Panel
Filling the Global Infrastructure Gap
Milken InstituteBrian Sullivan, David Bohigian, Jim Yong Kim, Raymond J. McGuire, Hiromichi Mizuno, Angela Rodell, Ray McGuire
- A $2.7 trillion annual investment gap exists in emerging economies, with half of total infrastructure needs located there and $335 billion of the $3.5 trillion to $3.7 trillion spent last year derived from private capital.
- Investors face challenges in emerging markets due to perceived risks, lack of legal faith, and difficulties in de-risking projects, with Jim Yong Kim noting that while 15% to 20% returns are theoretically possible, the standard hurdle rate for viability often sits between 7% and 9% in developed contexts but may drop to 5% or 6% in critical areas like Africa.
- Private capital constraints are evident with $175 billion to $200 billion in dry powder seeking mid-to-high teen returns, a figure that has multiplied five to six times since 2008, while $46 trillion in assets is under management by those committed to impact investing.
- Regulatory hurdles significantly delay returns and increase costs, exemplified by a 14-year timeline for environmental permits at SeaTac and a potential 75% drop in New Jersey transit capacity if a Northeast Corridor tunnel fails, driving calls for streamlined government coordination.
- Specific sectors like U.S. utilities depend on power purchase agreements and off-take credit ratings, while airports often require dollar-denominated financing, and high-quality infrastructure projects increasingly include 5G, cybersecurity, and wireless power transmission.
- The U.S. Overseas Private Investment Corporation is rebranding to the Development Finance Corporation to double efforts on global toll roads and hospitals, aiming to catalyze private investment where it would not otherwise occur without the government stamp of approval.
- Emerging market financing strategies involve addressing debt sustainability concerns regarding projects like China's Belt and Road Initiative, which covers 60% of the world's population and 40% of its GDP, while acknowledging that financial sustainability is required for long-term viability.
- Social and environmental goals are treated as secondary to financial returns by some investors who mandate a minimum of 5% return on capital, whereas others anticipate that addressing critical needs might justify lower returns or that the $13 trillion opportunity for women's economic empowerment is underutilized.
- Future investment trends are influenced by low U.S. interest rates prompting government pension funds to enter infrastructure, alongside investor desires for infrastructure as an alternative to overvalued equity and bond markets, with a specific focus on G20 discussions regarding ESG issues.
- Risks to global stability include the potential for migration and instability in Africa due to infrastructure deficits, with Jim Yong Kim warning that failure to achieve sustainable development goals by 2030 poses significant portfolio risks.