How do countries create a growth infrastructure?
Infrastructure is playing an increasingly important role for the world’s economies, particularly in emerging markets. This is why the Global Infrastructure Hub aims to connect governments and investors.
Infrastructure is the foundation of economies – yet many developed countries lack credible mechanisms for modernizing their aging assets. In less economically mature countries, it’s even worse, as key parts of infrastructure don’t yet exist. The Global Infrastructure Hub (GIH) aims to correct this, connecting governments with investors to make plans a reality.
As the world’s economies become more deeply connected, high-quality infrastructure plays an increasingly important role. This is particularly acute in emerging economies where infrastructure is less developed. As more and more people migrate from rural to urban areas in search of jobs, demand for an enhanced infrastructure increases, for example, to limit congestion and pollution, provide communications such as telephony and broadband, as well as power and transport systems.
It may appear that the main barrier to building infrastructure in developing economies is funding – in fact, private investors are not in short supply; but investors are hesitant because there is a lack of properly assessed, investment-ready projects.
There are several reasons for this: governments often don’t prioritize the right projects, focusing on political considerations rather than a sound cost-benefit assessment. There are also issues around project preparation and execution capabilities, including inadequate funding arrangements, inappropriate risk allocation and inefficient procurement policy and procedures.
In order to attract private sector capital through the use of public private partnerships (PPPs), governments need to procure projects that have been subject to proper project preparation to mitigate risks of project failure as in recent times high-profile failures have damaged its credibility for investors
A step toward better infrastructure investment
It’s clear that countries need to find better ways to tap into business resources, increase the number of high-quality, tenable projects, and find a way to improve the investment climate.
These issues were front of mind when G20 leaders met in Brisbane, Australia in April 2014. A consortium of advisors known as the B20, including EY among other business leaders, presented recommendations on how the situation could be addressed.
The B20 offered several practical steps that G20 nations should take to promote more investment in infrastructure, one of which was to create the GIH. If established, the organization would take the lead in improving infrastructure investment by sharing best practice, helping to improve the efficiency of regulatory approvals and raising standards for transparent procurement.
To the G20’s credit, these recommendations were taken up and the GIH was formed, with allocated funding for five years. Its potential impact is enormous. Together with all the recommended actions, US$8 trillion worth of additional infrastructure capacity could be built by 2030, contributing up to 1% of the G20’s target of 2% of additional growth over the next five years.
Above all, the project could lay the foundation for sustainable, inclusive growth and employment over a much longer term.
An open-source approach
The GIH helps governments create an infrastructure pipeline by connecting investment-ready projects to private investors. Its aim is to create a unified global approach to infrastructure investment by leveraging the knowledge, insight and skills of more mature G20 economies, thereby giving a hand up to emerging members in a sustainable way.
Uniquely, the GIH is finance-agnostic – it is not conflicted by any particular lending product or mandate, and as a result, it is completely independent. Instead, it’s an open-source platform that enables global best practices to be coordinated across borders.
The GIH provides three core services:
A tool that enables governments to choose the best project structure and financing mechanism, including private options
A simple cost-benefit analysis mechanism for potential investment projects
Effective government structures to oversee the process, from identifying needs to project delivery
To put these services into action, the GIH is identifying several countries to place its people in to act as an honest broker between the public sector and the private sector, and help these countries to analyze why things are not moving as well as they would like them to.
EY is able to draw on its global reach and commercial experience to help the GIH create frameworks that emerging economies can use to deliver infrastructure projects.
Arguably, one of the most significant focuses for emerging economies is investment in education. And the involvement of global business leaders means that they can apply tried-and-tested methodologies.
For example, several years ago, EY was involved in a PPP education project in the Philippines. It had significant previous experience in education projects globally and was able to quickly augment that experience to the local Philippine Infrastructure market. EY’s experience helped enable the project team to deliver 10,000 classrooms across 800 schools. Not only was this the first education PPP in the Philippines, it was the biggest ever education PPP in terms of classroom numbers. The successful private sector participation was also assisted by appropriate project preparation work that was completed by the Philippine Government assisted by the Asian Development Bank.
Experienced input like this can help the GIH make a difference quickly, as it is able to use an approach that has already been put to the test and that can be quickly augmented for local market conditions, as appropriate. This helps facilitate private sector investment and can deliver effective solutions that alleviate poverty and increase social inclusion.
By supporting countries to procure infrastructure efficiently, the GIH is helping achieve a step change to the world's economies.