Radical new approaches are needed to finance Asia’s vast infrastructure needs that go well beyond simply finding the money, according to experts at the ADB meetings on Tuesday.
While the role of development banks in financing Asia’s $8tr infrastructure need is indisputable, delegates at the Asian Development Bank annual meeting in Frankfurt argued that more progressive technology was required to connect key investors to infrastructure projects.
“The question is, how to get the private sector to join,” said Ben Shenglin, professor of banking and finance and dean of the academy of internet at Zhejian University. “They’re not coming and if you look at banks, they’re not doing as much as we think to stimulate the real economy.”
Shenglin said that banks needed to shift their focus away from activities like forex trading, which he argued was not that important to the real economy, and start focussing on connecting their private clients to real economy investment opportunities.
“The solution resides in digital technology,” he said. “One Belt One Road is trying to physically connect China and Asia with Europe but what we need to do is focus on connecting savers with investment opportunities. In the age of the sharing economy, we’re not sharing opportunities.”
He argued that a connection needed to be made between the short term nature of savings and long term infrastructure requirements and that this would improve the efficiency and inclusivity of financing projects.
UNIFIED EU APPROACH
In a similar vein, Peter Wolff, head of world economy and development financing at the German Development Institute, told Emerging Markets that he did not think that the bilateral memorandums of understanding such as those proposed by the One Belt One Road strategy were the best way to raise funds.
He advocated a wider European approach. “Hungary signed an agreement with China but agreed to procurement procedures that were not covered by the EU,” he said. “Establishing a European platform to work with China would be better than this one by one approach. A unified approach is better for markets and for competition.”
Wolff also said the majority of renewable infrastructure projects were not commercially viable. He argued that rather than development banks propping up the projects, the need was for policy reform to make renewable projects viable.
Then, he argued, such projects would offer a stronger investment proposition for investors and the need for development bank financing would be less. He also noted that the borrowing limit imposed in many countries across Asia and southern Europe would constrain the total amount of funds that could be raised.
Greater transparency about the project pipeline would also encourage more private investment, as well as inter-governmental co-operation, according to Cornelia Richter, a board member at Deutsche Gesellschaft fur Internationale Zusammenarbeit.
“Global financing demand could be $90tr for infrastructure projects from 2015 to 2030 worldwide according to McKinsey,” she said. “So why is investment lagging? Interest rates are at historic lows, central banks are easing, and investors are looking for returns.
“Creating priority pipelines can help to ease the mismatch between infrastructure investment demand and the supply of infrastructure projects,” she said, adding that only half of G20 countries published details of their pipelines.