Infrastructure: Collaboration is Key in Investment

The OECD estimates that the infrastructural needs of the world will be around $50 trillion in 2030. The challenge for many countries, not just emerging economies, is how to finance this capital gap. There is certainly great deal of attention on how to catalyze private investment, coming both from countries with high levels of debt and those in good financial conditions. High-debt countries see private capital and Public Private Partnerships (PPPs) as levers that enable investment without increasing deficits and debt. Conversely, financially healthy countries loook at private capital as a way to foster efficiency in investment and in the management of associated services.
By looking at OECD data, in the 1985-2009 period 1,750 investiments were PPPs, for a total value of $644 billion. More than 50% of these were made either in Europe (37%) or the United States (20%), although these figures could be inflated by the waves of privatizations that have injected private capital in the market for infrastructures as a matter of course.
The international debate over PPPs in public investment revolves around understanding the value for money and convenience of such schemes. Also, in the wake of the financial crisis, the bankability (access to banking credit) of investment projects has taken on a paramount importance.
There is some agreement over considering PPPs useful tools to implement on-time and on-budget investments. However detailed analyses on the performance/cost ratios of PPPs are hard to come by. The cost of PPPs has recently come under fire, since over the last few years the differential between the cost of public capital and the cost of private capital has increased.

As far as financing goes, the volume of transactions (financial close) has fallen in Europe, from €18 billion in 2011 to €12 billion in 2012. This situation makes it all the more pressing to find new sources of finance for investment other than traditional debt. The EU itself, followed by many national governments, such as Great Britain, is experimenting with new ways to attract institutional investors, such as pension funds. Forms of guarantee in case of the project's default are being studied, as well as post-construction refinancing or public intervention in terms of stakes in either equity or debt. It is important, however, that public interventions that warrant bankability do not distort the market, especially by reducing private incentives to ensure the efficiency in investment outlays and management.

If private capital is the only game in town, then public powers must create a proper environment (lean norms and transparency in procedures) and invest in the right set of skills. The public front must mobilize investment with carefully planned, solid business cases, and stronger contracts, as well as by constantly monitoring investment projects in order to draw the right lessons in a continuous learning-by-doing process.