Bianchi and Drew: Financing infrastructure investment: old roads and new paths?

From the Introduction:

One of the many concerns raised by leaders at the recent St Petersburg G20 summit (2013) was the anaemic outlook for global economic growth. One investment initiative canvassed at the summit, for the purpose of moving economic growth towards potential, was the imperative for new infrastructure investment in both developed and emerging economies. It is generally agreed that investment in new infrastructure projects is positively correlated with output and growth. However, despite widespread accord regarding the economic benefits of infrastructure investment, there remains a substantial deficit in new infrastructure investment globally. The aim of this short essay is to frame the current challenges to greater investment, and to consider potential new paths for financing in the future.

The economic viability of every infrastructure project rests on the robustness of the capital budgeting decision and cost/benefit appraisal. A best-of-breed project appraisal methodology can assist in the identification of the highest priority infrastructure projects and ensure that scarce capital (public and/or private) can be deployed in the most efficient and effective manner. Investment appraisal that is informed by the principle of opportunity cost can see capital flow to projects that can be accretive to productivity growth, national output and (from a public finance perspective) increased tax receipts. The investment decisions regarding infrastructure to be made globally over the next decade will provide the foundations for raising potential GDP growth, with associated improvements in a range of economic and social factors, including, but not limited to, productivity growth, time savings, improved health standards and sustainability. While we can generally agree on (and be advocates for) the benefits from new infrastructure investment, it is timely to consider some of the roadblocks (pardon the pun) that are hampering efforts to turn these opportunities into reality.

 

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