The Buzz on the Street: Can institutional investors really close the infrastructure gap?
Once again, infrastructure is a hot topic. Not since the first waves of energy, water and transport privatizations in the early 1990s has infrastructure been a central topic in the daily discourse of the media, of the development community, of economists and financiers. Now, governments are crying for more of it, new development institutions are being built around it and even the IMF is asserting its central role in economic growth.
Not only has infrastructure re-emerged as a popular, nearly consensus solution to the economic and societal woes of developing countries and industrialized nations alike, but the font of the resources needed to fill the infrastructure financing gap has also been identified. Suddenly, it is impossible to walk through London, Washington, Paris or Singapore without bumping into a conference on institutional investors in infrastructure. The G20 has discovered the link along with their business counterparts at the B20. So too has the World Economic Forum, the OECD, the UN and the international financial institutions. Match the long-term liabilities of pensions and insurance plans with long-term assets, the mantra goes, and the infamous infrastructure gap will close. Win-win.
If only life were so easy.
Public private partnership
The Buzz on the Street: Can institutional investors really close the infrastructure gap?
In many countries, central governments have devolved the responsibility of infrastructure service provision to the sub-national level, which is essential for economic growth. Along with this devolution of provision responsibility comes the requirement to raise revenues, enhance efficiencies, improve commercial viability, and reduce a dependence on external financial support — including central government guarantees.
However, central governments are increasingly unwilling or unable (due to limitations of fiscal space) to guarantee sub-national borrowings. This new paradigm is testing the sub-nationals’ ability to raise financing to fulfill newfound responsibilities in infrastructure service provision.
Perhaps this is a blessing in disguise. Historically, easy access to sovereign guarantees has created perverse incentives for not pursuing more sustainable financing solutions. This dependence has also tainted the way that sub-nationals are perceived by the markets, by making them seem like reactive agents of development. This in turn has limited their access to finance and therefore their ability to develop. This approach must evolve, because whether the focus is climate change, massive migratory movements, or basic infrastructure needs, the struggle to advance the global fight against poverty and unsustainable development may be won or lost primarily at the local level in developing countries.
Do you know of innovative Public-Private Partnerships (PPPs) in emerging markets that are delivering better services for people? We’re trying to find out about more of these examples through a Public-Private Partnerships (PPP) Short Stories Competition.
Experience shows that well-designed PPPs can be an important development tool, and can enhance delivery of basic infrastructure services to those who need it most. By allocating risks between public and private parties, introducing new technology and improving operational efficiencies, PPPs can help governments maximize the effectiveness of scarce public funding.
We also know that some PPPs haven’t met expectations. And we know that PPPs are not a panacea for solving all gaps in services. They need to be used selectively. So we’re trying to identify and share lessons from successful PPPs around the world, so that governments, civil society, consumers, investors and the environment can all benefit.
We’re sure that there are many good stories out there that not enough people know about. We’re hoping to hear from students, practitioners, policymakers and anyone interested in PPPs. From these submissions, we hope to identify practical solutions that can be applied by governments.
Here’s the competition website to submit your case studies, essays, and video submissions on innovative solutions for PPPs. Please forward this to your networks. We welcome submissions in English, French and Spanish. Submissions will be judged by an independent panel using several criteria, including the identification of actionable ideas, replication potential, and relevance to the World Bank Group’s twin goals: ending extreme poverty by 2030 and boosting shared prosperity (measured as the income of the bottom 40 percent in any given country).
The winner(s) will be invited to offer a presentation at a major PPP event in London in mid-June, and there is a cash prize as well.
The deadline for submissions is March 31, 2015. I invite you to follow us on twitter @WBG_PPP to keep up with our work and PPP-relevant news.
The competition is sponsored by the Public Private Infrastructure Advisory Facility (PPIAF).
The World Bank’s Public-Private Partnership Group and Public-Private Infrastructure Advisory Facility report that total private participation in infrastructure (PPI) fell in the transportation sector in emerging markets by 39 percent to $33.2 billion in 2013, compared with 2012 levels.
In part, this reflects a broader trend – overall, PPI in all infrastructure sectors fell by 24 percent. The biggest drop was in South Asia, which saw PPI in transport fall from just over $20 billion in 2012 to approximately $3 billion in 2013, mostly because of significant decreases in India. Two other regions – Latin America & the Caribbean (LAC) and Eastern Europe and Central Asia (ECA) – also saw decreases. PPI in transport increased in East Asia and the Pacific (EAP) and Africa, but not by enough to offset decreases elsewhere.
2013 Transport PPIs by region
This is not good news for the world’s poor. Transportation is a critical component of development and growth, enabling people to access schools, hospitals and markets. It facilitates labor mobility and ensures that raw materials and finished goods get to customers. In rural areas, transportation systems provide an economic and social connection with the rest of the country. Within cities, good urban transportation is often the only form of transportation available to the poor. It also improves the flow of goods and services, reduces greenhouse gas emissions, and improves the overall quality of life.
Public-private partnerships can help rebuild post-conflict countries for future generations. (Credit: EU Humanitarian Aid, Flickr Creative Commons)
According to the numbers, the prospects for post-conflict countries are dim. Half of the world’s poor live in conflict-affected countries, a percentage expected to climb over 80 by 2025. They can also look forward to lower economic growth rates—a reduction of up to three percent for every year of conflict. And sustained peace is hardly a sure thing—a United Nations-World Bank report famously says that post-conflict countries have a 50 percent chance slipping back into war within 10 years. With stats like these, it’s tempting to write off the future of any country that’s had a shooting war in recent years.
When the words “private sector” and “education” come together, they conjure up the widening chasm between the rich and poor: elite education in private schools. An article in The New York Times, for example, describes a growing education gap as contributing to a “kind of cultural divide” in the United States. A smart kid growing up without access to good education, the argument goes, will be limited for life, regardless of how bright or motivated he or she is.
As a boy growing up in Africa, I always assumed that every country had its own airline. To me, a national airline was just another way a country defined itself, along with its flag, national anthem, and currency. Ghana Airways, which my family often flew (we lived in Kumasi), was a perfect example, with the red, gold and green colors of its national flag painted on every plane. They looked proud and elegant, a perfect symbol of statehood.
Available in Bahasa
The new airport in Banda Aceh was as magnificent as the Taj Mahal—bright, with endless marble floors and beautiful domes. You can almost imagine a reflecting pool, maybe a garden…OK, I might be getting a little carried away. But if you had ever travelled through the old airport—something like a Greyhound bus station in a rust-belt city with a runway attached—you’d understand my excitement.
That was more than four years ago. Since then, the entire city has transformed. Just take the roads. I used to bike all over the city, so I know from first-hand experience that many of the roads were in bad shape, with huge potholes and puddles as big as lakes. But now? You might think you were driving in Germany. Every road is perfectly paved, even the narrow, single-lane ones. When it rains, the water just drains away.
India is swimming in grain these days, thanks to the Green Revolution, bumper crops and food security policies that encourage farmers to grow more. But unfortunately, India’s ability to store and manage its surplus grain hasn’t kept pace with production. The Wall Street Journal reports that state-run warehouses have a capacity of 63 million metric tons, while grain stocks are expected to be 75 million. To make things worse, many existing storage facilities are low-quality structures that aren’t up to the job. This means millions of tons of grain could be lost through exposure, deterioration and pests—bad news in a country of 1.2 billion with widespread hunger and an estimated poverty rate of 32 percent.
I pay through the nose for health insurance for my family, and I’m not happy about it. As a U.S. citizen, I don’t have the luxury of government-backed healthcare. Since I’m technically self-employed, I have to pay the full premium myself. Want some figures? It costs me $830 a month for a family of four, with a high deductible. Besides being expensive, it takes a huge effort to deal with insurance issues, and I find that my provider is expert at finding reasons not to reimburse me for medical expenses. This is chewing a gaping hole in my budget. The only way I’ll ever get value for my money is if I’m hit by a bus.