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

Sustainable Development cont’d

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