Infrastructure Development – An Economic Performance Booster
The private sector will have to play a significant role in financing the infrastructure that is needed to lead the global economy back to a path of sustained growth, a conference ahead of the Annual Meeting of the European Bank for Reconstruction and Development (EBRD) in Tbilisi heard today.
EBRD President Sir Suma Chakrabarti told the conference that infrastructure requirements were huge and likely to rise to around US$ 500 billion a year just in the 36 countries where the EBRD works.
Cavit Dağdaş Undersecretary of the Turkish Treasury, who co-hosted the conference with the EBRD and the Reinventing Bretton Woods Committee, said: “Lifting infrastructure investments is a multipart task which involves collective and coherent action by all stakeholders.”.
Turkey currently holds the presidency of the G20 countries and has placed a very high priority during its term in helping to close the global infrastructure gap.
Undersecretary Dagdas, who is also the Governor of the EBRD for Turkey, said the infrastructure gap had widened as investment levels dropped in reaction to the global crisis.
In response, the Turkish G20 Presidency was focussing on mobilising long-term private finance sources and also emphasising the importance of diversifying the sources of finance to fund infrastructure development.
This involved deepening capital markets and developing equity markets and local currency bond sectors.
The one-day conference discussed the policies that had to be put in place by public authorities to attract greater amounts of private sector finance, the obstacles that deter successful Public-Private Partnerships and what role Multilateral Development Banks (MDBs) can play in also helping to boost the role of the private sector.
The conference also focussed on the importance of infrastructure investments in helping to promote ”green” growth, including driving forward technological developments in energy efficiency and energy security.
In his opening remarks to the discussion, Sir Suma said there could be no successful transition to market economies and to sustained economic growth without effective infrastructure.
“But, this huge agenda simply cannot be achieved without the strong participation of the private sector,” he said, noting that the MDBs had pledged to scale up substantially their role in financing for development.
“The EBRD in particular will use its experience in our countries of operation on leveraging private finance for infrastructure,” he said, referring specifically to the Bank’s new project preparation facility which would strengthen its role in the infrastructure sector.
IMF representative Azim Sadikov highlighted the need to improve the efficiency of public spending and noted that PPPs offer a good instrument to deliver such efficiency improvements, provided that risks are transparently reflected and managed from a public finance perspective.
Sergio Hinojosa from the Chilean consultancy Ikons argued that the Chilean experience with PPPs points to a need to have adequate quantitative and qualitative assessments of how private sector involvement generates value for money compared to public procurement.
According to Aaron Bielenberg of McKinsey & Company, the additional cost of greening infrastructure globally will amount to US$ 4 trillion between 2015-2030, but will generate an operating saving of US$ 5 trillion.
Amar Bhattacharya of Brookings stressed that MDBs need to assist with addressing the challenges of building up green infrastructure by simultaneously solving the challenges of affordability, efficiency and cost of financing across all countries.
Summing up the conclusions of the conference, EBRD Vice President Philippe Le Houérou said that investment in public infrastructure by the private sector can work well, but needs to be backed by strong institutions and policies.
The conference had also heard that for PPP projects to work it is crucial to find a fair and viable burden of risk distribution between the private and public sectors. For the private sector it was particularly important that the rules surrounding infrastructure investment were transparent and predictable.
In conclusion, Mr Le Houérou said: “Public authorities need to build resilient project development and implementation capacity and mitigate to the extent possible the policy risks that can so easily deter private investment in infrastructure.
“The private sector needs to deliver an adequate quality of infrastructure service and provide it in a fashion that allocates both up-side and down-side risks in a balanced fashion to make the PPP industry sustainable long term.
“MDBs are required more than ever, particularly on greening infrastructure investments and delivering risk migration mechanisms that crowd-in private and institutional investment.”