How developing nations can get the infrastructure they need

The global crises we are facing have brought us to a pivotal moment in development that demands our immediate, urgent attention.

Climate change, Covid-19 and war in Europe have created a perfect storm that threatens economic development. Moreover, the knock-on effects on the global economy – in the form of mounting fiscal pressures, public debt, interest rates, inflation and country risk for investors – have created an environment that makes development finance especially challenging.

Meanwhile, millions of people worldwide, especially in developing countries, live without the benefits of infrastructure and vital services, which limit their economic opportunities and quality of life. These facts are not up for debate.

We are only eight years from 2030, but a clear path to achieving the 17 sustainable development goals remains elusive. Infrastructure cannot be separated from climate action – it is the biggest contributor to emissions but also a sector that offers some of the greatest opportunities for decarbonisation. There is no quick fix. Instead, the global community needs a coherent, long-term strategy to develop more infrastructure of better quality.

What can be done? Above all else, develop consensus among governments, the private sector and the global community on four key actions: make every dollar count, establish a supportive, enabling environment backed up by political commitments, create investment opportunities, and embrace the imperative of joint action.

These actions are critical and mutually reinforcing. They represent the building blocks for increasing private investment in infrastructure and laying the foundations for post-crises recovery.

There is more to infrastructure than building one asset after another. To make sure every dollar counts, we must first agree on what infrastructure must deliver to meet development goals. At the World Bank, we have high expectations: infrastructure must offer sustainability, quality and long-term solutions that benefit everyone.

Infrastructure must be climate-resilient while minimising greenhouse gas emissions. Infrastructure governance should be open, transparent and robust. Perhaps most importantly, it should be efficient: every dollar invested in infrastructure counts at every stage of the project life cycle.

Second, we must strengthen the enabling environment and secure political commitments. Essential policy reforms must be enacted before any commercial bank, institutional investor or other entity gets involved with financing.

Many countries need support to put these elements in place, because they require time, political will and technical expertise that may be lacking at home. Without these, the ability of countries to systematically scale up private participation in infrastructure will remain limited.

Moreover, their ability to undertake high-quality public investment will also be prejudiced. The World Bank and other development institutions must continue working with governments to support policy and sector reforms, build institutional capacity and improve the investment climate.

Third, we need to focus on creating pipelines of bankable, resilient, high-quality infrastructure projects that attract investors. The capital needed to make a difference is largely available; the real challenge is mobilising it.

Even in the best of times, the high cost of infrastructure exceeds what governments can reasonably afford – they must take action to optimise limited public spending envelopes and create conditions to leverage additional private investment. Since 2000, the private sector has, on average, supported some US$80 billion worth of infrastructure projects each year.

This may appear sizeable, but only amounts to 10-15 per cent of infrastructure investment in low and middle-income countries. At the same time, public investment in infrastructure in low and middle-income countries has itself been declining to no more than 1.2 per cent of gross domestic product in 2020.

Multilateral development banks can lead battle against economic turbulence

Meeting international development goals requires a step change in both public and private financing. According to World Bank research, around 4.5 per cent of the GDP of low and middle-income countries on average will be necessary to meet the global demand for infrastructure into 2030. This comes to about US$1.5 trillion – nearly the GDP of Mexico – every year until 2030. It is a crevasse of epic proportions.

Finally, there is a need for collective action to bolster infrastructure investment in developing countries. There is global momentum: The G20, G7, multilateral development banks, developing country governments and private sector have made this a priority and are working to make this a reality.

Indonesia is one country where a sustained programme of interventions to support the scale-up of private capital mobilisation is leading to change. The World Bank has been working with Indonesia on a comprehensive set of advisory, structuring and financial solutions to unlock considerable pools of private capital for sustainable and quality infrastructure development.

Examples of this support include upstream policy support for key state-owned enterprises, analytical advice for implementing private investment and energy transition reforms, public-private partnership framework development, preparation of fit-for-purpose financing instruments and bankable projects, and pilots for private capital mobilisation. One highlight of this programme is a US$465 million geothermal project, which brought together six separate partners to execute.

None of this progress comes easily or quickly. It begins with countries charting their own paths and establishing their own priorities. It is they that must signal the need to make changes and own the desire to do so. Only then can we at the World Bank, together with our global partners, deploy resources to support countries in securing access to new and additional sources of finance.

Success is within reach, but there are no short cuts. We can achieve a great deal, but only with hard work and global collaboration.

Riccardo Puliti is the World Bank vice-president for infrastructure