Discussions
Global focus on infrastructure and the need for Common Approach to Infrastructural Development mechanisms in African countries
William Mwanza, tralac Researcher, discusses the emerging global consensus on the need for enhanced investment in infrastructure
Recent events in global economic cooperation have turned what seemed like a grim end to the year 2014, to one that signals renewed optimism for effective steps towards sustainable economic development in 2015. Progress on the Trade Facilitation Agreement agreed to in Bali at the end of 2013 had stalled. Some fears of Europe returning to a state of recession have highlighted the global slowdown in demand. Growth in China has slowed, while much focus has continued to be on geopolitical tensions in Europe, conflicts in the Middle East, and containing the spread of Ebola in West Africa. Global economic challenges have been on somewhat of the backburner, especially as most developed countries seemed to have been recovering well from the recent ‘Great Recession’. In the face of new concerns of a further slowdown, however, there has been a significant shift in thinking around how best to confront the problems being faced in the global economy. There is now a new consensus that addressing supply side constraints, particularly by tackling global investment and infrastructure shortfalls will be crucial to lifting growth, job creation, and productivity. This is one of the central messages that came out of the meeting of the G20 Leaders of major economies, held in Brisbane, Australia, from 15 to 16 November.
Prior to this meeting, some other important developments had taken place in the area of infrastructural development. Firstly, the Global Infrastructure Initiative was launched by the World Bank in October. Secondly, the US and India reached a breakthrough that is seen as important in resolving the standoff on the WTO Trade Facilitation Agreement.
The Global Infrastructure Initiative is a multi-year programme that seeks to unlock additional infrastructure financing in the region of US$ 1 trillion annually for developing countries up to the year 2020. This will be done by leveraging partnerships with other multilateral development institutions, donor countries, and some of the world’s largest asset management and private equity firms, pension and insurance funds, and commercial banks. The key activities of the programme will include developing a knowledge-sharing network to aggregate and share information on infrastructure projects and financing between governments and the different partners in the initiative; addressing key data gaps of concern to investors; building the capacity of officials to improve institutional arrangements; and enhancing investment opportunities by developing a consolidated database of infrastructure projects, which would be connected to national and relevant multilateral development bank databases, so as to help match potential investors with projects.
Just prior to the G20 Summit in Brisbane, the Heads of Multilateral Development Institutions – namely the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank, the Islamic Development Bank, the World Bank Group, and the International Monetary Fund – released a statement endorsing the Global Infrastructure Initiative and welcoming the emphasis that the G20 is now putting on infrastructure. The development banks highlighted their continued role in providing over US$130 billion in financing for infrastructure annually and how they work on the ground in countries through the full cycle of infrastructural development. They also highlighted their knowledge and experience in leveraging greater private sector involvement in infrastructure across the globe, and how they are all currently involved in strengthening existing project preparation facilities in some of the respective institutions and establishing new ones in others. The G20 Summit endorsed the Initiative, and also agreed to establish a Global Infrastructure Hub, to be headquartered in Sydney, Australia. This organisation will work with the Global Infrastructure Initiative in the key areas cited, and will be open to interaction with both G20 and non-G20 countries, as well as international organisations, and regional and national development banks interested in working together to build the knowledge network that is currently planned for.
This global consensus on the need for investing in infrastructure and the framework for coordinated efforts by multilateral development institutions presents an important opportunity for African countries, where supply side constraints particularly in the area of infrastructure have been cited as the most critical bottlenecks to effectively attaining sustainable development and poverty reduction. What will be of particular importance going forward is the development of national mechanisms that would mirror the global coordination framework that is being set up. The different multilateral agencies are already working in respective African countries, and as has been acknowledged by their Heads, are implementing “country-owned and country-led strategies” in infrastructural development. In mirroring the set up at the global level, it will be important to establish mechanisms that would entail a Common Approach to Infrastructural Development in African countries. Such a forum would pool the resources and expertise of the respective multilateral agencies and all associated partners around particular national infrastructural projects within the respective countries, and would present a coordinated framework for interaction with the Global Infrastructure Hub, for example. Such a common approach to financing is already being implemented in different African countries with respect to budget support. With regard to infrastructure, it would be important that the focus of such mechanisms should not only be inward looking, focusing on national projects as they enhance productivity within the different countries; it would be crucial that these mechanisms also make the implementation of regional plans on infrastructural development a main priority. This would, therefore, see them coordinating with similar mechanisms in other countries of close proximity, so as to ensure that the national infrastructural projects of the different countries “meet at the border” so to speak. This will then ensure the effective development of regional infrastructural networks that are crucial for the development of regional networks of production and trade.
The Global Infrastructure Initiative’s primary focus appears to be on investment in hard infrastructure. The need for development of soft infrastructure – such as simplification and harmonisation of customs and border procedures – has also been highlighted as an important prerequisite for the effective delivery of services that flow from hard infrastructure projects. This is primarily the substance of the WTO Trade Facilitation Agreement. As noted earlier, the breakthrough in talks between the US and India had added renewed momentum towards conclusion of talks regarding implementation of the Agreement. This has been demonstrated by the WTO’s Director General cutting short his international engagements to return to Geneva to try and galvanise efforts towards a consensus. African countries have been amongst the group that expressed reservations on some aspects of the Agreement. It remains to be seen how the talks will now be approached. What is clear either way is that an effective Trade Facilitation Agreement would go a long way in complementing the implementation of hard infrastructure projects in a way that significantly enhances trade. It would necessarily have to form part of the Common Approach to Infrastructural Development mechanisms that are proposed.
As the year slowly draws to a close, therefore, African countries find themselves on the cusp of significant progress on infrastructural development in 2015. Much will depend on the frameworks that will be put in place at the national level, and on how these are founded and work towards the implementation of respective regional infrastructural plans.
Sources:
Note on the Global Infrastructure Initiative and the Global Infrastructure Hub. [Online]. Available at: http://www.tralac.org/images/docs/6640/g20-note-on-the-global-infrastructure-initiative.pdf
Statement by Heads of Multilateral Development Banks and the IMF on infrastructure. [Online]. Available at: http://www.tralac.org/news/article/6624-statement-by-the-heads-of-the-multilateral-development-banks-and-the-imf-on-infrastructure.html
G20 Leaders’ Communiqué, Brisbane Summit, 15-16 November 2014. [Online]. Available at: http://www.tralac.org/images/docs/6635/g20-leaders-communique-brisbane-summit.pdf
India, US clinch deal on WTO food stocks, trade facilitation impasse. [Online]. Available at: http://www.tralac.org/news/article/6623-india-us-clinch-deal-on-wto-food-stocks-trade-facilitation-impasse.html