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A New Approach to Infrastructure Finance

8 12 42

BEIJING – Lawmakers in the United States have introduced legislation that, if enacted, would create a new development finance institution (DFI) to replace the Overseas Private Investment Corporation. Unlike its predecessor, the new agency would be able to make equity investments, a reform that reflects growing global recognition that ownership stakes are an essential component of sustainable-development financing.

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But, however important, this shift in development finance, in the US and elsewhere, will not solve one of the major challenges facing the Global South: a dearth of infrastructure investment. To address that shortcoming, an entirely new approach may be needed.

To achieve the United Nations Sustainable Development Goals (SDGs), the world’s multilateral development banks (MDBs) and their private-sector branches, the DFIs, have committed to increasing private-sector finance by as much as 35% over the next three years. To support infrastructure investment, MDBs have expanded their offers of risk-mitigation instruments for private investors, along with other important measures. Yet they have made only limited investments in infrastructure equity, focusing such investment, instead, on small- and medium-size enterprises in emerging markets.

Why shouldn’t infrastructure equity be left to the private sector? Although infrastructure assets have the advantage of providing steady, long-term income streams, the early stages of most big projects carry higher levels of risk. When projects are over budget, fall behind schedule, or........

© Project Syndicate