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Half of global infra needs to emerge from Asia before 2040

A report urges development banks to shift the emphasis from direct lending to 'capital facilitation' so as to crowd in private money.

Much of the $1.2 trillion annual global infrastructure shortfall expected in the coming decades will be concentrated in a limited number of countries, according to the Global Infrastructure Hub, requiring a rethink of how multilateral development banks strive to fill the gap.

“From now till 2040, half of global infrastructure needs will be located in Asia,” said Chris Heathcote, chief executive of the GI Hub, citing research by the G20 initiative. 

“The major MDBs’ funding partners have an increasing concern on how MDBs can contribute to the development of emerging markets. Can MDBs be more efficient? Can they open up the capital markets, rather than being a pure lender?” he added.   

The organisation recently released a report discussing how multilaterals can help emerging markets capture part of the massive pool of private funds available worldwide. According to GI Hub, MDBs are uniquely placed to crowd in private finance by shifting their emphasis from lending to capital facilitation through the use of guarantees and other instruments, rather than relying primarily on capital provision.

GI Hub found that most MDBs are rather keen on increasing the role of the private sector in infrastructure development, although there is considerable diversity among them in the approaches taken to facilitate and monitor it.  

Human resource could prove one of the most significant hurdles, the organisation said: MDBs lack large enough pools of staff with the relevant backgrounds, skills and interests needed to use the tools capable of attracting private financing. 

“It takes time and education for MDBs to determine the approach, be it traditional loans or risk guarantee, to be undertaken for one particular emerging market. They shall judge whether a market could be self-sustained without aid lending,” said Heathcote. 

It often takes a lot more time to kick start a PPP programme or put together a guarantee package than arranging a direct loan, which can generally be made available within six months.  

The GI Hub therefore suggests MDBs should “mainstream” the objective of increasing crowding-in of private investment in infrastructure throughout their organisations with internal incentives. Banks are also urged to publicise the projects they are supporting so as to highlight opportunities for the private sector.