Declining private investment in infrastructure – a trend or an outlier?

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. 

The decline from last year can be explained by the presence of one very large project—Turkey’s IGA Airport ($35.6 billion), which had boosted the 2015 numbers. Subtracting this project from 2015 figures means global private commitments in 2016 would have only been 8.2% lower than in 2015 ($77.8 billion). But this is no cause for comfort: 2016 saw volumes 41% lower than the preceding five-year investment average ($121.4 billion) and was the lowest level of investment commitments in 10 years. The declining investment trends are due to fewer projects being implemented. The 242 projects recorded in 2016 are 27% lower than the number of projects in 2015 (334 projects) and 57% lower than the annual average of 421 projects per year.

The big “bump” in activity that occurred over the period 2009-2015 has disappeared. Large economies that had big public-private partnership (PPP) programs—like Turkey, India, and Brazil—are seeing much lower levels of activity than during the peaks of that period.

Investment in infrastructure with private participation as a share of GDP also declined in 2016, to 0.3%—also its lowest level in 10 years. International Development Association ( IDA) countries saw a very modest increase in PPI investment commitments in 2016. But 2016 totals were about half of the annual average over the 2011-2015 period and only seven countries did projects.

There were some bright spots. Renewables continued to be strongly favored by private investors in EMDEs in 2016  —88% of electricity generation projects with private participation relied on renewable technology. Renewable investments totaled $20.4 billion, comprising 61% of the total investment in electricity generation projects. Furthermore, preliminary numbers in the first half of 2017 are showing a marked increase, giving cause for hope that 2016 might be the trough of a cycle.

With the increased focus on mobilizing private finance for infrastructure, the 2016 figures show how far the market needs to recover to see PPPs make a significant contribution.  The overall weak levels of investment though suggest that more work needs to be done to strengthen sector financial performance in EMDEs as a whole to bring in more investment, public and private. Multilateral development banks such as the World Bank Group have a role to play in this mission by using their financial assistance to catalyze, mobilize and crowd in other sources of funds for development.

The full report can be found here: 2016 Private Participation in Infrastructure (PPI) Annual Update

 

Related Links: 

Private Participation in Infrastructure (PPI) Database
 
How are PPPs really financed?