Emerging markets need to invest an average of $1-1.5 trillion in infrastructure, annually, to be able to meet currently expected rates of growth, the World Bank has said.
The Breton wood institution also stated in a report released last weekend that while the world currently spends about $2.5 trillion a year on infrastructure, it is estimated that it needs to invest an average of $3.3 trillion annually just to support currently expected rates of growth-with power requiring the largest amount.
The study stated: “The world economy – and emerging market and developing economies in particular – display a gap between their infrastructure needs and the available finance. On the one hand, infrastructure investment has fallen far short of what would be required to support potential growth.
“On the other, abundant financial resources in world markets have been facing very low and decreasing interest rates, whereas opportunities of higher return from potential infrastructure assets are missed.”
It pointed out that a better match between private sector finance and infrastructure could be obtained if properly structured projects were developed, with risks and returns distributed in accordance with different incentives of stakeholders.
The report said: “Current infrastructure investment, including International Financial Institutions (IFIs), public investment, and PPPs, amounts around $1.7 trillion, leaving a gap of more than $1 trillion. Institutional investors and other private sector players could increase allocations under appropriate conditions.
Besides, it stated: “Operational commitments of major International Financial Institutions (IFIs) total around $80-90 billion annually – less than 10per cent of the infrastructure financing gap for emerging markets– and they are declining. Annual public investment in infrastructure stands at about $1.5 trillion and is also decreasing due to fiscal deficits and increased public debt-to-GDP ratios. Public-Private Partnerships (PPPs) account for another $120 billion.”
The report, however, quotes World Bank President, Jim Yong Kim, as saying: “In our conversations with investors, nearly all of them say they would consider investing in emerging markets if it were less risky.”
It cites currency risk as a major factor faced by international investors in the emerging markets, noting that export credit agencies can help with that challenge, “although often at the expense of higher cost.”