Globally, analysts agree that investments in the infrastructure sector will play a big role in the post pandemic recovery efforts due to their multiplier effect.
By their very nature, infrastructure projects create employment opportunities which can in turn boost consumer spending and accelerate recovery. More importantly, infrastructure stimulates economic growth by powering businesses, creating linkages with supply chains, enabling transportation of goods and services and facilitating the provision of critical services such as water, sanitation, healthcare and education.
Governments worldwide are therefore banking on the infrastructure sector to fill critical service gaps, some of which have become more evident following the pandemic. On its part, the Kenya Government has proposed in its 2021 budget statement, to enhance budgetary allocations to support development of critical infrastructure in the country.
Going forward, certain themes are expected to dominate infrastructure development over the next few years, given the impact of the COVID-19 pandemic on the global economy.
First, post COVID-19 infrastructure stimulus packages are likely to dominate a large portion of the infrastructure development programs. These could take different forms including through accelerating ongoing construction projects, resuscitating stalled or strained infrastructure projects and creating a conducive environment for development of projects e.g., by fast tracking permitting and other approval processes. In the Kenyan context, there has already been significant media coverage on the Government’s push to ensure completion of ongoing projects with particular emphasis on those nearing completion.
Second, the private sector is expected to play a central role by financing the implementation of Post COVID-19 economic recovery. In Kenya, for instance, private investors are expected to take advantage of opportunities arising in ICT and digital infrastructure, PPP framework, Special Economic Zones (SEZs) policy framework as well as increased trade opportunities as a result of the East African Community (EAC) common market protocol, African Continental Free Trade Area (AfCFTA) and other bilateral trading arrangements.
Third, multilateral development banks and other DFIs will play a key role in unlocking greater private sector financing for infrastructure development.
In the recent past, private sector and institutional investors have turned down non-bankable infrastructure projects that do not meet their risk tolerance and investment profiles. This is partly attributable to lack of capacity and resources on the part of relevant government agencies to prepare, plan and prioritize bankable infrastructure projects.
Multilateral development institutions have been playing a key role in addressing this challenge by providing funding for transaction advisory services and technical support during the whole project lifecycle. An example is the Global Infrastructure Facility created in 2014, which provides technical and financial support for project appraisal and preparation, structuring, and implementation. The African Legal Support Facility by the African Development Bank is a similar initiative.
Fourth, we also expect greater attention to sustainable infrastructure to be a key theme in infrastructure development going forward. Climate change poses costly impacts to infrastructure in terms of maintenance, repair and longevity. Extreme weather patterns also affect planned infrastructure development by delaying its implementation and increasing the upfront costs required to build resilience into such infrastructure.
As a first step towards providing a common language for dialogue around sustainable infrastructure, a number of multilateral development banks have developed a set of 16 key indicators against which the sustainability of projects can be measured. Sustainability is, for example, assessed against reduced greenhouse emissions, creation of employment, efficient and sustainable use of water and energy, engagement of stakeholders and affected communities, compliance with anticorruption laws, among others. It is likely that these indicators will with time, be adopted across the DFI world and by commercial lenders, thereby forcing Government agencies to prioritize quality sustainable infrastructure.
Fifth, given the concerted global effort in averting global warming and mitigating greenhouse gas emissions, the transition from carbon-intensive infrastructure to ESG compliant projects is also expected to influence infrastructure development. ESG oriented investors will only be attracted to infrastructure projects that take into account long term environmental, social and governance outcomes.
Sixth, ICT and digital infrastructure will be bolstered. Significant investments in communication infrastructure and improved access to affordable broadband connectivity will be required if digital transformation is to take place,
Both public and private investments will be needed to create and maintain high-quality ICT infrastructure. Public involvement and support will be particularly important to connect remote areas, areas with low population density, or economically challenging areas that are not attractive for private investments. Equally important, will be investments in national data centres and cloud computing and hosting services.
Seventh is the development of renewable energy infrastructure. Growing ICT and digital infrastructure and indeed all other infrastructure, will require access to reliable affordable energy to power a digital economy. This at a time when there is a global push for transition to cleaner, more sustainable energy and energy efficient systems.
The improvements in technologies such as solar and their falling costs continue to open options for the use of renewable energy and to make this an attractive investment class post 2021, as countries aim to achieve their Paris Agreement commitments.
Eighth is that local content in infrastructure development will likely be a recurring theme in developing countries. Strategic public procurement is likely to be used to enhance the participation of domestic firms in public tenders. This may be by way of requiring international bidders to partner with local firms, requirements for sourcing a percentage of supplies from the local industries and/or ensuring local linkages with local firms. Additionally, a margin of preference may be granted to local bidders, or for manufactured goods containing a percentage of domestic content.
Finally, inclusive participation in infrastructure development will continue to be a key consideration in project development.
It is no secret that participation contributes to better-conceived projects and facilitates resolution of the inevitable conflicts that arise in infrastructure projects, particularly in relation to land acquisition and relocation, environmental impacts and opportunities for employment.
It will be interesting to see how these and the other themes play out in the coming days as infrastructure development claims its rightful place in the development agenda.
The article was also featured in the Business Daily and can be accessed here.