Infrastructure connecting developing nations poses stark investment challenge, says World Bank

19th October 2016 Mythili Sampathkumar

Connectivity infrastructure linking two or more countries through highways, railroads and power grids are crucial to sustainable development, though still struggle for investment in developing regions, the World Bank said at its annual meetings in Washington DC, which ended 9 October 2016.

Danny Leipziger, managing director of the Growth Dialogue and moderator of a panel on connectivity infrastructure at the event, referred to investments in such projects as the “next step” for sustainable growth. However, discussions returned persistently to the inherent high risk and low returns of connectivity infrastructure projects.

Jordan Z. Schwartz, head of the Global Infrastructure Facility (GIF) and acting director of World Bank Group Singapore, told Development Finance: “The risks that define investment in basic infrastructure [and] service delivery that would incorporate a private participant are also common to cross-border and connectivity investments.”

Several connectivity infrastructure programmes are currently underway, including the Asian Infrastructure Investment Bank’s (AIIB) “One belt, one road” programme, which so far includes a land and maritime Silk Road, oil and gas pipelines, and rail projects from central China through Central Asia. The Association of Southeast Nations (ASEAN) also has an economic connectivity plan in place to connect various ports in the region for easier cross-border trading.

However, Schwartz said concerns around currency mismatches, revenue sourcing, regulatory and construction risks are “exacerbated in cross-border investments, because you may have multiple contracting parties for example, multiple forms of currencies that are at play”.

He explained that the issue could be one of “technical harmonisation”, whereby building a power transmission line across borders requires “not only a dispatch centre that can handle the trade of energy, [but also a] consistent way of building infrastructure technically across the border”. 

Despite the risk of investment compared to returns on connectivity infrastructure projects, Schwartz said: “The nature of cross-border investment typically lends larger projects and the larger projects may bring with them their own efficiency benefits, their own economic rationale.”

Schwartz commented that the World Bank “should be at all sides of the table”, representing governments and private sector actors in the interest of de-risking projects in future.

 

Leave a Reply

Your email address will not be published. Required fields are marked *

*