SINGAPORE: Infrastructure investment has the potential to be a new vector for growth and globalisation, as well as provide new revenue streams, said World Bank Managing Director and Chief Financial Officer Joaquim Levy at the World Bank-Singapore Infrastructure Finance Summit on Monday (Oct 17).
Mr Levy said infrastructure investment is a valuable source of long-term income streams that can help to address the global challenges of an ageing population and lower levels of private investment. While there is no shortage of capital waiting to be invested, he said, more can be done to mitigate risks.
“There are many ways of doing that,” he said. “Sometimes changing the environment where the project is developed; sometimes enhancing the project, reducing the risk through financial mechanisms. And at the government level, to have an adequate regulatory system reduces the risk of the projects itself. Another role is of providing guarantees when there’s still some risk.”
INFRASTRUCTURE COSTS
According to a 2016 report by McKinsey and Company, Asia needs more than US$1 trillion of infrastructure a year. While observers noted that there is no shortage of capital waiting to be invested, the World Bank said more needs to be done to mitigate risks.
"To have an adequate regulatory system reduces the risk of the projects itself," said Mr Levy. "Another role is that providing guarantees when there's still some risk. And in this case, I think multilateral institutions like ours can really help by providing some financial mechanisms, as well as intermediating and helping governments to develop new regulations."
Speaking at the summit, Singapore’s Deputy Prime Minister and Coordinating Minister for Economic and Social Policies Tharman Shanmugaratnam highlighted the importance of keeping an eye on the costs of infrastructure projects.
“Large infrastructure projects have seen costs overrun by 20 per cent to 45 per cent on average - clearly not desirable for the public purse and a waste of resources,” he said. “So we have to take off our macroeconomic hats and put on our microeconomic hats, and assess every project for its payoffs, economic and social.”
Mr Tharman added that public-private partnerships can help avoid cost escalations, “with the private sector being concerned about sustainable returns and the public sector prioritising projects based on a rigorous assessment of needs”.
He also noted the potential to make better use of technology to spot problems when projects are being designed, which can reduce costs overall.
"Building information modelling systems (BIM systems) has a lot of scope for use in infrastructure projects," he said. "Upfront ex ante use of technologies to be able to map our projects, spot problems, can reduce costs very significantly further down the road."
Mr Tharman said that multilateral institutions, too, can help keep a close eye on costs, given their expertise and resources.
In its last financial year, the World Bank committed almost US$23 billion of finance in Asia, while Asian Development Bank approved a record US$27 billion for projects. Meanwhile, the newly formed US$100 billion capital Asian Infrastructure Investment Bank (AIIB) intends to invest US$1.2 billion this year.