Invest in efficient infrastructure project preparation to spur growth during and post Covid-19 pandemic
The massive shock of the Covid-19 pandemic coupled by the shutdown measures to contain it plunged the global economy into collapse in the year 2020. According to the World Bank, the global economy is expected to expand by 4% in 2021 although this has been dampened in the near term by resurgence of new Covid-19 cases further putting the expected growth targets in disarray. The situation has been exacerbated by the adverse effects of the accumulated debt in the last decade.
So as to counter the long-term adverse effects of the pandemic, urgent structural policy adjustments that will prioritise investment in sustainable infrastructure need to be implemented. According to Anil Sawhney, the Infrastructure Director of the Royal Institution of Chartered Surveyors (RICS), infrastructure investment will inevitably occupy a pivot role in the global post pandemic economy recovery. However, the downside effect of the government’s spending during the crisis will take its toll on their long-term budgets. As such, unlocking private capital is more of a necessity now than it was before the pandemic.
How then do governments especially those in the poor and emerging regions of the world position themselves to leverage on the private sector stir growth during and post Covid-19? According to Preqin, there is currently over $220 billion of funds available for infrastructure projects while an additional $203 billion is being raised. Assuming a 40:60 equity- debt financing structure, this is enough to develop more than $1 trillion worth of infrastructure in the next 5 to 8 years, enough to spur global growth during these unprecedented difficult times.
Despite the rosy picture painted by Preqin, governments have not successfully attracted investments in infrastructure leading to huge financing gaps due to the inability to deliver good and investible projects to the market. According to the Benchmarking Infrastructure Development 2020 report by the World Bank, project preparation is an area that still requires improvement across all the regions and income groups under the study.
As we navigate through the pandemic, governments have to put in place urgent and deliberate efforts to recalibrate their regulatory frameworks and institutions to ensure efficient project preparation that will ensure delivery of well structured, resilient and people centric projects that will attract sustainable private sector investments back to their countries. Most importantly, governments should pursue mechanisms to ensure that the projects will in the short term cushion the most vulnerable in the society especially those adversely affected by the pandemic while setting a strong foundation for future growth. Drifting away from the pre Covid-19 mindset, governments should make a deliberate effort to first implement “shovel ready” projects that will create employment opportunities especially for the unskilled population.
Research indicates that there is more private participation in infrastructure projects in countries that have proven track record to deliver well packaged projects to the market. This promotes competition and ultimately ensures the government and the public gets value for money for their projects. Poorly structured projects set bad precedence that discourages future participation in PPP projects even when more effort has been put to structure them, thus adversely affecting the PPP agenda of the country.
Due to the lack of appetite for projects in the poor and emerging economies, governments should ensure that they identify and select good projects that are best delivered through PPPs. Deeper feasibility studies should be conducted so as to refine key parameters necessary to make informed decisions on the project. The study will test the financial viability, the risk allocation architecture, market sounding, procurement framework among others.
Investment in capacity building and regulatory reforms in preparation for projects to be procured through PPPs and traditional Public Investment (TPI) is a critical as it ensures efficiency and value addition in the entire project life cycle. Governments need to adopt robust principles that not only ensure the adoption of best practices in project preparation but also fair and transparent procurement processes and efficient contract management during construction and operations.
