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Outlook 2015: Emerging markets to scale up (0)

Institutional investors will be solicited by developing countries’ governments to help plug infrastructure gaps and assist with energy strategy shifts, says IFC’s Bernie Sheahan.

One of the major hurdles to a greater involvement of institutional investors in emerging market infrastructure is soon to be removed, according to the International Finance Corporation’s infrastructure chief.

Bernie Sheahan, who heads the development-focused institution’s infrastructure operations globally, reckons domestic pressure is building on emerging market governments to equip their nations with more and better infrastructure.

“With many of these countries under existing or worsening fiscal constraints, a trend I expect will continue to accelerate is the roll-out of much bigger programs trying to bring in private capital to infrastructure. The net effect will be much larger potential opportunities for private capital across emerging markets.”

This has already started to manifest itself in a number of markets, he argues, citing Mexico, South Africa, Nigeria, India, Indonesia, Egypt and Brazil as countries where infrastructure has been featured prominently in the national debate over recent years.

A particular area of focus for policy makers this year will likely be their energy strategy, he adds. “A mix of factors make it much more complicated for governments to figure out what their energy policies ought to be and therefore this is going to translate into changing strategies across a number of markets.”

Among the developments impacting governments’ input to policy are the changing economics of the gas sector, driven by the increase in global supply coming from the US as well as the ability to transport gas in smaller quantities and more cost-effectively than had been possible previously.

The coming to grid parity of wind and solar energy, the greater willingness in a number of sub-regions to consider cross-border electricity trading and the volatility of oil prices add to the mix of dynamics creating an less stable environment for decision-makers to operate in.

Growing infrastructure needs and energy market disruptions will lead governments to make continued efforts to attract domestic and international capital to projects – largely through equity but increasingly also through debt investments, Sheahan says.

“We will probably see lot of experimentation around different solutions. In particular, governments and regulators are trying to build a bridge between the greater appetite for brownfield assets of institutional investors and the fact that the flow of opportunity is mainly greenfield.”