On Wednesday, April 19, 2017 a group of approximately 60 Bretton Woods Committee members and friends held a private roundtable discussion featuring industry leaders, officials from the World Bank Group (WBG) and Multilateral Development Banks (MDBs), and other experts involved in private sector development financing to explore ways to overcome current investment challenges and MDB/IFI initiatives that could further spur private sector appetite for resilient, climate-smart infrastructure in Emerging Markets and Developing Economies (EMDEs).
The dialogue – moderated by William R. Rhodes of the Bretton Woods Committee’s Advisory Council and co-hosted by World Bank CFO Joaquim Levy – had a two-fold benefit: share how the MDBs are adapting their approaches and tools to the current infrastructure investment environment; and offer private sector perspectives on how MDBs can help improve the enabling environment and de-risk infrastructure financing. Participants included several debt and equity institutional investors in emerging markets, as well as senior leaders from the World Bank Group (IBRD, IFC and MIGA), IDB’s Inter-American Investment Corporation (IDB-IIC), European Investment Bank (EIB), and Asian Infrastructure Investment Bank (AIIB).
Perspectives from World Bank Group and MDB Participants
- The world faces enormous infrastructure supply gaps and demographic pressures will increase need for jobs and physical and natural infrastructure in Emerging Markets and Developing Economies (EMDEs). The EMDE pipeline of investment projects is nearly $1 trillion.
- Institutional investors have roughly $70 trillion assets under management and, with the share of capital declining in advanced economies and pension system returns potentially insufficient, significant opportunities exist to unlock demand and spur capital investment toward infrastructure financing in EMDEs.
- The MDBs are deploying various institutional resources, tools, and partnerships to strengthen domestic enabling environments and to increase mobilization of private sector capital upstream and downstream for infrastructure projects
- Key World Bank Group opportunities/facilities: Global Infrastructure Facility (GIF); IDA Private Sector Window ($2.5B under IDA18), IFC Asset Management Company (AMC - $9.8B raised since 2009 inception), and MIGA Guarantees (~$3-4B annually)
- IDB-IIC opportunities: Public-Private Partnerships (PPPs) – over 1000 created in last decade, offering opportunities to crowd-in private sector; sector focus not just on transport and energy, but also education and health infrastructure
- EIB opportunities: Leveraging budgetary resources of the European Community (EC); $500B Investment Plan for Europe target over the next 5 years
- AIIB core focus: Sustainable infrastructure; cross-country connectivity; and mobilizing private sector resources
Perspectives and Ideas from Private Sector Participants on MDB Opportunities
- Desire for more predictable, robust concessional frameworks for institutional investors to partner into
- Seek MDB propensity to decompose deal risk and to help target/offload key project risks that could ‘unlock’ trapped capital vs. scuttle the opportunity (e.g. local currency FX risk). Consider taking 100% of risk vs. partial guarantees)
- Help develop financeable revenue models in proposed infrastructure projects – e.g. domestic sources of finance such as user fees
- Improve the efficiency of the infrastructure investment process (public and IFI expenditure components)
- Position domestic public sector as accountable to lead in their role of providing the basic public good
- Help create scalability and predictability for the operating environment –
- More systematic approaches to develop the local institutional investor base (vs. one-offs)
- Help ensure sufficient (and sufficiently skilled) human capital components to build the infrastructure
- Partner with local development banks to manage the credit risks and to use same products, same documentation
- Continue trend of taking more of a client-driven approach – partnering with private sector to propose the best fit instruments instead of promoting existing MDB products in which there may not be sufficient interest
- Consider finding ways to capitalize developers in early project stages – recognizing this is higher risk