How can innovative finance support inclusive outcomes?
In many cases, the socioeconomic returns from infrastructure can be higher than the financial internal rate of return from tariffs. However, to be inclusive and sustainable throughout its lifecycle, an infrastructure service must be both affordable to the targeted end users and have adequate revenue streams to meet its debt obligations and enable its safe operation and maintenance. How can innovative finance support these types of outcomes?
We continue our discussion on inclusive infrastructure with Sue Barrett, Director and Head of Infrastructure for Turkey, Middle East & Africa at the European Bank for Reconstruction and Development (EBRD) in which we explore two of EBRD’s innovative finance approaches for inclusive infrastructure.
This conversation follows our first blog on inclusive infrastructure, which explored EBRD’s framework for measuring impact and success for economic inclusion in infrastructure.
More success stories and practical guidance on inclusive infrastructure can also be found in the Global Infrastructure Hub’s Reference Tool on Inclusive Infrastructure and Social Equity.
You previously spoke with us about EBRD’s work on the Saïss Water Conservation Project in Morocco. How did EBRD finance this project?
Sue Barrett: Our Saïss Water Conservation Project in Morocco was an irrigation project for farmers in the region to develop an alternative sustainable water source to the Saïss aquifer, and to conserve water through an enhanced irrigation method.
The project had a strong green and resilient component therefore we were able to provide blended finance for this project. We were able to attract a substantial US$30m grant from the Green Climate Fund to the Moroccan government and blended this with EBRD’s loan financing.
This created a very affordable investment for the government, allowing them to invest in long-term future-proofed infrastructure. This was a very generous grant financing of a size that we have not been able to mobilise for sustainable infrastructure in Morocco before.
Can you share an example of innovative finance that has attracted private capital into inclusive infrastructure?
Sue Barrett: In Egypt we supported the use of local currency bonds by the New Urban Communities Authority (NUCA). NUCA aims to increase economic and social opportunities for people in Egypt through the development of new smart, green and resilient cities, which are away from the Nile Delta. Our local currency team worked together with the regulator to develop a new instrument, which was used for the first time by NUCA to finance infrastructure development in these new cities.
We were the only international participant in the bond issue, and we were investing alongside local Egyptian banks. The first issue was a short-term issue, but we have supported two subsequent issues since, where the tenure has been getting longer and longer. We hope that, as these local currency instruments become more widely used in the market, they will attract more international investors into these local currency bonds.
How can we encourage governments to adopt inclusive infrastructure principles in their projects?
Sue Barrett: In the case of Morocco, the project was very much in line with the government’s priority to improve the productivity and competitiveness of the agricultural sector and address the threat to the agricultural sector posed by climate change impacts and increasing water stress.
The objective was to deliver a sustainable way to irrigate the Saïss Plain, which will be important to the local people there. There are 3,000 farmers using this land and the government knows they have to address the water scarcity issues otherwise, according to current forecasts, in 25 years from now there would be no water, no agriculture, and unemployment would rise.
This is a significant economic and social issue, and the government was very keen to work with us on financing a technical solution and stakeholder engagement. The government was also interested to work with us on gender issues in the agricultural sector.
If you want to know more about the Global Infrastructure Hub, our work on Infrastructure Futures and Inclusive Infrastructure, please get in touch with Monica Bennett at email@example.com.
The EBRD is a multilateral bank that promotes the development of the private sector and entrepreneurial initiative in 38 economies across three continents. The Bank is owned by 69 countries as well as the EU and the EIB. EBRD investments are aimed at making the economies in its regions competitive, inclusive, well-governed, green, resilient and integrated.