Aug 26, 2019, 4:23 PM ETPanel

Filling the Global Infrastructure Gap

The global infrastructure gap in emerging markets is estimated at $2.7 trillion annually.
Global infrastructure investment in emerging markets reached $3.5 trillion to $3.7 trillion last year.
Private capital accounted for only $335 billion of that total emerging market investment, with the remainder funded by country balance sheets.
The Government Pension Investment Fund (GPIF) of Japan manages approximately $1.4 trillion to $1.6 trillion in assets.
There are an estimated 46 trillion USD in assets under management by investors globally who are committed to or interested in impact investing.

The Alaska Permanent Fund Corporation is mandated to seek financial returns only; social and environmental benefits are considered secondary "gravy."
The Alaska Permanent Fund generally rejects projects with a return on invested capital below 5%, viewing them as non-starters.
Investors in developed markets and institutional funds typically target mid-to-high teen percentage returns for infrastructure projects.
Jim Yong Kim cites a Sri Lankan airport built by China as a "white elephant," noting it employs 700 people for $200 million investment with zero commercial flights, illustrating the failure of non-commercial development.
Ray McGuire notes that successful infrastructure funds have historically generated returns in the mid-to-high teen range, suggesting the capital "dry powder" ($175–$200 billion) is available but underutilized due to project identification and policy barriers.
Hiromichi Mizuno (GPIF) reported a $160 billion loss for the fund between September and December, highlighting that large fund sizes carry significant volatility risks.

Jim Yong Kim identifies a "knowledge gap" rather than just a funding gap, noting that in a survey of 400 infrastructure investors, only five knew what a "development policy loan" was.
Political risk insurance, currency hedges, and partial risk guarantees are currently underutilized tools for de-risking emerging market infrastructure.
Local currency financing in emerging markets is a significant barrier, as private institutions often cannot support loans at 6% or 7% without government backstops.
Investors struggle with legal uncertainty in developing markets, specifically regarding bankruptcy courts and the recovery of stranded assets.
Hiromichi Mizuno highlights that while default rates in developing markets may be lower than in developed markets, the uncertainty in recovery rates and legal recourse makes risk assessment difficult.
Angela Rodell points to US regulatory hurdles, such as 14-year permitting timelines for runway expansions, as a primary driver of excessive project costs in developed nations.
Dave Bohigian states that the Overseas Private Investment Corporation (OPIC) is rebranding to the Development Finance Corporation (DFC) to better catalyze private capital and clarify its mission.

The Belt and Road Initiative (BRI), involving 150 countries and 60% of the world's population, represents a major geopolitical infrastructure push by China.
Concerns exist regarding the financial sustainability of many BRI projects, with some local governments finding it difficult to service the associated debt.
Japan, as a G20 host, is pushing for "high-quality infrastructure" that integrates Environmental, Social, and Governance (ESG) criteria alongside financial sustainability.
Dave Bohigian describes a "race to the top" in countries like Georgia, where high government commitment to business indicators resulted in OPIC investing more per capita than in any other nation.
Jim Yong Kim cites Egypt's energy sector as a successful transition from government-balance-sheet financing to crowded-in private capital.
Ray McGuire categorizes infrastructure analysis across three dimensions: Asset (core vs. new technology), Life Cycle (existing vs. construction), and Sovereign (developed vs. emerging markets).

Angela Rodell notes that in Alaska, infrastructure revenue cannot cover development costs due to a low population (700,000) spread over a massive geographic area.
US Opportunity Zones are identified as a mechanism to defer capital gains and attract private investment to greenfield projects in high-risk domestic areas like Alaska.
Approximately 85% to 90% of the US infrastructure stock ($13 trillion) is owned by state and local governments, complicating federal investment coordination.
The US project bond market saw a decline in 2022, dropping from $417 billion in 2021 to roughly $300 billion.
Jim Yong Kim emphasizes that investors are waiting for fully prepared projects and clear ownership structures before deploying capital in developing markets.

Dave Bohigian rejects the notion that impact investing must accept lower financial returns, arguing that such a premise dooms the industry to failure.
Hiromichi Mizuno reframes ESG as a risk management strategy, arguing that failing to meet Sustainable Development Goals by 2030 creates massive portfolio risks regarding climate change and migration.
Angela Rodell suggests that while a pure 8–9% hurdle rate may be unrealistic for critical African infrastructure, a 5–6% return could still attract institutional capital if the long-term societal risk is mitigated.
The panelists agreed that women-empowered companies and businesses show better performance data, challenging the idea that social impact is mutually exclusive with financial return.
Jim Yong Kim notes that data scrubbing and analysis, such as BlackRock's use of World Bank data in their Aladdin risk system, are critical for aligning global standards with private sector needs.

Dave Bohigian proposes a $13 trillion investment opportunity in the global economy of women, viewing it as essential 21st-century infrastructure.
Hiromichi Mizuno envisions a "universal owner" approach where the goal is to make the entire global system sustainable rather than picking individual winning projects.
Ray McGuire identifies wireless power transmission as his "dream project," aiming to eliminate energy loss and enable global power distribution without transmission lines.
Jim Yong Kim's vision includes converting the entire Sahel region into a massive solar farm to serve as a new "gold rush" source of energy and revenue.
Brian Sullivan (moderator) notes the need for a third tunnel into Manhattan, warning that the failure to invest in US infrastructure carries the risk of economic collapse for the Northeast Corridor.