Viet Nam

APEC FMM: Long-Term Investment in Infrastructure

 

Remarks by Angel Gurría

OECD Secretary-General

Hoi An, Viet Nam, 21 October 2017

(as prepared for delivery)

 

 

Ministers, 


The OECD extends its congratulations to Viet Nam for its leadership in focusing on infrastructure as a priority during its host year in 2017 under the Cebu Action Plan. This aligned with the OECD’s view that infrastructure is key to promoting inclusive growth.

 

Simply put: If a rural entrepreneur cannot bring her products into the city, there cannot be inclusiveness.

 

The APEC membership, comprising many dynamic emerging economies, shares the common challenge of meeting growing expectations from a young workforce with increasing appetites for new and better infrastructure services.

 

Leaders foreshadowed this priority when identifying infrastructure as key to ‘building an APEC community that is more financially integrated, transparent, resilient, and connected.’

 

Achieving this will be all the more difficult because, in many economies, much of the infrastructure is already at risk, or in need of upgrading.

 

Ministers and colleagues,


The OECD is committed to supporting APEC to ensure long-term investment in infrastructure as key to achieving sustainable and inclusive growth.

 

To reach this goal, we must start by introducing and diversifying private financing sources for sustainable infrastructure. This is particularly important for emerging economies — like many in the region — facing limited public finance options.

 

According to the ADB, it is expected that the private sector will need to account for a large part of the total USD 26 trillion in forecasted investment needs from 2016 to 2030, or USD1.7 trillion per year . However, despite the large pool of available capital from long-term investors, total amounts of institutional investment in infrastructure remain relatively limited.

 

How do we address this infrastructure financing paradox? ABAC will tell us that the private sector wants to invest in infrastructure. They are looking for bankable projects. But the right public-private partnerships are hard to find.

 

To make these partnerships workable, we need the risk of a project to be fairly and transparently shared. This means that risk is allocated according to each partner’s capacity. The result? Governments have a better chance to attract needed private financing, and long-term investors increase their chances of stable returns.

 

The investment and expertise needed for large-scale infrastructure projects requires the involvement of many stakeholders, such as MDBs, governments, and increasingly non-public sources. This makes the diversification of private sources for infrastructure — banks, institutional investors, and corporates — critical to designing an optimal blend of finance.

 

This requires broadening capital market channels for investment. These include innovative financing models and instruments,such as investment platforms, equity and debt funds, project bonds and “blended finance”. This was outlined recently in the G20/OECD Guidance Note on the Diversification of Financial Instruments for Infrastructure.

 

It also requires optimising the risk management and risk profile of infrastructure projects. This is the challenge—and the opportunity that we focused on, when we prepared the report on risk mitigation and risk allocation in infrastructure, with the Global Infrastructure Hub, the ADB, other IOs, and member ecomies. The report identifies tools policymakers and regulators could consider to better mitigate and allocate risk.

 

This includes, for example, the use of credit enhancement tools for PPP projects, which enable the use of bonds in the primary stage of project finance. Appropriate contractual arrangements are also key to a risk management strategy, especially in PPPs.

 

The report presents case studies highlighting practices in Chile, Mexico and Peru.

 

Let me just highlight the example of Peru. Here, the government sought to mitigate currency, demand, and operating risks by using availability payments. Projects utilising these structures have achieved higher credit ratings (BBB rated), one notch below the foreign currency credit rating of Peru (according to S&P).

 

There is a trickle-up effect to these actions. In mitigating investment risk, they broaden viable financing sources. More broadly, these types of government actions could sow the seeds for local capital market development.

 

Another issue standing in the way of quality and sustainable investment in infrastructure is a lack of data. Bridging the data gap could improve performance reporting, benchmarking, and analysing infrastructure projects.

 

The OECD—in collaboration with other IOs—is developing an Infrastructure Data Initiative to help advance the description of infrastructure as an asset class. This will make it easier for investors to perform due diligence checks on investments before committing capital — an effort that would benefit from APEC and ABAC support.

 

Ministers and colleagues,


Thanks to your leadership — and the initiative of Viet Nam — the Policy Statement on “Diversifying financing sources and fostering private sector involvement in infrastructure investment in APEC economies” outlines key non-binding and voluntary recommendations for future APEC action as outlined above.

 

Delivering these actions to ensure sustainable and quality investment is infrastructure is essential for connecting people, places, goods, and services, where and when they are needed.

 

The OECD stands ready and able to support APEC to achieve this objective. Thank you.

 

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