This interview with GI Hub's Chief Executive Officer, Marie Lam-Frendo was originally published in the G20 Italy: The 2021 Rome Summit publication here.
Q: How can investment in infrastructure fuel the economic recovery from COVID-19?
Infrastructure plays a dual role: in the short term in terms of productivity, and in the longer term in terms of economic growth. Infrastructure as a fiscal multiplier can boost overall economic growth. At the July 2020 finance ministerial meeting we presented a study of more than 3,000 fiscal multipliers that found, with public investment as a proxy, infrastructure is a 1.5 fiscal multiplier, versus a 1.0 multiplier for public spending.
But this is also about building better. We must pay closer consideration to the long-term consequences of short-term measures and focus on resilient, greener, fairer infrastructure that transforms the economy so it grows and anticipates future risks, particularly climate change. Sustainability in investment is now a must-have and not a nice-to-have. Given governments’ fiscal constraints, leveraging private sector participation and finance is linked to maximising this money, which is closely tied to environmental, social and governance principles.
Q: Is the global infrastructure gap growing?
Definitely. Over the last 10 years the level of private participation in public infrastructure has remained low except in the renewable sector and even declined overall in emerging economies. Investors appetite for the asset class is growing but the impact has been most visible in secondary markets and high-income countries. As an alternative asset class, infrastructure performs well for long-term investors - it acts as a security in less than 10 years in developed countries and 14 years in emerging markets. But, building on the fiscal multiplier effect, governments are asking how to build up their COVID-19 stimulus packages. For the Italian G20 presidency, we’ve developed our online tool InfraTracker that presents trends and insights to help governments make more informed decisions. Almost a third of new spending is in infrastructure that supports a low-carbon transition. That’s encouraging: despite the gap between the number of assets and private sector participation, governments are deploying more than $3 trillion in stimulus in the short-term, with significant spending on environmental sustainability. We need to work harder, especially on climate change targets, but it’s encouraging.
Q: How is the Global Infrastructure Hub working to help the G20?
We’re working with the G20’s Infrastructure Working Group (IWG) on the role of infrastructure in the transition to a circular economy. We’ve created a circular economy roadmap to provide high-level guidance on how to transition infrastructure towards a circular economy, held a workshop for IWG members on the topic and created a thought piece on the role of infrastructure in the circular economy. This is a new but urgent topic for the G20, if we want to deploy the stimulus forward. Regarding the circular economy, extraction, manufacturing and production are responsible for 45% of global emissions. So it’s not only bringing all the energy assets towards renewables: it’s about everything — the way you build your roads or wastewater systems while limiting the need to extract new materials. The circular economy is a very powerful solution for meeting long-term climate change objectives plus reducing supply chain risks and short-term shortages. It can be integrated into infrastructure itself and infrastructure can support circular economy activity.
On climate change, decision makers need more actionable data and evidence sharing across countries and sectors. Politicians have limited political capital and time, and must manage multiple priorities, so if data are difficult to grasp, other priorities take precedence. The GI Hub has aggregated more than 20 databases into an online tool, InfraTracker, for policymakers. We continue to build it, and identify more data gaps. Infrastructure is in a silent crisis, because it is not an asset class, so it’s not seen on capital markets. It’s not only about government capacity and capability but also about the private sector’s appetite for this asset class. Our InfraTracker tool tracks stimulus to see how it is evolving and delivers results. Without data, it’s hard to understand what’s going on.
Governments need to see progress within their jurisdiction on their priorities. Our Infrastructure Monitor flagship report and data insights tracks those particular aspects. We know there’s an appetite for this because governments ask us for follow-up. With infrastructure it’s all about sharing best practices.
The GI Hub also supports practical solutions. We’re continuing work started under the 2020 Saudi presidency on identifying innovative funding and financing solutions. There are many ways to successfully structure deals, so we are assembling case studies and guidance on the latest best practices. Infrastructure is very technical, but it’s not always rocket science. It helps to know what others have been doing successfully.
Last year, we put together around 60 case studies on comparatively inexpensive technology – sometimes very basic technology – to manage maintenance, for example, the volume of leakages in water systems. This was a lightbulb infratech moment for practitioners, and for finance ministers to think about incentives built into paying for a project so best practices are already embedded. If you think about infrastructure’s contribution to climate change, inclusivity and a fairer world, if those are not embedded now we have probably missed the opportunity until the next century.
Maintenance is also important. We need more thinking put into planning for maintenance at the beginning, because you will have more benefits in the long run from the asset itself, and less risk of default. This is hard to evaluate, but important because governments have to deal with the consequences inherited from previous administrations. You don’t want contention liability to become actual liability. Governments need to avoid replicating the same approach to build back better.
Q: How can the G20 leaders in Rome best meet the global infrastructure need?
They need to remain accountable for implementing the actions they’ve discussed. They want to be, but there are many complicated topics on the table. Ultimately this means progress on climate change, where infrastructure is key. The G20 has institutions like ours to help members, at their own pace, to make implementation happen.
The GI Hub has been delivering strong work and activities for the G20 based on its mandate for the past two years and there is a big appetite for us to continue. Our strategic priorities are data and insights. We want to work on prioritising reforms, given issues such as regulatory capital requirements, and addressing information asymmetries to shape best practices.
Ultimately, we want to become the international infrastructure agency of reference for the G20 and beyond. You have the International Energy Agency that can do this for the energy sector, but nothing exists for the infrastructure sector. A single, independent source of insights and data could benefit many G20 members and more. Our Infrastructure Monitor and Tracker, and our InfraCompass and InfraOutlook, are building blocks, but these things take time. A two-year extension will continue building that foundation so the G20 can implement more sustainable governance. Ensuring the Hub’s knowledge and activities could be better institutionalised, while keeping it small, nimble and agile, has been at the core of the value proposition we have brought to the G20.