Mobilizing public and private sector resources

Measures that could help mobilize further resources for infrastructure investment, particularly in developing countries and emerging markets, include:

  • Mobilizing additional public resources:
    For instance, by assisting developing countries in strengthening their domestic tax systems.

  • Incentivizing private sector investment: Innovative financing instruments such as private-public partnershipsblended financepartial guarantees, insurance & hedging instruments, structured project finance, securitization, thematic bonds, and local-currency finance can help mitigate risks for private investors and thus increase the attractiveness of investing in infrastructure projects in developing countries and emerging markets.

  • Expanding contributions of development banks and blending concessional and non-concessional finance: Concessional finance (i.e. grants) by development banks can be leveraged to attract non-concessional resources, which leads to improved financial viability and coverage of risks that the private sectors otherwise would not be willing to take.

  • Leveraging global and regional facilities for infrastructure financing: For instance, project preparation facilities (such as the Global Infrastructure Facility) may help establish bankable project pipelines.

Zooming in on private infrastructure investment

During the past decade, less than 1% of global private infrastructure investment was allocated towards low-income countries, whereas 67% was undertaken in high-income countriesReasons for the low private infrastructure investments in emerging markets and developing countries are manifold, including:

  • High transaction costs and uncertainty and limited risk-adjusted returns: Infrastructure projects often do not deliver the required risk-adjusted returns to attract private investment. Project risks associated with infrastructure, including construction & completion, operating, and force majeure risks, lead to high transaction costs for project preparation, due diligence, and financial structuring. .
  • Insufficient pipeline of bankable projects: Many projects lack the size or high-quality information needed to attract investors. Due to the above-mentioned transaction costs, most investors only consider investing in infrastructure projects of sufficient size.
  • Financial and prudential regulation: Recent regulations, such as Basel III and Solvency II, favor shorter-tenor loans, hinder equity investment into infrastructure, and therefore make it more difficult for commercial banks as well as insurance/pension funds to take the long-term exposure needed in infrastructure financing.
  • Additional risks in emerging markets/developing countries: Increased currency, business, and political risk and lack of institutional capacity further hinder infrastructure investment in those regions.

Share of private infrastructure investment (average 2010 - 2019):

By Country Income

  • High-income countries
  • Upper middle-income countries
  • Low middle-income countries
  • Low-income countries

By Sector

  • Transport
  • Renewables
  • Social
  • Telecoms
  • Power (non-renewables)
  • Water & Waste

Sustainability considerations may help break down barriers to investment

Incorporating sustainability considerations into infrastructure projects may increase their bankability in comparison to conventional infrastructure through lowering infrastructure projects’ risk profiles and increasing positive externalities and co-benefits:

  • Mitigation of environmental, social, and governance risks in the planning, construction, and operation of sustainable infrastructure decreases financial downside risk.
  • Investment in infrastructure is widely considered to have an economic multiplier effect in the region of construction. Undertaking infrastructure projects in a sustainable manner ensures positive economic and social development and hence improves the regional investment environment.
  • Lower (re-)financing costs and diversified investor base: Sustainable financing instruments (e.g. Social Bonds, Green Loans), which can be used to finance sustainable projects, may broaden the potential investor base as institutional investors increasingly incorporate sustainability criteria into their investment decisions. They also typically come with a lower cost of capital than traditional financing instruments.
  • Economic and financial sustainability in itself is a key attribute of sustainable infrastructure. Improvements in financial budgeting and planning would increase the pipeline of bankable projects and lead to a more efficient use of rare financial resources.

Interested in learning more?

Beyond the Gap - How Countries Can Afford the Infrastructure They Need while Protecting the Planet

By: World Bank

This report aims to shift the debate regarding investment needs away from a simple focus on spending more and toward a focus on spending better on the right objectives, using relevant metrics.

Unlocking Private Climate Finance in Emerging Markets - Private Sector Considerations for Policymakers

By: Climate Finance Leadership Initiative

This report highlights potential policies that emerging market governments may advance to facilitate an enabling environment for the mobilization of private investment in infrastructure.

Innovative Funding and Financing Solutions to Structure Infrastructure Projects

By: Global Infrastructure Hub

This paper provides an overview over innovative financing mechanisms to attract private infrastructure investment.

Green Infrastructure in the Decade for Delivery

By: OECD

This report provides an empirical assessment of infrastructure investment facilitated by institution investors in OECD and G20 countries. Based on the findings, it provides guidance on policy levers to scale-up institutional investment in green infrastructure.

Relevant sustainability tools