The World Bank last night officially launched its Global Infrastructure Facility (GIF) at its Washington DC headquarters during the IMF/World Bank 2014 meetings, at which were present heads of 26 of the world’s largest asset management and private equity firms, pension and insurance funds, commercial banks, other multilateral development institutions and donor nations at the signing.
World Bank president Jim Yong Kim, along with Australian Treasurer, Joe Hockey, and President of the European Investment Bank, Werner Hoyer, were signing up to the GIF at the ceremony on Thursday.
The GIF will be a global platform for collaboration between public and private partners to help prepare and design complex public-private infrastructure projects, making them viable for new sources of long-term private capital.
It aims to respond to the significant drop of private infrastructure investment in emerging markets and developing economies from $186 billion in 2012 to $150 billion last year, and to help trigger a staggering $1 trillion a year in extra investment needed through to 2020.
Multilateral development banks such as the European Bank for Reconstruction and Development, the European Investment Bank, and the Asian Development Bank, have joined the governments of Japan, Canada, Australia and Singapore alongside leading finance firms and banks as partners in the GIF.
Hoyer warmly welcomed the proposed collaboration as he believes it will increase the resources available to prepare major infrastructure projects and will strengthen market investment in key infrastructure sectors and countries where such resources are lacking. “What we need are viable, bankable and innovative projects which provide added value for investment and modernising the economy,” he said.
“We know that simply increasing the amount invested in infrastructure may not deliver on the potential to foster strong, sustainable and balanced growth. A focus on the quality of infrastructure is vital,” said World Bank group managing director and chief finance officer, Bertrand Badré.
Badré announced that GIF would begin operations later this year in a pilot phase to “road test” new models to deliver complex public-private infrastructure in low and middle income countries. The key focus will be on climate-friendly investments as well as ventures to bolster trade.
Work is said to have already started on a pipeline selection process with the GIF in talks with partners and beneficiary countries about several projects which present the potential to transform developing economies, boost job creation, and improve the lives of poor people.
Macquarie and DBS Bank, among other commercial and investment banks, have joined the GIF as advisory partners with mandates to advise on project preparation, providing optimal approaches to financial structuring, and give guidance on the design and use of risk instruments, with a view to ensure emerging market infrastructure projects are suitable for commercial and/or institutional investment.
Macquarie Group chief executive Nicholas Moore said: “Economic development depends on infrastructure to support growth in trade, health and education. These major projects require careful planning, significant investment and can benefit greatly from close cooperation between public and private partners.”
Lim Wee Seng, head of project finance at DBS Bank said: “Whilst many are familiar with the huge infrastructure needs in the region, few are aware the issue is not so much a lack of liquidity as the absence of a steady pipeline of bankable projects. Enabling complex Public-Private Partnership projects in emerging markets extends beyond the domain expertise of one institution; it requires the joint efforts of multilaterals, governments, development finance institutions and private sector players like ourselves.”
The initiative comes only weeks after the creation of a Global Infrastructure Fund was discussed in Cairns, Australia last month at the finance ministers and central bank governors’ G20 meeting, under Australia’s Treasurer Joe Hockey’s leadership. The idea, which raised skepticism from some attendees, nonetheless won majority approval.
Brett Himbury, IFM Investors’ chief executive officer, who has been at the forefront of the movement for a “global infrastructure hub”, explained that the idea was not to duplicate work that was already being done within all 20 member nations but to share best practice, given the variability in experience and expertise, and in ability to attract private finance to fund the G20’s infrastructure needs.
For Himbury, an example of this would be the opportunity for Australia to help other G20 jurisdictions implement its successful asset recycling programme, for which most nations see the economic benefit but have failed to implement due to lack of macroeconomic structural reforms.