Finance for strong foundations

This interview with GI Hub's CEO Marie Lam-Frendo was originally published in the G20 Saudi Arabia: The 2020 Riyadh Summit here.

What is the gap between the infrastructure needed throughout the world and the projected supply?

It’s actually increasing. The Global Infrastructure Hub’s Global Infrastructure Outlook, which we have been publishing since 2017, has calculated the gap is $15 trillion, with an increasing trend to $94 trillion across all sectors – economic and social.

The G20 has continued with the Roadmap to Infrastructure as an Asset Class, developed under the 2019 Argentinian presidency, and with the Quality Infrastructure Investment agenda from Japan’s presidency last year. This year, the Saudi presidency is emphasising the role of infrastructure in economic stimulus to support responding to the COVID-19 crisis and, more immediately – because we’re not yet in the recovery phase – looking at critical networks that would be resilient in future crises.

As a trusted adviser to the G20, and the only infrastructure initiative whose main duty is to support its agenda, the GI Hub has submitted four deliverables this year.

First, looking at the fiscal constraints increasing daily, we created an interim report for the G20 with a quantitative analysis of the impact of public investment on economic growth. Public investment that includes infrastructure is more effective than other public spending in increasing economic output in the medium term: on average it is a fiscal multiplier of 1.5 times within two to five years. We compiled more than 3,000 multiplier data from reputable sources, going back 20 years, on investing in infrastructure even in constrained fiscal circumstances. It’s a fast return on investment. Public investment also raises productivity and output in the long run. An increase of 1–2% in the total value of public capital stock can boost private output by 0.2% every year.

Our qualitative analysis looked at why, what, how and when to begin those programmes and to ensure that they support economic recovery and policy objectives. Last year, the Quality Infrastructure Investment principles focused on sustainability, resilience and good governance, which respond to growing requests for environmental, social and governance principles. I wouldn’t be surprised if this year investors rank ESG twice as high as they did last year.

Second, we are supporting the Saudi presidency on infratech. Infrastructure projects are mostly long term and the sector has been slow in adopting new technology to increase productivity. To achieve G20 objectives of sustainable and inclusive economic growth, especially given the current crisis, measures to improve the efficiency of infrastructure investment are crucial. We put together a 200-page report with 40 global case studies of using infratech for the finance ministers in July. We pointed out several relevant and affordable technologies for helping prevent and mitigate the effects of COVID-19. This is part of the G20 action plan.

Third, and also part of the G20 action plan, is supporting the implementation of the G20 QII principles. We have compiled good practices from the infratech case studies for the finance ministers, which will go on to the leaders. This interim report on which principles are showing progress and which need work fits into the QII indicator work that the International Finance Corporation is doing. It’s a multi-year agenda, as it requires much consultation in the countries to ensure agreement on which indicators will be used.

Fourth, and very topical, is getting more private capital. We delivered a report to the finance ministers in October to highlight key impediments to infrastructure as an asset class. We looked at 60 case studies that show good practices for funding and innovative financing, with interesting ideas from multilateral development banks and governments. But you need to bring in private capital. We know there is almost $150 billion in equity. We know that debt is easy to access and cheap. So why is it not happening? Because there aren’t the right mitigation instruments available at the right time, or you don’t have the right tranche of equity available to cover specific risks. The case studies show that by having the right players together, you can get good deals, and those deals can be replicated in other applications.

What would you most like the G20 leaders to do on infrastructure?

Continue to commit to QII implementation. Implementation could be done using the indicators or through formal work on case studies. It is important to show that the G20 is monitoring implementation, depending on national circumstances – all countries have limitations – to provide direction for sustaining this agenda. We’re just at the beginning and governments have a big responsibility to show their support for infratech, because there is a lot of private-sector money, specifically venture capital, that is not well represented. There’s a role for the G20 to say, ‘we are getting ready to embed in our policies more incentives for infratech players’. It is important for governments to send a clear message to the infratech community that they’re ready to support and embrace these technology changes.