Mobilizing Global Capital for Emerging Infrastructure Needs

The world may be on the cusp of an era of enormous capital investments. This boom will be driven by growth in emerging markets as well as the need to replace and repair part of the capital stock in developed economies. Demand for sustainable infrastructure in the broadest sense will be particularly high and it will come at a time when strained public balance sheets call for austerity, leaving little room for public investment programs.

This raises the question of how long-term capital (from private and sovereign sources) can be mobilized in the most effective way to achieve public policy objectives and meet citizens’ needs. While private and sovereign investors with long investment horizons should, in principle, find some characteristics of infrastructure investments attractive (predictable cash flows, possible inflation protection, etc.), a number of serious obstacles stand in the way of making considerably more private capital available.

Obstacles include political risk, particularly in sensitive areas of public services, lack of clear public policies on the development of public-private partnerships, legislative and regulatory bottlenecks in the fields of procurement, concessions and targeted subsidies, inadequate institutional capacity and capital market imperfections that have prevented infrastructure investment taking off as an asset class.

What are the key barriers facing the private sector when planning to make public infrastructure investments in the broadest sense? How does this differ between developed economies and emerging markets? How can governments best tackle these constraints and encourage new capital? Are there market instruments that can help?

Who should lead the financing of revenue-earning public infrastructure and how should risks be allocated? Should certain types of project—for example, high cost, politically sensitive ones—be left solely in the public domain? What is the potential to expand private financing beyond infrastructure investments? What measures could be most effective in creating a favorable legal and regulatory environment for long-term investment: further development of internationally accepted standards of best practices, development of model laws (possibly on a regional level) and strengthening enforcement?

How could international financial institutions help to enhance the stability and predictability of investment, thus mitigating private sector risks in long-term infrastructure investment? Would the participation of international financial institutions in pilot projects provide the basis for their wider application?