Source:GI Hub (2020).
In many countries, the lack of a bankable, investment-ready pipeline of infrastructure projects is one of the major bottlenecks in attracting private capital to infrastructure. The capacity to prepare infrastructure projects is weak across most regions and although it is better in high-income countries, there is still room for improvement, according to the GI Hub’s InfraCompass planning scores.
Project preparation is a critical enabler of infrastructure development and has been identified as a key pillar in the G20’s strategic roadmap to develop infrastructure as an asset class. It involves conceptualisation, prioritisation, feasibility and socio-economic impact assessments, and financial and contractual structuring. Strengthening these capabilities will further solidify infrastructure as an asset class and help avoid inefficiencies during project execution.
However, project preparation requires considerable financial and time resources. Over the past two decades, project preparation costs have increased substantially driven by the increasing complexity of infrastructure projects and by further requirements for implementing sustainable, resilient, and inclusive infrastructure projects. The burden is even higher considering that these costs are not usually included within the estimated investment amount and need additional funding. Despite these challenges, project preparation should be regarded as an investment to avoid future inefficiencies and better achieve the intended goals of infrastructure projects.
The capacity and funding for project preparation play a crucial role in developing bankable, investment-ready and environmental, social and governance (ESG) aligned projects. Project Preparation Facilities (PPFs) are increasingly being used as a tool to provide technical support and funding for this important pre-investment stage. GI Hub’s Infrastructure Monitor 2021 examines the channelling of technical support and funds to improve project preparation through the lenses of PPFs. Based on our analysis of 130 global PPFs, we found that PPFs are mainly active in developing countries and are mostly led by multilateral development banks. Africa is the region with one of the lowest infrastructure planning scores, and this explains why it has the highest number of active PPFs. Almost 80% of its PPFs support project preparation in the energy sector and almost all PPFs provide funding support for project preparation. About 60% of PPFs provide technical support, including capacity building and networking arrangements. However, their support is limited by their own capacity. A higher number of PPFs operating in a region or a sector does not necessarily translate into a higher volume or value of projects supported. For larger projects, they often need to resort to collaboration and co-funding to cover project preparation support costs.
The need for sound project preparation is crucial to attract more private capital into sustainable, resilient, inclusive infrastructure. Even though it requires significant costs, the gains from this investment prevail the initial investment.