Countries must seize the opportunity to build back better
The coronavirus pandemic represents a significant challenge to global health and economies. Developing countries are especially vulnerable to its long-term effects. While governments have naturally turned their attention towards the urgent health and jobs crises, they must not lose sight of the importance of maintaining access to critical infrastructure services: water and sanitation, transportation, digital communications, energy —all of which have an important part in the fight against COVID-19 and will have important roles in crisis recovery.
Moreover, once the acute phase of this crisis is over, we know that many governments will turn to infrastructure spending as an economic stimulus to create jobs and stimulate productive investment. For developing countries, the stakes couldn’t be higher.
Yet, in the rush to stimulus, we must be careful to avoid the mistakes we’ve seen after other economic crises as they relate to infrastructure investment: unstrategic development, shoddy projects, and corruption. This caution should be coupled with optimism. There is truly an opportunity to build better, greener, more inclusively and sustainably.
Deploying best practices
The G20 has been deeply committed to this goal, even before COVID-19, recognizing that high-quality project preparation and lowering barriers for private investment by developing infrastructure as an asset class are crucial to building quality and sustainable infrastructure that attracts private sources of financing. To ensure governments use the best practices international experience has to offer as they move quickly forward, we outline five key principles that can serve as a blueprint to help countries build — and build back better.
First, green stimulus packages are crucial to jumpstart stagnant economic activity while contributing to the Sustainable Development Goals. Countries should be planning with vision, and with their nationally determined contributions — their internationally recognized climate pledges — in mind.
Second, mobilizing private investment into infrastructure is ever more critical as public budgets become increasingly constrained. As such, we must help governments understand the importance of the evolving nature of demand for public services and how COVID-19 is impacting bankability. Well structured, well balanced public-private partnerships that are attractive to private capital and fiscally responsible are more important than ever.
Third, we must guard against quick wins with lower-quality, more expensive, higher-carbon, and less resilient infrastructure investments. We must seize the opportunity to ensure infrastructure can withstand future shocks, taking advantage of new technologies and excellent practices from across the globe.
Fourth, we must recognize that infrastructure planning and pipeline preparation is a long-term play. All stakeholders — from governments, multilateral development banks and the private sector — must be committed for the long haul to carefully prepare bankable pipelines of sustainable, quality infrastructure investment opportunities that maximize private investment.
Emphasis on project preparation
Finally, infrastructure developers, investors and financiers have recognized the dearth of bankable projects as the major constraint to getting more infrastructure services to more people in developing countries, and that more emphasis must be placed on project preparation. Proven global platforms like the Global Infrastructure Facility (GIF) are catalysts that deploy these principles into action.
In the case of the GIF, its business model that couples project preparation funding with hands-on technical expertise made available to governments and multilateral development bank (MDB) partners is a powerful enabler of private investment in sustainable, quality infrastructure. The GIF recently launched the COVID-19 Response Facility which provides fast-track funding and expertise to developing country governments and MDB partners to address impacts of the pandemic on critical infrastructure programs and projects that are near to market.
While these principles outline a map, the road is indeed bumpy.
The World Bank estimates that developing countries need to invest around 4.5 percent of GDP to achieve infrastructure-related Sustainable Development Goals and to stay on track to limit climate change by no more than 2 degrees Celsius. Studies from the G20’s Global Infrastructure Hub, the United Nations, and McKinsey & Company confirm that the infrastructure financing gap is huge, standing in multiples of trillions per year.
For developing countries that strive to crowd-in private investment to fill this gap, solid project preparation informed by rigorous analyses, best practices, good governance, transparency and fiscal sustainability is key.
We call upon all partners — donors, developing country governments, and MDBs — to work together to put these principles into action.
The private sector stands ready to do our part to help.
This opinion piece was originally published in The Business Times on 5 August 2020.
Jérôme Jean Haegeli is the Co-Chair of the Global Infrastructure Facility (GIF) Advisory Council and Group Chief Economist, Swiss Re, Managing Director, Swiss Re Institute