World Bank Pushes Private Sector for Major Investments in Infrastructure

By Carey L. Biron Reprint | | Print | |En español

A new road is built near Victoria Falls on the Zimbabwe-Zambia border. Credit: David Brossard/cc by 2.0

WASHINGTON, Oct 9 2014 (IPS) - The World Bank has initiated a major call to action for private sector investors around infrastructure projects in developing countries.

World Bank Group President Jim Yong Kim on Thursday launched a new initiative, worth some 15 billion dollars, aimed at motivating banks, pension funds and other institutional investors to turn their focus to the pressing, and growing, infrastructure needs in developing countries.

In announcing the new Global Infrastructure Facility (GIF), Kim estimated these needs would require up to a trillion dollars of additional investment each year through the end of this decade. That’s twice as much as these countries are currently spending.

The private sector has turned away from infrastructure in developing countries and emerging economies in recent years, the bank reports. Between 2012 and last year alone, such investments declined by nearly 20 percent, to 150 billion dollars.

“Given the scale of infrastructure financing needs in developing countries, we definitely welcome an initiative like this,” Marilou Uy, the incoming director of the Group of 24 (G24) developing countries and a former bank official, told IPS.

“The private sector’s role here is especially important: to find good models to work with, so that private investment in developing countries can start to rise again and grow to levels even higher than before.”

In a surprise to many, the bank’s sister organisation, the International Monetary Fund (IMF), this week came out forcefully in favour of public spending, particularly on infrastructure. The IMF and World Bank are currently holding semi-annual meetings here in Washington.

The GIF will start a number of pilot ventures later this year, reportedly with a focus on climate-friendly projects and those that can promote trade. But it will not be financing these initiatives directly.

Rather, it will aim to turn the private sector’s attention back towards the road, bridges, energy production and other large-scale physical projects that make up the foundation of any country’s economic and social development.

“Institutional investors have deep pockets – insurance and pension funds have some 80 trillion dollars in assets,” Kim said Thursday, speaking with reporters.

“But less than 1 percent of pension funds are allocated directly to infrastructure projects, and the bulk of that is in advanced countries. The real challenge is not a matter of money but a lack of bankable projects – a sufficient supply of commercially viable and sustainable infrastructure investments.”

Fundamental bottleneck

The World Bank is hoping the GIF will function as a conduit through which major investors, together with the development institution’s own experts, can advise governments how to structure infrastructure projects in order to entice investors looking for long-term opportunities. Kim said a “massive infrastructure deficit” in developing countries today constitutes a “fundamental bottleneck” in addressing poverty, the bank’s key mandate.

Perhaps in response to past criticisms, the bank also notes that the GIF will not simply try to move as much money into these projects as possible.

“We know that simply increasing the amount invested in infrastructure may not deliver on the potential to foster strong, sustainable and balanced growth,” Bertrand Badre, the institution’s managing director, said in a statement. “A focus on the quality of infrastructure is vital.”

The GIF will focus on fostering particularly complex partnerships between the public and private sectors, known as PPPs. In anticipation of Thursday’s announcement, the World Bank Group’s private-sector arm, the International Finance Corporation (IFC), has reportedly been ramping up its PPP units around the world.

Yet the growing dependence on the private sector in development aims continues to spark concern among many development advocates and anti-poverty campaigners, who worry that the goals of for-profit entities are often at odds with the public good.

“While the bank’s new infrastructure facility is welcome, we are concerned that any sudden push into new big-ticket infrastructure deals must improve the lives of ordinary people,” Nicolas Mombrial, the head of the Washington office of Oxfam International, a humanitarian and advocacy group, said Thursday.

“Therefore, the World Bank must ensure that new infrastructure lending comes fitted with proper safeguards in place to protect the poorest and most vulnerable communities from clients that might be more interested in profit over development. We need safeguards for people and not just for investors.”

The head of the GIF, meanwhile, cautions that the initiative is still in its very early days.

“I have been meeting with civil society organisations who were really interested in engaging with us on the GIF,” Jordan Schwartz, the official in charge of the new programme, told IPS.

“Like them, we want to ensure that decisions around infrastructure investment are sensitive to a wide range of environmental, social and economic considerations, so that not only is there benefit for the poor and for economic activity generally but so the investments are sustainable. We look forward to continuing that dialogue.”

PPP worries

Concerns around public-private partnerships are particularly notable around public water systems. In recent years, private companies around the world have shown growing interest in stepping into partnerships to resuscitate public water infrastructure that has often been underfunded for decades.

The World Bank’s IFC has been a major proponent of such deals. Yet some of these have sparked powerful backlash from critics who note that water privatisation has often resulted in higher costs and inequitable service.

This week, for instance, activists in Nigeria stepped up a campaign to urge the government to pull out of discussions with the IFC around a potential water project in Lagos. They say the scheme’s details are being kept from the public.

“Around the world, the IFC advises governments, conducts corporate bidding processes, designs complex and lopsided water privatisation contracts, dictates arbitration terms, and is part-owner of water corporations that win the contracts it designs and recommends, all while aggressively marketing the model to be replicated around the world,” Akinbode Oluwafemi, with Environmental Rights Action, a Nigerian advocacy group, told reporters Wednesday in Lagos, according to prepared remarks.

“Not only do these activities undermine democratic water governance, but they constitute an inherent conflict of interest within the IFC’s activities in the water sector, an alarming pattern seen from Eastern Europe to India to Southeast Asia.”

According to World Bank estimates, public money makes up some two-thirds of PPP financing around the world today. Watchdog groups say this underscores the heavy government subsidies that these projects have typically required, especially for important improvements.

“The GIF is part of a larger, renewed push for big infrastructure, which is troubling in part because of the history of human rights and environmental abuses associated with these projects,” Shayda Naficy, director of the International Water Campaign at  Corporate Accountability International, an advocacy group, told IPS.

“But it is also troubling because even where infrastructure is a dire need, as it is in the water sector, the emphasis being placed on the private sector is leading us in pursuit of illusory solutions. At least in the case of water, the private sector is not interested in making these investments in infrastructure.”

Edited by Kitty Stapp

The writer can be reached at cbiron@ips.org