Time to Step Up: Promoting Regional Infrastructure Integration through PPPs

The COVID-19 pandemic has generated an economic crisis of massive scale across the world. According to World Bank data, real GDP has contracted more than two percent in developing countries while global trade contracted by 9.5 percent in 2020. Following a brief rebound in 2021, the global economy is entering a pronounced slowdown amid fresh threats from COVID-19 variants and a rise in inflation, debt, and income inequality. In the wake of such weak global economic prospects and declining trade flows, governments are desperately seeking drivers for the post-pandemic recovery.

Regional integration has been considered as an effective solution to boost economies—as it promotes connectivity and trade while allowing investments and ideas to travel across economies.  As improving connectivity is an obvious prerequisite for regional economic integration, the need for regional infrastructure is higher than ever.

This means that a successful post-pandemic recovery plan must comprise high-quality connectivity infrastructure with a clear sense of direction. It is not only about returning to pre-pandemic levels but taking advantage of the opportunity to build stronger and climate-smart regional integration, creating resilient economic ties among neighbors. 

Nevertheless, if we’re candid, we see that regional infrastructure programs among developing countries are simply not making noticeable progress. Reasons include legal and regulatory obstacles, insufficient cooperation, and—most importantly—constrained public budgets. In addition, regional infrastructure projects face specific challenges as the multi-country element adds another layer of complexity.

Policy makers around the world have been exploring options to overcome these challenges. Among those possible, mobilizing capital from the private sector is considered as part of the solution. Public-private partnerships (PPPs) have already demonstrated a successful record for many single-country projects. The pandemic brought even greater pressure to leverage the private sector as governments focus their efforts on mitigating immediate impacts with tools such as money transfers to vulnerable populations and credits and guarantees for local businesses. Furthermore, with a world awash with liquidity and still relatively low interest rates, regional infrastructure development should benefit from private investors seeking higher returns than government bonds. 

So far, private sector investment commitments in regional infrastructure projects have been minimal. The Private Participation in Infrastructure Projects Database (PPI Database), which we maintain, shows very few cross-border regional infrastructure projects sponsored by the private sector since 2010. The total value of these projects represent less than 1 percent of all PPI investments in low- and middle-income countries in the last decade. Also, these projects are highly focused in the digital development sector in the form of submarine cable, considered to be much freer from the aforementioned challenges of classic regional infrastructure projects.

Indeed, implementing PPP projects at a multi-country level is a daunting task. However, they can still be a powerful mechanism for developing cross-border infrastructure—especially climate-smart infrastructure—when the right conditions are in place. If they demonstrate a strong business case and generate sufficient cash flows to pay back the initial investments, regional infrastructure projects using PPPs can progress faster than traditional procurement.

What options do governments have to overcome the challenges specific to regional infrastructure programs? This is where they should consider mobilizing assistance from multilateral development finance institutions (DFIs). DFIs play a unique role in facilitating regional infrastructure development as they are specialized in coordinating joint efforts of stakeholders at the multilateral level.  Thanks to their independent nature, DFIs provide support that transcends language and cultural barriers (as well as possible distrust) among countries that can negatively affect the quality of management and implementation of cross-border projects. Not to mention the specific tools that DFIs can deploy.

DFI loans can directly support regional infrastructure projects. Or a development policy loan can spur policy reforms to attract PPP investors into a country through improving its legal framework. Further, our analytical work has had a demonstrated significant potential in all regions including the Association of Southeast Asian Nations (ASEAN) and the Economic Community of West African States (ECOWAS)  where the world Bank has been engaged to help define pipelines of potential infrastructure projects in an effort to enhance regional connectivity. Finally, a combination of our lending instruments, guarantee products and analytical work can support private participation in regional PPP projects. 

Regional infrastructure projects via leveraging private capital provide a way forward towards sustainable post-pandemic recovery and there’s already significant energy around this topic. But we need less talk and more action on this front.

Promoting regional infrastructure projects through PPPs is certainly one of the many ways that developing countries can recover from the crisis together stronger, more resilient, and better prepared for future disruptive events like pandemics. 

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