World Bank unveils tools to unblock infrastructure logjam
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World Bank unveils tools to unblock infrastructure logjam

Logjam

The mismatch between the $12tr of assets managed by long-term investors and the urgent need for infrastructure investment in emerging economies has been a longstanding challenge. Word Bank CFO Joaquim Levy tells Emerging Markets how plans to bridge the gap

infrabig

The World Bank will today unveil an initiative that its chief financial officer Joaquim Levy believes will unlock billions of dollars of private finance needed to fill the yawning infrastructure investment gap.

He will use a meeting of the Bank’s Global Infrastructure Facility (GIF) to launch new tools, guarantees and indices to help attract private investors that are sitting on huge quantities of assets but which are nervous about investing in emerging and frontier market economies.

The demand for infrastructure for the developing world alone runs over hundreds of billions of dollars a year. While most governments face budgetary constraints, the 10 largest pension funds alone hold $2tr of assets, the 10 largest insurance companies hold $4.5tr and the 10 largest sovereign wealth funds, $5tr.

Increasing infrastructure investment is a crucial part of the strategy of Jim Yong Kim, the bank’s president, to hit his two goals of eliminating poverty and reducing inequality. However, despite the array of potential projects, investors have been wary of the risk involved.

“We have to create a better system that doesn’t exist today for asset and wealth managers to be able to get into this. So this is the strategy that the bank is building with a lot of partners,” Levy told Emerging Markets in an interview.

He said the GIF, which was launched with a big fanfare last year, would aim to tackle three logjams. The first was what he called “upstream” challenges that include a lack of information for potential investors.“Facilitating the flow of information is essential for asset managers who cannot spend an enormous amount of time to get acquainted with this new space,” he said.

To meet this challenge the Bank will today unveil details of a project assessment tool that will provide independent assurance for emerging and developing country governments on the quality and completeness of their projects’ preparation.

REFINANCING RISK

It will also expand on the instruments such as guarantees that it provides to challenge what he called the “midstream” challenges to finance infrastructure and manage the risk involved. “We are working to develop new instruments to address not only political and institutional risk but refinancing risk, and exchange rate risk,” he said.

Lastly the Bank will tackle the barriers discouraging investors from putting money into infrastructure. It is looking to establishing a “downstream financing window” and use credit enhancements to mobilise private capital and a new infrastructure debt index in collaboration with Morningstar, the research company, to enable investors to track performance of the asset class.

Another initiative that Levy will announce today aims to encourage governments to sell existing infrastructure and use the proceeds to fund new investment. “This frees finance for greenfield projects, which is something that is difficult for private investors, by recycling brownfield assets.” 

He said infrastructure investment would offset the recent sharp slowdown in trade growth. The World Trade Organisation said last month trade volumes would grow just 1.7% this year — the slowest pace of trade and output growth since the financial crisis of 2009.

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