Who Actually finances the infrastructure? Separation of public and private contributions

Most citizens, and undoubtedly all readers of this Getting Infrastructure Finance Right blog platform, have questioned and even critically debated the role that governments play in helping the economic growth and development of the countries they belong to. responsible.

We blame the government for not repairing potholes in the road, failing to maintain buses or subways for public transport, failing to ensure 24/7 water supply — you get it. The degree of severity or complaints varies widely across the spectrum of developing and developed countries.

There is a lot of discussion about public-private partnerships (PPPs) and private participation in infrastructure (PPIs), their advantages and pitfalls. Our PPI database also indicates an increase in the use of these models. However, a recent World Bank survey shows that the share of private investment in infrastructure projects in developing countries remains extremely low.

In essence, infrastructure investment remains to a large extent a public sector “business”. 83% of infrastructure investments in 2017 were sponsored by government agencies and state-owned enterprises in developing countries. The dominance of the public sector in this case concerns both the sponsorship of projects (ie the number of projects being implemented) and the volume of investments in infrastructure projects.

However, we found important regional and sectoral differences:

Regarding the distribution of public versus private investments, majority-sponsored projects accounted for more than three-quarters of investments in all regions except Latin America and the Caribbean, where the public sector accounted for 60% of investments. In sub-Saharan Africa this share rises to 95%.

While most countries had higher government commitments in line with global results, private investment in 10 countries overshadowed government commitments for 2017: Cambodia, Mongolia, Philippines, Ghana, Jordan, Egypt, Turkey, Colombia, Brazil and Mexico. This may be due to policies to actively promote private sector participation.

Private sector dominance in some sectors

As the public sector continues to drive general infrastructure investments and project implementation, private participation plays an important role in making up for financial gaps and injecting the necessary managerial and technical skills into public services. We see this strongly in subsectors such as sustainable energy and ports. Private investors accounted for 95% and 85% of total investments in wind and solar projects respectively; accounted for 50 percent of port investments.

Significant SOE investments, particularly for multi-billion dollar projects

One of the key findings of the study is that a significant portion of all infrastructure investments worldwide are made by state-owned companies. The important role played by SOEs in infrastructure investment has important implications for policy makers and multilateral organizations. State-owned companies were the main sponsors of less than a quarter of projects launched in 2017 (488 out of 2,111), but still make up the majority of global infrastructure investment commitments, accounting for 55% of total infrastructure investment and 66 % of the total infrastructure investment public investment.

We see this phenomenon because SOE investments are concentrated in high-spending projects in a handful of markets. Nearly half of SOE investments came from just 12 megaprojects in the transportation and energy sector (worth more than $ 5 billion each) in seven countries, including four projects in China.

How can we encourage more private investment?

As governments and the international development community increasingly seek innovative approaches to mobilize more private sector investment in developing countries, the study confirms that the private sector’s share of infrastructure investment remains relatively small.

There is no shortage of expert advice on what works and what doesn’t for PPP projects, and any PPP professional will tell you that well-prepared and well-structured projects with adequate risk allocation, achieved through competitive processes, are critical. Furthermore, strong political will coupled with clear and coherent policies is the hand holding these keys to unlocking the private sector’s potential for investment in developing countries.

We need both the public and private sectors to work together responsibly, guided by fiscal responsibility, best practices and concern for the well-being of all users of infrastructure services.

We need all hands on the bridge if we are to finance the infrastructure that will enable countries to achieve sustainable development goals and respond intelligently to climate change.