Infrastructure investment was in the spotlight during a panel session at the FIDIC Global Infrastructure Conference in Geneva today (9 September 2024). Panellists were clear that projects needed to be bankable to attract investment and de-risked to make them more attractive to investors.
This session, Show me the money! - De-risking and leveraging infrastructure investment, chaired by Manish Kothari, President and CEO of Sheladia Associates, looked at the steps that needed to be taken by financiers, funders and clients to de-risk investments to make major and strategically significant infrastructure projects more attractive and bankable for those organisations looking to invest in them.
“Without massive ($139 trillion) investment in sustainable infrastructure, achieving net zero by 2050 won’t be possible, said Kothari. He said that a recent FIDIC/EY report, Closing the sustainable infrastructure gap to achieve net zero, had highlighted a gap of $64 trillion compared with current investment policies. Also, in the recent period, pension and insurance funds have emerged as critical players in the financing of infrastructure projects worldwide, with US pension funds alone totalling over $37 trillion in 2022. Their long-term investment horizon, coupled with the need for stable, predictable returns, aligns well with the characteristics of infrastructure assets. Insurance companies are also major players in the financial services industry, holding assets comparable to pension funds and mutual funds,” Kothari said.
De-risking strategies for infrastructure investment were sorely needed, said Kothari, and these included risk guarantees, credit enhancement (SPVs, ring-fencing specific funds, etc), technical assistance and policy advisory services.
Speaking as a panellist in the session, Dominique Aubert, senior vice president at SERV Swiss Export Risk Insurance, looked at infrastructure project financing and some of the key conditions for financing, including OECD rules and how these impacted on the funding of projects. He also considered the often-long timeframe around projects especially in the developing world and looked at how this could be speeded up.
Guangzhe Chen, vice president for infrastructure at The World Bank, came at the issue from the bank’s perspective, focusing on the developing countries context and highlighted the critical importance of infrastructure development and the challenging infrastructure gap in the developing world. “How we use the money we have to leverage commercial capital is crucial and we have been able to generate double of our investment from the private sector in the last year,” he said. Chen said that there isn’t a lack of money as the money is out there but it is the lack of bankable projects that was the key challenge.
“This session should have been titled ‘Show me the projects’ rather than ‘Show me the money’ because the money is there but bankable projects are not,” said group chief economist at the Swiss Re Institute in Switzerland, Jerome Haegeli. He said that projects needed to be investable to get them off the ground and that more needed to be done by the MDBs, who he said needed to step up to encourage change. He wanted to see the MDBs make more data available on projects, lending practices being made more transparent and more attention being paid to ESG issues.
Final speaker, Julia Prescot, deputy chair of the UK National Infrastructure Commission, said that derisking was a worldwide phenomenon. “Investors take a different approach to risk appetite and tend to take a balanced across the board approach. This isn’t the same in all countries and sectors,” Prescot explained. She made the point that there needed to be a clear return on investment pathway on ‘investable’ projects. “We need an element of partnership between public and private sectors to make a dent in some of the massive figures we see as infrastructure gaps around the world,” she said. Projects needed to be robustly structured from the outset and FIDIC could play a key role in influencing governments, industry and other stakeholders in this area, said Prescot. “There’s so much experience from so many different countries distilled into FIDIC which is really valuable and should be used to develop good projects,” she said.