On the non-Western front

Just in time, a new IFC facility addresses the paucity of funding for infrastructure in the emerging markets.

A survey of infrastructure players by Allen & Overy, a London law firm, must have confirmed developing countries’ worst fears, which is that Western investors are  most interested in British, American and German projects. Or put another way, investors think markets are wobbly enough at the moment to rule out taking a punt on fragile, if fast growing, emerging economies as well. 

After much nagging by multilaterals such as the World Bank and United Nations, these countries are now looking for private money to develop infrastructure. But private investors are turning their backs.

This is the context for the International Finance Corporation’s (IFC’s) new crisis facility, a fresh pot of money for infrastructure that hopes, eventually, to have $10 billion of state cash to invest in emerging markets. The concentration is on rescuing existing schemes scuppered by the lack of private money – India, to give just one of many examples, has failed to attract bidders for two-thirds of its road deals. Its plans to inject $500 billion into infrastructure, a third of it private, are starting to look utopian.

Trouble is, even the IFC can’t make much of a dent in these countries’ infrastructure needs. The World Bank subsidiary says it will swallow up to a quarter of project costs, initially concentrating on providing debt. That suggests it can support deals worth around $40 billion in total.

It’s a worthwhile amount, and certainly multilateral backing could reassure private investors sufficiently to back projects: in Eastern Europe, Slovakia recently agreed to a €3.3 billion PPP to build a motorway, with backing from the European Investment Bank and the European Bank for Reconstruction and Development. 

That gives some reassurance that the crisis fund can rescue stalled schemes, and $40 billion would go a long way here: the IFC reckons around $70 billion of existing projects face finance or refinancing risk because of the crunch, with another $110 billion of new projects threatened with delays. For these projects, the IFC money could make a big difference.

What it can’t do is mend developing countries’ broken, or non-existent, infrastructure. The IFC itself estimates that emerging markets need to find infrastructure financing of $21 trillion in 2008-17. If that is possible, it can only be done with international, private cash.

The crisis fund does show governments’ determination to maintain infrastructure spending through this recession. But it also shows why bodies like the IFC long ago decided that governments need outside help with infrastructure investment.