In its most recent report, “Infrastructure Investment Policy Blueprint,” the World Economic Forum (WEF) presents a set of recommendations to help governments attract private capital to public infrastructure projects while creating social and economic value for their citizens, the Geneva-based non-profit organisation said in a statement.
“Despite infrastructure’s in-principle attractiveness as an asset class and the reduced role of traditional financing, investors struggle to find opportunities that are globally competitive on a risk-adjusted return basis,” according to the report, which was overseen by WEF’s Global Agenda Council on Long-term Investing, comprising thought leaders from institutional investors and academia.
Interviews with Council members and other investors revealed that political/regulatory risk in both developed and emerging markets is one of the most pressing concerns for infrastructure investors.
“A clear and independent regulatory framework is the most powerful tool to reduce renegotiation risk and thus unlock more private capital,” the Forum stated in the report.
In order to ensure a stable regulatory framework, WEF also recommends that it should be independent and separate from political influence. It recommends establishing an entity dedicated to public-private partnerships that will enhance transactional capacity and efficiency on the government side through standardised procedures and documentation.
Additionally, permitting processes should be streamlined and predictable, and tax policy should also remain stable.
Other recommendations include structuring projects with appropriate risk allocation and clear investment propositions; developing an ongoing pipeline of investment opportunities that will offer investors consistency and inspire trust rather than tendering projects on an ad hoc basis; and leasing or selling brownfield assets to raise funds for greenfield projects.
“The global investment shortfall in infrastructure is estimated to be at least $1 trillion per annum,” WEF said in its statement. “Enhanced participation from the private sector, while not a complete panacea, could do much to close this gap.”