Infrastructure financing need

Developed and developing nations need to tap public-private partnership and bonds to finance future development

Both developed and developing countries are facing the dual challenge of deteriorating or inadequate infrastructure and a shortage of fiscal funds. The question of how to take comprehensive measures in the coming years to meet the challenge has thus become a common problem for governments.

The trouble is evident even in the United States, home to the world's first modern infrastructure. People can see the declining quality of its infrastructure, which reflects a generation of under-investment. According to the World Economic Forum's competitiveness report, the US infrastructure ranks below 20 in most of the nine categories and below 30 in air transport and electricity supply.

Interestingly, although the US developed the Internet, its average Internet speeds are barely a 10th of those in Germany and South Korea.

The American Society of Civil Engineers has said that the US needs to spend $2.2 trillion in the next decade just to maintain the existing quality of infrastructure. To strengthen cross-state infrastructure projects, the US has proposed that a public infrastructure bank be set up - much like the European Investment Bank - using $10 billion as seed money to leverage multiple sources of private money.

In the United Kingdom, the government's National Infrastructure Plan estimates that it will require 400 billion pounds ($642 billion) in infrastructure investment before 2020 to maintain the country's competitiveness in the global market.

Developing countries, too, badly need funds to speed up infrastructure construction because of rapid urbanization, rising populations and economic growth. The Asian Development Bank estimates that Asia would need about $8 trillion in infrastructure investment from 2010 through 2020.

Given that the global financial crisis has sapped the resources of many governments, heavy reliance on fiscal spending for infrastructure is unrealistic. Instead, it is necessary to seek assistance from the private sector and effectively mobilize their funds in order to fill the huge gap.

Capital markets play an important role in this regard. As Kim Redding, chief executive of Brookfield Investment Management, described in his article in the Financial Times, with a current market capitalization of about $1 trillion, the global listed infrastructure market will have the potential to reach $3 trillion to $5 trillion in size over the next 10 years through a combination of initial public offerings, fundraising by existing companies and organic growth.

Existing listed companies are likely to increase investment in the infrastructure asset class, participating in the monetization of government assets. While there are varying degrees of dependence on bank loans to finance infrastructure in different countries, the development of local currency bond markets will certainly attract long-term capital and make the national financial systems more resilient.