The G20 has the power to help increase the availability of infrastructure funding and its role will be critical in helping to bridge the current investment gap – a gap that is hindering strong, sustainable development
Why is investment in infrastructure so important in fuelling a strong, sustainable recovery?
Infrastructure is a backbone solution to a healthy climate, safe and resilient societies, and equitable economic recovery.
It is indeed more effective than other types of public spending in increasing economic output, and there are known and strongly evidenced best practices for realising sustainable, inclusive and resilient outcomes at all stages of the lifecycle.
Unfortunately, our inability to solve the decades-long infrastructure investment crisis and decision to keep building the infrastructure that is now responsible for 79% of global greenhouse gas emissions has created a multifaceted challenge that requires us to solve several problems simultaneously, and quickly. The task now is to scale up investment in sustainable infrastructure that drives the net zero transition and efficiently enables economic recovery. These are the actions we’re helping advance in our work with the G20.
Is the global infrastructure gap growing?
Definitely. In 2017 we forecast a global investment gap of $0.7 trillion a year. Now it’s $3 trillion a year with potential to grow higher as the world grapples with economic turmoil, geopolitical tensions and climate change. It’s a worrying reminder of what the public sector has not been able to achieve alone. Our latest Infrastructure Monitor report shows that the private investment gap between high-income countries and middle- and low-income countries keeps widening, while overall private investment in infrastructure projects remains stagnant for the eighth year running.
More private capital is urgently needed. We need to maximise the positive impacts of investment in sustainable infrastructure and increase the scale, affordability and speed of such investment.
How has the Global Infrastructure Hub been supporting the G20?
The G20 Indonesian presidency had four interlinked infrastructure priorities: scaling up sustainable infrastructure investment by leveraging private sector participation, enhancing social inclusion and addressing subnational disparities, increasing digital and infratech investments, and advancing transformative infrastructure post Covid-19.
First, we continued to monitor G20 governments’ shift to sustainable infrastructure by expanding our InfraTracker data tool. This initiative estimates current public investment trends in infrastructure and how these trends align with the outcomes needed to meet the Sustainable Development Goals with more sustainable, resilient, inclusive infrastructure. The update tracks the investment in infrastructure budgeted by central governments annually, across all G20 member and guest economies. With this information, governments, investors and multilateral development banks can form a more accurate view of the amount of investment needed to fill the infrastructure gap that the GI Hub first quantified in 2017. The expanded InfraTracker will be available from early 2023.
Second, we worked with the Asian Infrastructure Investment Bank to develop the G20 Blueprint for Scaling Up InfraTech Financing and Development. The blueprint explains the potential for infratech to support long-term infrastructure priorities by improving efficiency and reducing costs; enhancing economic, social and environmental value; and reshaping demand and creating new markets. It also provides data and tools to facilitate investors’ ability to make informed decisions.
Third, our effort to scale up private investment in sustainable infrastructure is reflected in the upcoming G20/GI Hub Framework on How to Best Leverage Private Sector Participation to Scale Up Sustainable Infrastructure Investment. The framework was created with the G20, and in partnership with the Organisation for Economic Co-operation and Development and the World Bank. It provides concise, actionable recommendations to inspire and inform collaboration between the public and private sector that can lead to scaling up private investment in infrastructure.
We have also presented our report on Infrastructure Transition Pathways to the G20, which explores infrastructure transition pathways to achieve global climate targets and the SDGs. We analysed over 250 infrastructure plans to identify various pathways and collect preliminary data on the magnitude and impact on investments, so governments can see the type of projects or subsector to invest in to reach their climate targets for a net zero transition.
How can the G20 leaders at Bali best help?
I’d like to see some reform of regulatory capital requirements regarding infrastructure. Infrastructure debt sources are not scarce in developed economies, but banks remain the key debt provider for infrastructure projects in emerging economies.
The G20 can help to increase the availability of finance by negotiating a risk-adjusted regulatory capital requirement for qualifying infrastructure, an issue on which the GI Hub is currently forming a coalition of banks. This will be critical to bridging the current infrastructure investment gap, particularly in developing economies.