While the World Bank’s resources for low-income countries have never been greater, they still pale in comparison with these countries’ needs. Governments always need to make hard choices between infrastructure needs, social programs, and fiscal discipline. One country was recently able to strike the right balance with the support of World Bank guarantees: Benin.
A strange irony persists in today’s infrastructure investment market: private capital waiting to be deployed into the sector is at an all-time high, yet investors seem reluctant to commit. Even in developed countries, few investors are willing to partake in transactions with merchant or construction risks without taking a higher risk premium.
This can make the financing of infrastructure projects more costly—a challenge particularly acute in emerging markets where further investment risks abound.
Before diving into a new year, I like to take some time for reflection. This past year, I’ve seen a real shift in how public-private partnerships (PPPs) are perceived and understood—both their benefits and risks. Many governments are considering PPPs to help them deliver infrastructure and services their citizens need. They also better understand the complexity of PPPs as a procurement method and are more strategic in when to use them.
If so, what must be done to ensure they’re sustainable and deliver on public sector goals? Thinking back on 2018, I saw these developments:
Using Islamic finance for infrastructure development attracted more attention recently in the quest to maximize finance for development.
At the recent World Bank-IMF Annual Meetings in Bali, the World Bank and the Islamic Development Bank (IsDB) co-hosted a symposium on Islamic infrastructure finance, building on the institutions’ strategic partnership. As we note in Mobilizing Islamic Finance for Infrastructure Public-Private Partnerships, the asset-backed, ring-fenced, and project-specific nature of Islamic finance structures and their emphasis on sharing risks make them a natural fit for infrastructure public-private partnerships (PPPs).
It takes a lot to do a first Public-Private Partnership (PPP) well. In the past 12 months, we witnessed the successful financial close of two landmark PPPs: the Tibar Bay Port PPP—a first for Timor-Leste, one of the youngest countries in the world—and the Kigali Bulk Water project in Rwanda, considered the first water build-operate-transfer project in Sub-Saharan Africa.
To make these projects happen, deal teams, sponsors, and financiers did outstanding work in difficult environments. The Public-Private Infrastructure Advisory Facility (PPIAF) also earned some bragging rights and a share of the battle scars along with these actors.
With support from the World Bank Group, Singapore invested heavily in infrastructure during the early stages of our growth. This included 14 World Bank loans between 1963 and 1975, which financed the development of the deep sea terminal at the Port of Singapore, the doubling of the country’s energy capacity, and the construction of water pipelines to Malaysia—all of which remain a part of our core infrastructure today.
Like winter and summer solstices of investment cycles, every six months we take stock of how much private participation in infrastructure has come to financial close across emerging markets. From Mozambique to Moldova, Chile to China—in power, water, transport, and the backbone of telecom services—the World Bank Group tracks every new public-private partnership (PPP), privatization, auction, concession, lease, and management contract through our PPI Database.
Con disculpas a Charles Dickens
As recently as 2006, Timor-Leste was in crisis. Only a few years into independence, the country was torn by riots and political turmoil. Not surprisingly, its business climate was one of the region’s worst.
But . Nonetheless, Timor-Leste remains a fragile state, and with oil accounting for 80 percent of GDP, it is the world’s second most oil-dependent nation.
While discussion about Maximizing Finance for Development (MFD) is ramping up with governments and the international development community to seek innovative approaches to mobilize more private sector investment in developing countries, there is a group of countries with an additional layer of complex challenges.
It brings me no pleasure to say this, but a fair number of countries have economic and financial conditions, business environments, and rule of law that are almost always weak. Clearly, these conditions significantly increase the risks of investing in infrastructure for the private sector; consequently, the markets for public-private partnerships (PPPs) tend to be less developed.