When the G20 Finance Ministers and Central Bank Governors gather in Bali this week, we will face a challenging economic environment that demands urgent action. Since our last meeting in February, the war in Ukraine has escalated and COVID-19 has re-emerged as a threat. Global inflation has soared as a result, leading to an exponential rise in interest rates that has made debt more expensive and lenders more cautious. Combined, these issues are creating a toxic mix of low growth and high inflation that risks pushing the global economy into stagflation for the first time since the 1970s. The current situation calls for us to remember that infrastructure is a backbone solution to a healthy climate, safe and resilient societies, and equitable economic recovery.
It is indeed more effective than other types of public spending in increasing economic output, and there are known and strongly evidenced best practices for realising sustainable, inclusive, and resilient outcomes at all stages of the lifecycle.
Source: Global Infrastructure Hub/CEPA analysis
Unfortunately, our inability to solve the decades-long infrastructure investment crisis and decision to keep building the infrastructure that is now responsible for 79% of global greenhouse gas emissions, has created a multifaceted challenge that requires us to solve several problems simultaneously, and quickly.
The task now is to scale up investment in sustainable infrastructure that drives the net zero transition and efficiently enables economic recovery. These are the actions we’re helping advance in our work with the G20.
Scaling up investment
The key to solving the infrastructure investment crisis is more and better data, allowing decisionmakers to act based on reliable data. The Global Infrastructure Hub (GI Hub) saw this in 2017 when we quantified a USD15 trillion investment gap to 2040 (estimates now place this as high as USD40 trillion out to 2030). Quantifying this gap supported government decisionmaking by providing much-needed aggregate information about the scale of investment needed and by when.
In 2019, we launched our InfraTracker to identify infrastructure stimulus commitments, and now we’ve extended this tool to trace how these commitments have translated into budgeted infrastructure spending. In the coming months, we are broadening this effort to quantify total public investment in infrastructure.
This is an essential activity. Traditionally, governments don’t keep comprehensive central records of their infrastructure assets and investments, but this is key data for their own decisionmaking and to help de-risk private sector investors’ perceptions of projects. With this investment data, the public and private sectors are better able to determine the magnitude and types of investment needed to urgently achieve the greatest outcomes from infrastructure.
Infrastructure debt sources are not scarce in developed economies, but banks remain the key debt provider for infrastructure projects in emerging economies. G20 finance ministers can help to increase the availability of finance by negotiating a risk-adjusted regulatory capital requirement for qualifying infrastructure, an issue on which the GI Hub is currently forming a coalition of banks. This will be critical to bridging the current infrastructure investment gap, particularly in developing economies.
In sustainable infrastructure that drives the net zero transition
The flow of private capital into infrastructure is stagnating at a time when investment in sustainable infrastructure is essential to addressing the climate crisis. We need to maximise the positive impacts of investment in sustainable infrastructure and increase the scale, affordability, and speed of such investment. With the G20, and in partnership with the OECD and the World Bank, we are creating a framework to achieve these goals, which continues and complements previous G20 initiatives like the Roadmap to Infrastructure as an Asset Class and the G20 Sustainable Finance Working Group Sustainable Finance Roadmap, among others.
The objectives advanced by the framework are closely linked to ensuring an orderly and just transition to net zero. Globally, governments are at various stages of defining their transition pathways and how infrastructure will factor into them. To help governments define feasible and effective transition pathways for infrastructure, we’ve studied almost 250 infrastructure plans from G20 member and guest economies to identify various pathways and collect preliminary data on the magnitude and impacts of these investments. This information will support private investment, as transition plans are an important indicator for investors seeking to validate potential infrastructure projects and investments.
And efficiently enables economic recovery
With public budgets constrained and infrastructure competing against other asset classes for investor attention (despite its excellent performance during the COVID-19 crisis), efficiency, return on investment, and value will continue to be important considerations at the macro and micro levels. To ensure it delivers sustainable, resilient, and inclusive infrastructure for tomorrow, the sector needs to embrace innovation far more than it has done in the past, and perhaps the biggest opportunity is in InfraTech (infrastructure technology).
Segments of the sector, and the G20, have long been working to address the lack of technological adaptation and digitalisation in infrastructure. Now, we are at the stage where we can feasibly connect infrastructure and technology ecosystems, bringing together technology companies, venture capitalists, infrastructure developers, and financiers to invest in and create InfraTech solutions that deliver better outcomes. The GI Hub is actively driving this type of collaboration and defining the barriers the ecosystem can tackle to de-risk and scale up InfraTech investment, which is particularly important when technology is being implemented for the first time.
Infrastructure is an under-leveraged solution that governments can and should lean on now. With the world facing so many economic challenges, the effort to scale up investment in sustainable infrastructure will pay dividends economically and socially while making radical progress to address the climate crises.