Infrastructural Development Innovation Financial Project: A
Sustainable Framework
Introduction to Financing for DevelopmentWorld Bank Group
Ayub AliSenior Assistant Secretary
BKMEAFinal Project
Infrastructure plays a critical role in growth, competitiveness, job creation and poverty alleviation.
It’s investment in high-quality, sustainable infrastructure can provide basic services to households;
lead to productive gains for industry; provide market access for agriculture; enable sustainable urban development; open corridors of trade for poor and landlocked countries to the global economy; and
help progress towards a more climate-smart world.
At the last decade, many people in emerging markets and developing economies (EMDEs) still do
not have access to reliable and affordable infrastructure services.
Over 1.3 billion people – almost 20 percent of the world’s population – still have no access to electricity.
About 768 million people worldwide lack access to clean water; and 2.5 billion do not have
adequate sanitation; 2.8 billion people still cook their food with solid fuels (such as wood); and one
billion people live more than two kilometers from an all weather road.
Background
This strong unmet demand for infrastructure investment in EMDEs is estimated at above US& 1 trillion a year. Meeting this need presents a significant financing challenge given constraints on existing sources of infrastructure finance, particularly in the public sector. To help bridge that financing gap, private commercial lenders and institutional investors have joined with multilateral development banks (MDBs) and donor countries to create the Global Infrastructure Facility.
The efforts of Multilateral Development Banks (MDBs), private sector investors and financiers, and governments interested in infrastructure investment, by building a sustainable infrastructure investment projects, to explore the potential to unlock billions for infrastructure in the developing world.
Therefore, Infrastructure is very important to progress the economic development for both emerging and advanced economies.
Background
Sustainable development thrust seeks to meet the needs of the present without
compromising the ability of future generations to meet their own needs.
Sustainable development is an extension of socio-economic development,
including the environmental dimension.
In order to avoid interpretation biases which could endanger one of the three
dimensions of sustainable development – economic, social and environmental- the
so-called 3-pillar model has been proposed in Figure.
At this time already, it has recognized that infrastructural development should be
to achieve the sustainable development goals in which should also economic,
social and environmental concerns, which are closely interlinked.
Sustainable Development
Faithful to the concept of sustainable development, the goals and targets
integrate economic, social and environmental aspects, and recognize the
interlinkages required for achieving sustainable development in all its
dimensions. One goal also focuses on the key means of implementation, which
constitute important cross-cutting enabling factors for the achievement of all the
SDGs – such as finance, technology, capacity-building and trade.
The following sustainable development goals are directly related with the
infrastructure development: such as;
Sustainable Development cont’d
Ensure availability and sustainable management of water and sanitation for all.
Sustainable Development cont’d
Ensure access to affordable, reliable, sustainable and modern energy for all.
Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation.
Make cities and human settlements inclusive, safe, resilient and sustainable.
Infrastructure is essential for increasing economic
progress and reducing poverty. The choices made in
the type and scale of infrastructure investment also
have major implications for environmental
sustainability.
Infrastructure expansion often has come at the
expense of the local environment, as well as
complicating responses to the longer-term challenge of
climate change.
Moreover, these observations underscore the
difficulty in planning, building, and maintaining
infrastructure for both socioeconomic progress and
environmental sustainability.
Sustainable Infrastructure Development
Infrastructure development is pivot element, achieving the economic growth and
development.
Sustainable Infrastructure investment and its ongoing management constitute a
key part of achieving “green growth” – growth that reduces poverty and is
environmentally sustainable.
Therefore, Sustainable Infrastructure is highly interlinked with the “green
growth” – it’s growth ensure the sustainability as well as promote the economic
development and poverty reduction. This project aim inspirited all economies
policy maker to step the proper action about the Sustainable Infrastructure.
Sustainable Infrastructure Development Cont’d
The infrastructure bottleneck would boost long – term economic growth. Infrastructure
is an input a wide range of industries and, such as, an important driver of long – term
growth. It’s a important issues for different categories countries such as, (i) Emerging
Economies and (ii) Advanced Economies;
(i) Emerging Economies the lack of well – performing infrastructure holds back
economic development. Emerging Economies, meanwhile, urgently need new
infrastructure such as sanitation, potable water, energy and drivable roads.
(ii) Advanced Economies the lack of investment in well – designed transport,
renewable energy, and social infrastructure is becoming more evident.
Emerging and Advanced Economies about Infrastructure Overview
Phase Economic & Contractual
Issues
Financial Characteristics
Potential Investors
Planning Planning phase and its are crucial to the success of projects.
The procuring authority needs to find equity investors. The equity sponsor needs to secure commitments by debt investors (mostly bank).
Equity sponsors need a high level of expertise. They are often construction companies or governments.
Construction Monitoring incentives are essential. Private involvement can ensure this.
This is a high – risk phase. Unexpected events are likely due to the complexity of infrastructure projects.
Refinancing is very difficult and costly at this stage.
Operational Ownership and volatility of cash flows due to demand risks are key.
Positive cash flows. The risk of default diminishes considerably.
Refinancing with bank loans or government funds is common.
Infrastructure Projects and its characteristics
Source: BIS Working Papers
Main sources of Finance for Infrastructure:
National Public Sources National Private Sources International Public Sources International private Sources
Sources of Finance for Infrastructure
Intermediate & Direct Sources of Finances: Domestic Public Spending Grants Subsides Loans Concessional Non – concessional; Public – Private Partnership (PPP) Multilateral Development Bank (MDB) Guarantees Banks Loans Money Markets Bonds Equities Derivatives
Sources of Finances for Infrastructure cont’d
Public finance is very important, achieving the
green growth as well as that will ensure the
sustainability for the infrastructure. The benefits of infrastructure are so obvious. The
main impediment to greater infrastructure
investment cannot be the lack of available financing
- given abundant funds in world markets and very
low long – term interest rates. Private finance investors could not only help to
provide the finance that a project is run efficiently. Emerging Economy Infrastructure Investments
with Private Participation Hit $107.5 Billion in
2014 in Energy, Transport and Water
Advancing Infrastructure by Private Finance
Total investment in infrastructure for projects with private participation in the
energy, transport, and water and sanitation sectors increased 6% to US$107.5 billion
in 2014. Private capital allows U.S. workers through their pension funds to invest in the
growth of U.S national economy, generate jobs, and Jointly public and private
investment in infrastructure can create millions of jobs. The private sector is
already largely responsible for designing, building, and financing any nation’s
infrastructure and can do more. Private investment has been proven worldwide to generate positive economic
growth and can act as a stimulus by providing investment grade projects to invest in. Private capital allows U.S. workers through their pension funds to invest in the
growth of U.S national economy, generate jobs, and enhance our global
competitiveness.
Advancing Infrastructure by Private Finance Cont’d
Private Financing can be costly: Availability and Shadow Payments Can Be Costly. Political pressure on the private investors. Lack of coordination within government and private investors.
Obstacles of Private Financing for Infrastructure
1. Ehlers, T. (2014). Understanding the challenges for infrastructure finance . Monetary and Economic Department .
2. Abadie, R. 2015. Infrastructure Finance: Setting A Plan, Overcoming Obstacles, and Attracting Private Investment, Week 3, video 4, the financing for development, world Bank group.
3. United Nations ,General Assembly (2015), Report of the Intergovernmental Committee of Experts on Sustainable Development Financing.
4. UN/CEFACT and the SDGs, Harnessing the potential of trade facilitation and e-business for sustainable development.
5. Global Infrastructure Facility. (2015, 12 09). Retrieved from The World Bank: http://www.worldbank.org/en/programs/global-Infrastructure-facility.
6. Course Overview, Introduction to Financing for Development, coursera, the world bank group.
References