The need to mobilise private capital to close the growing global infrastructure investment gap is not new – it’s a challenge the infrastructure sector has faced for decades. However, tackling this gap has become increasingly urgent and, at the same time, even more difficult. Long-lasting impacts from the COVID-19 pandemic, economic and geopolitical uncertainty, and climate change are limiting the investment capacity of governments into resilient and essential infrastructure. Now more than ever, we need to do more with less and make the right decisions to mobilise private capital.

Global Infrastructure Hub’s report, Infrastructure Monitor 2022, identifies and examines global trends and insights on private investment in infrastructure. The report shows that private investment in infrastructure projects in primary markets is almost back to pre-pandemic levels, after remaining resilient overall through the initial shock of the pandemic in 2020. At the same time, a longer-term, worrying trend is that investment remained stagnant for the eighth year running in 2021. This is despite the report showing that infrastructure as an asset class is an attractive and resilient investment option, particularly in periods of high inflation and heightened economic uncertainty – like right now.

To help reverse stagnation, policymakers need to do more to increase private investment in infrastructure. Below are three trends currently shaping global private investment in infrastructure that can inform future investment policies to fund the significant shift required to enable infrastructure to reach climate targets and address global inequalities.

Private investment in infrastructure is declining in middle- and low-income countries, where investment is needed most

Our report shows that in 2021, private investment in infrastructure projects continued to grow in high-income countries (80% of private investment occurred in high-income countries), while it continued a declining trend in middle- and low-income countries. This trend is particularly worrying as infrastructure is needed the most in these countries and the financing gaps are largest. Almost two-thirds of the world’s infrastructure needs to 2035 are in emerging economies. Not only do many of these countries lack the basic infrastructure to support economic growth and development, they are also the ones most vulnerable to the adverse impacts of climate change so need to invest wisely to mitigate and adapt to climate risks.

The rise of green investment in infrastructure projects continued in 2021

Global private investment in infrastructure projects was ‘greener’ than ever in 2021, at a record high of 60% of total private investment in infrastructure projects. Infrastructure Monitor 2022 also shows that most of this green investment is in the renewable energy sector, garnering almost half of all private investment in infrastructure projects in 2021.

Encouragingly, the increase in green investment in 2021 was mostly outside of the renewables sector, for instance there was a rise in waste to energy projects, mostly in high-income countries. However, the overall level of green investment outside renewables remains low. Although strong private investor interest in renewables is positive, efforts to decarbonise infrastructure and reduce its significant climate footprint must still extend beyond renewables and into other sectors. The trend towards ‘green’ infrastructure projects was seen across all income groups (see graph below), and the global trend away from non-renewables continued, now representing only 11% of total private investment in energy projects.

In 2021, sustainable financing kept gaining ground – 20% of private investment in infrastructure projects was financed either by a green bond (10%) or a green loan (11%). This is more than double the average sustainable financing share (9%) in the five years before 2021. Although the trend is most evident in high-income countries, sustainable financing is starting to emerge in middle- and low-income countries also.

Infrastructure assets continue to show their stability and resilience

During the first half of 2022, rising inflation and interest rates have affected returns on infrastructure equities significantly less than returns on listed global equities, reflecting the resilience and stability of infrastructure assets. 

At the same time, private investors are allocating more capital than ever towards infrastructure to mitigate inflation risk. Infrastructure has a relatively stronger inflation hedging potential than other investment option, as the cashflows underpinning infrastructure are either inelastic or indexed to inflation. Furthermore, the report shows that infrastructure debt continues to outperform non-infrastructure debt and improved its performance across all income groups.

Global trends can inform policymakers to accelerate private investment in infrastructure

Given these trends, it’s time for the public sector and multilateral institutions to do more to address the consistent challenges the infrastructure sector has faced when looking to mobilise private investment in infrastructure. The trends explored in this article can help to inform future investment policies to steer investment where it’s needed most.

Governments can correct market failures that prevent private investment, by ensuring a stable regulatory environment, setting formal mechanisms for creating a project pipeline, publishing infrastructure plans and providing guarantees for projects that are not economically sustainable.

Multilateral development banks (MDBs) are uniquely placed to respond to the infrastructure investment gap. Direct co-financing of private investment in infrastructure is one way for MDBs to support private investment in middle- and low-income countries where other sources of support are less available. In addition, MDBs can also help crowd in more private capital to infrastructure. Their participation signals to investors the viability, stability, and creditworthiness of an infrastructure project, in turn reducing risk and attracting more private capital. For example, the African Development Bank recently approved a partial credit guarantee in Benin to raise funds to invest in sustainable development sectors. This credit enhancement will enable Benin to bring private financing for infrastructure projects, meeting the United Nations Sustainable Development Goals targets, including renewable energy and water and sanitation projects.

Infrastructure Monitor 2022 shows that we need to take action to reverse the eight-year long stagnation in private investment in infrastructure, find ways to address the bottlenecks in middle- and low-income countries, and continue to grow green investment, particularly outside the renewables sector. We have the resources to do so, with levels of dry powder for infrastructure quadrupling since 2010 and other resources, and the opportunities are there, including USD3.2 trillion of infrastructure stimulus announced by G20 governments for post-COVID-19 recovery. As the world faces increasing economic and political uncertainty, the stability and resilience of infrastructure can offer a haven for private capital in these turbulent times, while progressing climate targets and developing more resilient and inclusive infrastructure.