Image depicting investment in infrastructure | © 1599686sv, Shutterstock
Private sector investment commitments in infrastructure stood at $96.7 billion in 2019. Despite a slight decline from the previous five-year average of $103.5 billion, new data from our Private Participation in Infrastructure (PPI) Database points to 2019 as an exceptional year for two reasons.
First, more developing countries hosted PPI than we’ve seen in a decade—62, from 46 countries in 2018. Countries such as Belarus, Belize, Cabo Verde, Comoros, Malawi, Sudan, and Uzbekistan, which had not posted private sector commitments in the last 10 years, saw a return in investment in 2019. St. Vincent and the Grenadines and Solomon Islands reported their first PPP transactions ever. It’s imperative to note that these first PPP projects in countries deserve extra credit as they can act like seeds for future investments, often as precedents for the next generation of PPP transactions in the region.
Why did we see the broadening of PPI’s reach? Development finance institutions (DFIs) played a pivotal role in expanding the private sector’s activity to new countries by providing tailored support. In Europe and Central Asia, for example, a sovereign loan supported the construction of a biogas power plant in Belarus that complies with EU regulations. The Swedish International Development Cooperation Agency complemented the investment with an additional grant for capital expenditure and project implementation advisory work.
We wish we could stop there for a bit and bask in these advances. But, the effects of COVID-19 are nipping at our heels.
As of now, we’re expecting an even lower volume of total PPI investment in 2020. This likely comes as no surprise. Our research reveals that, as of June 23rd, 70 infrastructure projects in the pipeline have been put on hold in low- and middle-income countries due to uncertainty in their financing as a result of the pandemic. As infrastructure projects are often sequential and interdependent, we have already witnessed delays in the construction of a transmission line that has put six development-stage wind projects under financial stress.
In this context, DFIs can play an important role and PPP projects from the past may provide valuable lessons for 2020. Infrastructure financing has evolved in order to cope with the risks specific to different environments, and DFIs have been playing a key role in providing more innovative financing options. One of the many examples is blended finance, where a financier—not commercial banks but DFIs—blends their concessional and private finance and lends it. This approach has allowed support to private sector projects beyond what DFIs would normally be able to engage in, particularly in higher risk countries and for innovative technologies. Another example is the deployment of loan guarantees to mitigate government and regulatory risks, which can enable unprecedented structures and tenors. Here’s an example of how this was done using a local loan for a hydropower plant in Cameroon.
We were already making these kinds of projects happen before the coronavirus crisis, now we need to step up our game even more—and quickly.
Yes, it’s likely we’ll see another low PPI investment total in 2020. But people still need electricity to power hospitals, transport to get to work, and effective digital development—which is more in demand than ever. DFIs can help bridge funds where they’re needed, not to mention provide technical support in this very specialized and quickly evolving arena.
Considering their small scale, some of these projects in countries that haven’t seen PPI investment may not add much to global numbers, but they have a powerful demonstration effect at country, regional, and even global levels—just when we need it most.
The PPI Database is a product of the World Bank’s Infrastructure Finance, PPPs & Guarantees Group. Click here to access the full website.
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This blog is managed by the Infrastructure Finance, PPPs & Guarantees Group of the World Bank. Learn more about our work here.
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