A hub to span the $78 trillion infrastructure gap

How to facilitate increased government and private sector investment in infrastructure to drive economic growth and job creation has been a central platform of the G20 under Australia’s presidency. This question will be high on the discussion agenda when the G20 leaders meet in Brisbane on the weekend. KPMG welcomes this focus.

There is no doubt that, globally, there is a significant need for infrastructure investment. A recent report estimated the cost of addressing the global infrastructure deficit at around $78 trillion by 2025 – a very big number indeed.

In the lead up to the G20, the B20 set up an Infrastructure and Investment Task Force.

Many of the recommendations – such as the reaffirmation of the critical importance of infrastructure, the need for governments to establish credible and realistic infrastructure plans of rigorously prioritised projects, and the facilitation of infrastructure investment by implementing more efficient approval processes and reducing barriers to private finance -are well understood and accepted by the infrastructure community.

However, one recommendation that is new, and is now likely to be taken forward by the G20, is for the establishment of a Global Infrastructure Hub (GIH). The objective of the GIH is to increase the quality of infrastructure investment by acting as a knowledge centre, sharing best practice and developing a consolidated project pipeline based on individual country plans.

It is expected that the G20 will support the establishment of a new centre – a Global Infrastructure Hub – potentially to be set up in Sydney, to unlock $ trillions in private infrastructure spending.

The immediate attraction of such a proposal is clear. The underlying rationale is that infrastructure investment is complex, involves vast expenditure commitments, requires governments and the private sector to work together, and if successfully undertaken will drive growth and job creation.

Such a Hub would essentially act as a global centre of excellence to assist governments prioritise and advise on the delivery of projects, and bring projects and investors together.

However, it’s not quite as simple as this. One reason is that many countries, particularly the emerging and developing countries which have both the greatest need and the biggest challenge, have a significant amount of work to do to put in place the underlying enablers to create an environment that will encourage private sector investment in their markets. These including addressing investor concerns about transparency, rule of law, the quality of regulation and the development of real, rather than fictional, pipelines of well-structured and prioritised projects.

This, coupled with the scale of global investment required, means that the Hub will need to be very focused and structured in its approach to avoid being swamped by the requirement to assess information about projects that will ultimately never be delivered.

The Global Infrastructure Hub certainly has the potential to contribute and add value. However, in order to do so I suggest that there are certain preconditions for success :

Staffing – the Hub must be staffed by real practitioners, under strong leadership and with a clear mandate/charter.

Scope – the Hub must focus religiously on the things that are important for facilitating sustainable long-term infrastructure investment and avoid being dragged into the issues of the day.

Sustainability – the Hub should target the underlying enablers to support sustainable investment (creating supportive investment climates) as much as, if not more than, the infrastructure projects themselves. Otherwise it will run the risk of spending its time collating, coordinating and assessing information about poorly considered projects and pipelines from markets where infrastructure investment would be very difficult in any event. One aspect of this approach could be for the Hub to identify some genuinely critical projects to use as pathfinders for its involvement.

Stakeholders – the Hub should create an environment where it can constructively engage with and draw on, rather than duplicate, the collective knowledge of a number of organisations already working in this space (such as multilateral funding agencies, government institutions and global advisory/consulting firms).

Australia is well positioned to host an Infrastructure Hub, sharing knowledge and enabling the investment in and development of infrastructure projects throughout the globe.

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