In previous installments of “The Road to SDG Financing” series, we discussed that private capital is necessary to implement the Sustainable Development Goals (SDGs) and that investors increasingly want to do their part in financing the 2030 Agenda. Yet there is ample room to ramp up private investment in developing economies and a series of actions the development community should take to facilitate this financing. Gleaned from numerous discussions with investors and a review of relevant literature, this next installment in our series addresses one of these key actions: the building up of bankable project pipelines.
While fiscal constraints affect the availability of public sector funding, our exploration of private investment confirms that liquidity – or cash — is not the problem. On the contrary, private capital abounds and if mobilized effectively, it can help make a sizable dent in the SDG financing gap. Instead, obstacles like an absence of investors willing to lend in local currency stand in the way of channeling these resources to developing economies, making transactions too costly for clients. And critically, a sheer lack of bankable projects and transparent project pipelines remains a primary bottleneck to private participation in SDG financing. A 2018 OECD report backs this assertion, stating that “…the global…investment gap is not a result of the lack of capital. Rather, there are not enough identifiable, investment-ready and bankable projects to which private sector investors and project developers can commit time, effort, and funding.”
In many cases, this boils down to poor planning and limited efforts to provide complete and consistent information to investors about potential opportunities. In others, it boils down to a lack of developed investment plans to begin with and limited coordination with national policy which makes it impossible to clearly indicate where and how much investment is needed.
According to a study by Mercer and the IDB, private investors hold that this particular challenge should be the top priority in efforts to facilitate sustainable infrastructure investment. Ignoring it can result in “too much money chasing too few projects” and “inadequate deal flow” that directly deter private investment and complicate the mobilization of resources at scale.
The solution to this challenge lies, in great part, in improved planning at both the macro and granular levels. On the one hand, developing national investment plans that highlight needs and opportunities have proven to be more effective in attracting investors. On the other, conducting pre-feasibility studies and other activities to improve project preparation can result in concrete opportunities for investors.
Cooperation with other entities, including multilateral development banks like the IDB, can be a key enabler of efforts to improve project pipelines, as well as coordination between agencies and ministries to enhance the availability of transparent investment opportunities. One example of our work in this space is the NDC Pipeline Accelerator Trust Fund, a climate finance facility that fast tracks bankable projects in line with the Nationally Determined Contributions (NDC) to the Paris Climate Agreement. Thanks to financing from the Government of the Netherlands, the Government of Sweden and the Nordic Development Fund, the Fund ensures projects’ technical and financial feasibility and embeds climate and sustainability considerations in project preparation and design.
In addition, a $10 million facility established with the Government of Spain supports the development of bankable public-private partnership (PPP) projects. Through feasibility studies, efforts to improve understanding of the region’s infrastructure market, and activities to enhance the legal, financial, and operational framework for projects, the Facility strives to unlock private capital by eliminating this common barrier to investment.
Furthermore, the Bank’s PPP team and its longtime efforts to facilitate such arrangements in the region focus largely on enhancing project preparation as a means of ultimately improving project pipelines and enabling private SDG financing.
Together, these efforts provide a taste of the Bank’s strategic efforts to foster private investment in the region and of its standing as a key partner for actors looking to promote concrete financing opportunities in Latin America and the Caribbean.
In parallel, however, it will be necessary to further address investor concerns regarding the creditworthiness and stability of capital markets in developing economies. Don’t miss the next installment of this series, which will address these concerns head on.
Our experience working with the private sector has taught us that building trust and a robust portfolio of investment opportunities is key to engaging any investor. In the next installment of this series, we will discuss just how we are working to meet – and hopefully exceed – these expectations.
Matias Bendersky is Chief of the Resource Mobilization Division at the Inter-American Development Bank (IDB), where he is responsible for forging and expanding the IDB Group’s strategic alliances with partners from the public, private, non-profit, foundation, and academic sectors. He leads a team of professionals that work to identify co-financing opportunities and mobilize resources. In addition, Mr. Bendersky’s team works to explore how to best leverage blended and innovative financing instruments as vehicles for achieving the sustainable development agenda in the region. Prior to joining the IDB in 2007, Mr. Bendersky worked for the World Bank in various sovereign guaranteed operations. Previously, Mr. Bendersky worked for 6 years as a corporate and transactional attorney in both Argentina and the United States. Mr. Bendersky holds a JD from the University of Buenos Aires and a Joint Degree Masters from Northwestern University’s Kellogg Graduate School of Management and Law School in Chicago.