Economic Growth

How can we close the $1 trillion infrastructure gap?

Infrastructure and economic growth go hand in hand. This is clearly echoed by concerted calls from the G20 and OECD, amongst others, for greater levels of infrastructure investment. Most estimates focus on the famous $1 trillion global infrastructure gap – but the issue is a lot more complex.

The world is now looking for co-ordinated answers from the multilateral development banks to leverage their unique relationships with governments and the private sector to respond to the challenge. The joint agenda developed by the International Financial Institutions (IFIs) in the infrastructure sector is now delivering a number of important initiatives, the impact of which is already felt in emerging market infrastructure.

The World Bank Group, the Asian Development Bank (ADB), the Inter-American Development Bank (IADB), the African Development Bank, the European Investment Bank and the European Bank for Reconstruction and Development (EBRD) have all created project preparation facilities (PPFs) in the past year to improve the quality of project development, while also strengthening the local capacity needed to ensure lasting results.

Taken as a whole, these various PPFs should should act as a model for emerging market public sector decision-makers to follow. ERBD’s Infrastructure Project Preparation Facility, for example, is designed to provide ‘framework consultants’ under indefinite quantity contracts, high-quality project preparation for both public sector projects as well as public-private partnerships. While private sector finance is critical, some 90% of all infrastructure investment worldwide is still funded by the public sector, so this dual focus is essential.

The PPP Knowledge Lab, launched in June, 2015, is a one-stop-shop for anyone searching for PPP resources. There is a real appetite on the part of emerging market officials to learn from one another about the PPPs that have succeeded – as well as the ones that haven’t.

The International Infrastructure Support System (IISS) is an online tool supported by a number of international financial institutions during its initial start-up phase in 2015 and early 2016. The tool allows the public sector to advertise its projects and the private sector to assess them, with the aim of improving the quality, consistency and transparency of project preparation and tendering. As opposed to a PPF, the IISS works as a standardized template, and we think the platform will be extremely useful for public sector entities around the world.

Responding to the need for more systematic and “standardised” learning, the World Bank Group, supported by the ADB, IADB, the Islamic Development Bank, and the EBRD, has commissioned a new Global Certification Program for PPP Professionals. Emerging market officials will earn the certificate by showing an ability to apply this knowledge in practical circumstances. Over time, it is hoped that this will become analogous to the Chartered Financial Analyst or a member of the Project Management Institute qualifications.

The MDBs have jointly hosted six ‘PPP Days’ since 2002.  The main theme of a recent conference was “Doing more, doing better: What would it take to double the right private infrastructure investment in emerging markets?” The successful conference brought together around 300 participants from some 30 different countries, comprised of PPP experts from both the public and private sectors.

Meanwhile, Infrascope is a benchmarking index created by the Economist Intelligence Unit (EIU) which assesses the capacity of countries in emerging markets across the Asia-Pacific region, Latin America, Africa and Eastern Europe and the CIS to deliver sustainable PPPs. The methodology was developed by the EIU, and has included a series of separate analyses for Asia-Pacific, Eastern Europe and the Commonwealth of Independent States in 2012 and Latin America and the Caribbean in 2009, 2010 and 2014. This is a valuable contribution precisely because it is a globally applied, independently created methodology for assessing PPP readiness.

Finally, there is the G-20’s new Global Infrastructure Hub, which shares international good practice and comprehensive data on infrastructure. The Hub is a four-year project to focus on five main areas: sharing information on infrastructure projects and financing; better data on infrastructure investment; the G-20’s recommendations for voluntary lending; government officials’ capacity to share best practices; and a database to match infrastructure projects with potential investors. In the international financial institutions view the Hub as complementary to our own efforts, and we salute its idea of an “interactive platform,” using social networks to exchange knowledge and expertise.

I‘m convinced that beyond the vast sums of investment to close the infrastructure gap, what will really sustain the much hoped-for gains in global growth from the sector will be the spreading of knowledge on infrastructure in emerging markets. As an active member of the wider IFI community and strong supporter of the G20’s efforts, the multilaterals seek to bridge the gap – by sharing our expertise with our clients across the globe – and in so doing ensure a smoother, safer path to enhanced quality and quantity of infrastructure investment.

The Summit on the Global Agenda 2015 takes place in Abu Dhabi from 25-27 October.

Author: Thomas Maier, Managing Director, Infrastructure, EBRD; a member of Global Agenda Council on Infrastructure 

Image: Labourers work at a construction site in Beijing’s central business district, June 11, 2015. REUTERS/Jason Lee

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