionist policies, it’s easy to forget about the situation many emerging markets face.
As outlined in the World Bank’s Global Economic Prospects report released in June this year, protectionist policies would affect emerging market and developing economies (EMDEs) more severely than advanced economies. And this is at a time where increased investment and spending in EMDEs, including in infrastructure, is sorely needed.
These nations—Benin, Côte d’Ivoire, Egypt, Ethiopia, Ghana, Guinea, Morocco, Rwanda, Senegal, and Tunisia—face an infrastructure investment need of $2.4 trillion over the next 22 years, according to our report: Global Infrastructure Outlook: Infrastructure Investment Need in the Compact with Africa Countries.
Worryingly, the forecast indicates these countries are on track to spend only $1.4 trillion based on current trends, leaving an infrastructure investment gap of $1 trillion. Of this, $415 billion is required by 2030 if these countries are to meet the UN Sustainable Development Goals (SDGs) for universal access to clean drinking water, sanitation, and electricity.
This gap sounds almost unsurmountable, but it’s not. As a percentage of combined GDP, total infrastructure investment in these 10 countries was equivalent to only 4.9 percent between 2007 and 2015. To meet the investment needed to 2040, they must increase the proportion of GDP allocated to infrastructure to an average of 8.1 percent. Forecasting the scale of the need and understanding investment trends and gaps is a crucial first step. This allows us to uncover the opportunities and the potential for change.
According to the joint Global Infrastructure Hub and EDHEC Global Infrastructure Investor Survey 2017, 37 percent of infrastructure investors now invest in emerging markets, up from 20 percent in 2016. Of those already investing in emerging markets, 82 percent want to do more. The appetite from investors is there, and the Global Infrastructure Hub’s research shows that, if policies and investment environments are right, more of this enormous pool of capital can be mobilized.
To that end, the Global Infrastructure Hub has also released a second new report, InfraCompass: Set your Infrastructure Policies in the Right Direction in the Compact with Africa Countries, which presents an overview of the policy drivers that deliver more and better infrastructure. Its aim is to help governments and policymakers identify policy reform opportunities leading to greater investment.
There is a clear need to increase regulatory quality and improve the free flow of capital. Further increases in conflict of interest protection and improving project recovery rates would also be beneficial.
Rwanda is a prime example of a country that has worked hard on improving its regulatory quality, rule of law, and investment and competition frameworks. In addition, relatively good performance in providing taxation incentives, insolvency frameworks, and quality of land administration processes has propelled Rwanda’s overall infrastructure investment environment.
As a result, two-thirds of Rwanda’s infrastructure spending now comes from private investment. The evidence is that, if a country runs transparent procurement processes and has clear regulations that facilitate long-term investments, then investors will look seriously at projects there.
Investors want to know what legal frameworks exist and whether they are applied fairly and in a timely manner. Kenya is an example in InfraCompass of a country that used PPP laws to increase transparency and to show its willingness to run clean bidding processes.
In addition to these two reports, the Global Infrastructure Hub is taking further steps to provide support to African countries in building capacity in infrastructure procurement.
Announced in July by Jean-Baptiste Lemoyne, the French Secretary of State attached to the Minister for Europe and Foreign Affairs, the Global Infrastructure Hub, along with the investment firm Meridiam and the World Economic Forum, are working together to deliver the Africa Infrastructure Fellowship Program. This is an initiative to help African governments strengthen infrastructure procurement capacity by training and retaining key officials in procurement agencies.
Private sector investors are key to bridging global infrastructure investment gaps and, although institutional investors are willing to participate, they are wary of the risks.
The IMF estimates there is more than $100 trillion in pension funds, insurance companies, mutual funds, and sovereign wealth funds globally. It’s an enormous wall of money that can be unleashed, but it requires a well-regulated investment environment, conducive to private investment.
While geopolitical elephants may indeed be fighting, many countries and actors in the development community are trying to help the grass grow.
Disclaimer: 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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