KEVIN STEINBERG, Chief Operating Officer, Head of Center for Global Industries, World Economic Forum USA, and
MAX VON BISMARCK, Director and Head, Investors Industries, Center for Global Industries (New York), World Economic Forum USA
The World Economic Forum is proud to release this Report, Paving the Way: Maximizing the Value of Private Investment in Infrastructure. The project was initiated in January 2009 as part of the World Economic Forum's Investors and Financial Services Industries Partnership programs to explore the role of private capital in meeting the world's growing infrastructure needs.
Multiple studies in the recent past have emphasized the importance of infrastructure as an enabler for developing economies, and the fact is that vast segments of existing infrastructure in the developed world are becoming deficient. Estimates for global infrastructure investment need ranges as high as US$3 trillion per yea The World Economic Forum's Global Risks 2010 report highlighted underinvestment in infrastructure as one of three key global risks to monitor. Global Risks 2010 fur thermore stresses the awareness that underinvestment in infrastructure is one of the most highly interconnected risks, with potential systemic implications.
Given the dramatic need for investments in infrastructure at a time when many government budgets are under severe pressure, the role of private capital in financing infrastructure seems more critical than ever. This Report aims to showcase both the opportunities and the challenges associated with attracting and involving private investors in the provision of infrastructure.
The Report outlines features of successful infrastructure projects using illustrations from countries that have tapped private finance markets. Examples include projects that demonstrate the results of creating a political, legal, and economic environment that is conducive to investment; establishing a program of opportunities; having a contractual and regulatory framework that deals with issues effectively and fairly; having forums for stakeholders to share experiences; and involving the public at all stages.
The Report highlights the notion that private finance will invest in new infrastructure when the investment is based on established practices and approaches, but the challenge remains when the project is novel, untested, o in a new market. Other key findings include:
• The costs and terms of commercial debt have changed significantly as a result of the global economic crisis and there remains a challenge of reinvigorating the capital markets as a source of finance for infrastructure.
• Governments have become lenders of last resort and, as there is a revaluation of the public-private finance relationship, it is possible that more countries will set up state infrastructure banks.
• A move to more specialized infrastructure funds to give investors a better alignment of risk with reward is expected. Investors will also place greater value on fund managers with experience of ongoing infrastructure asset management.
• Retail finance participation in infrastructure funds is likely to grow, but it requires a clear articulation of the value proposition and the threats to achieving it.
The Report itself is the result of a year-long multi-stakeholder collaboration of the World Economic Forum and PricewaterhouseCoopers with leading industry practitioners, policymakers, and academics participating in interviews and workshops around the globe. Throughout this process, intellectual stewardship and guidance was provided by an actively engaged Expert Committee.
We trust that this publication will provide relevant input and catalyze important further dialogue among governments, investors, and other stakeholders regarding the role of private finance in infrastructure. Moreover, we hope that the insights it provokes may contribute toward ensuring that the risks associated with a lack of global infrastructure investment are addressed and their potential negative impact on future global growth and economic growth mitigated.
We wish to thank the members of the Expert Committee, interview and workshop participants, and our partners at PricewaterhouseCoopers (especially Victoria Dickinson) for their invaluable support.We would also like to thank James Bilodeau and Anuradha Gurung at the World Economic Forum for their leadership of this project.