What governments can do to promote infrastructure investment

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Although the urgent need to upgrade infrastructure is a challenge shared across the G20, potential solutions lie in wait, says EY’s Bill Banks.

The OECD has projected that by 2030 port container traffic and air freight traffic will more than triple while air passenger demand will double. Such demands add up to a need for US$60–US$70 trillion of infrastructure investment by 2030, but a gap of US$15–US$25 trillion is projected. So what can G20 policymakers do?

Sound foundations required

Of course, governments have a pivotal role to play in closing the gap, but the scale of the challenge is such that they have little option but to work with international donor organizations such as the World Bank. Certainly, there is little — if any — reluctance from the private sector to increase its involvement. On the contrary, the business community is increasingly willing to invest, collaborate with policymakers and explain the benefits of improved infrastructure to the public. Unfortunately, it’s not proving straightforward.

One of the primary barriers to increasing private infrastructure investment has been the small number of properly assessed investment-ready projects. This isn’t due to one single factor but rather a range of different issues.

Although robust economic scrutiny is critical to the success of any infrastructure project, there is too often inadequate project selection and prioritization, which is frequently driven by political considerations rather than a sound cost-benefit assessment that would reassure policymakers that their investments will deliver maximum impact. We also found there to be weak project preparation and execution capabilities, including inadequate funding arrangements, inappropriate risk allocation and inefficient procurement policy and procedures.

Steps to success

To facilitate a larger and more effective role for the private sector in infrastructure provision, countries need to find better ways of engaging business resources, increase the number of bankable projects, and substantially improve the investment environment. In most cases, governments need to commit to market-based infrastructure policy frameworks that promote efficient investment, safeguard users’ long-term interests, and enable private ownership and management of infrastructure where appropriate.

The Infrastructure  and Investment taskforce recommended six practical steps that G20 nations should take to promote more investment in infrastructure.

1 Reaffirm the critical importance of infrastructure — and private investment in infrastructure — in their national growth plans, and set specific infrastructure investment targets to 2019.

2 Establish, publish and deliver credible national infrastructure pipelines that have been rigorously assessed and prioritized by independent national infrastructure authorities.

3 Establish a Global Infrastructure Hub with a mandate to collect and disseminate leading practice, and collaborate with key stakeholder organizations to increase the pipeline of bankable, investment-ready infrastructure projects.

4 Implement infrastructure procurement and approvals processes that are transparent, consistent with global leading practices, and include a commitment to specific time limits for regulatory and environmental approvals.

5 Work toward greater promotion and protection of cross-border capital flows, especially FDI.

6 Increase the availability of long-term financing for investment, including for infrastructure, by removing unnecessary disincentives for long-term investment.

Read our article: Brick by brick