Incentivizing investment

Published on March 25, 2017

All governments, at all levels, want infrastructure. They recognize that infrastructure supports the development and enables economic growth. They understand that infrastructure improves the quality of life and helps build social cohesion. And they know that their citizens and businesses will continue to demand more (and better) infrastructure access and services.

Yet all governments are also struggling to secure the capital they need to deliver on their infrastructure agendas. The biggest problem — in the developing markets and the mature markets — comes down to funding. Simply put, who is going to ultimately pay for the infrastructure.

Governments recognize that some infrastructure (such as utilities) can be funded entirely through user-pay mechanisms, while other infrastructure (such as community centers and public hospitals) must be funded through the public budget. It’s the bread basket of projects that lie in the middle that are causing the biggest problems; those that require a mix of funding sources (and therefore some level of private investment) to deliver.

Some are taking measures to unlock new sources of capital, often through sales of existing assets where the capital is reinvested into new assets without adding to the public balance sheet. But it is clear these sources of capital will not be sufficient to deliver all of the assets that are currently needed.

 

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