There is a huge need for new and upgraded infrastructure around the world, particularly in emerging markets. Policy makers like to talk about raising trillions of dollars to fund infrastructure, but the truth is that capital for good projects exists. Regulation and lack of policy clarity are inhibitors. What lacks is a strong pipeline of projects that meet societal needs and are financeable. If we can increase the quality of projects, and encourage smart and efficient regulations, the money to fund them will follow.
GE, as an investor and as an infrastructure technology provider in 180 markets, surveyed its global investment, sales and policy teams for their insights on what is holding up progress.
We identified several areas that should be prioritized by the international community and local governments.
Write the Right Rules
1. “One-Stop Shops” for Approvals
GE’s experience is that a major decelerator of projects are slow or unclear permitting and approvals systems. The World Bank and other International Finance Institutions (IFIs) have teams working on permitting simplification and training; they are unsung heroes. Even more focus and funding should be channeled to programs that streamline processes, and promote best practices – such as Chile’s regime, which has successfully centralized permitting and approvals.
GE is fully committed to and supportive of competitive tendering. However, we have seen it slow down or derail critical projects with short timelines. We believe that in some cases, such as the need for critical power, sole sourcing can greatly accelerate projects without sacrificing price or quality. The development finance community should apply cost-benefit analysis to consider when unsolicited bids and direct negotiations can offer efficiencies.
Recognize and Reduce Risks
3. Risk guarantees
IFIs have developed innovative products such as Partial Risk Guarantees and Partial Credit Guarantees, to mitigate political, off-taker, and sovereign risk. We have found that these guarantees are not utilized to their full potential. IFI’s should do more to promote their programs and make them easier for project developers to use by standardizing terms and qualification criteria. Countries and their procurement authorities should work with developers to engage IFIs regarding these programs, early and often in the development process.
Execute Faster and Better
4. Early stage funding
The GE team, along with most others in the infrastructure space, agree that to move projects forward, more funding for early project development is needed. Groups like IFC have made strides in sourcing and allocating funds and risk for early stage development. Continued patience, capital and political support is needed from IFI member countries to stand up and execute development programs that can tackle the early stage funding gap.
5. Building local EPCs
It remains important for countries to encourage local EPC sector involvement. However, GE has, on several occasions, seen projects get stalled or discontinued due to forced collaborations between global and local developers that yield diminishing returns from a time, quality and cost standpoint. In some cases, countries should loosen joint venture or equity risk participation mandates for local EPCs. At the same time, there is a great opportunity to use the strong knowledge sharing capacity of global development organizations to increase training for local EPCs so they can compete for projects more effectively, and build a track record of bringing them to fruition.
Unlocking a stronger more financeable pipeline of infrastructure projects is critically important. It is getting a lot of attention, but progress is slow. GE will continue to build relationships, advocate and share experiences that will inform policy makers and drive industry to deliver infrastructure solutions in the countries that need it the most.
Unlocking Infrastructure Investment in Emerging Markets
(Top image: Courtesy Getty Images.)
David Nason is president and CEO of GE Energy Financial Services responsible for leading GE’s energy investments worldwide.
All views expressed are those of the author.