The opportunity to create more efficient connections between European and Asian economies could help spur global economic growth, and infrastructure development will be a critical enabler. Furthermore, sound investment in Asian infrastructure will be necessary to meet global climate change objectives.
McKinsey research finds that across Asia, excluding China, there is $10 trillion of infrastructure investment needed, but only $1.6 trillion of projects in the pipeline. This leaves the region with more than $8 trillion of unfunded infrastructure needs. Capital from the private sector and multilateral development banks (MDBs), including the Asian Infrastructure Investment Bank (AIIB), will be necessary to close the investment gap.
The private sector and MDBs can collaborate with national governments to help develop pipelines of bankable projects. In well-designed public–private partnerships (PPPs), the private-sector partner will often invest for 20 to 30 years to help ensure operating assets deliver the intended environmental, social, and economic benefits.
However, important factors must be in place to help minimize risks and attract private and multilateral funding and financing, including:
- Strict environmental, social, and anticorruption policies and transparent systems to monitor adherence
- Long-term debt sustainability of the host nation
- Regulatory and political stability and sustained project support
- Financial sustainability throughout the asset’s life cycle backed by a detailed business case
Standardized frameworks can help increase the number of PPPs by providing transparent and consistent guidance on key processes (such as procurement) and risk allocation. Another approach is to set up governance boards on major projects with global representation that provides the right mix of insights and experience as well as a level of detachment from local politics.
Finally, the capacity of local institutions to manage and deliver the projects is critical. The AIIB and other MDBs can play a critical role in Asia by working with local project owners to build the capacity of their teams to improve project selection, design, and delivery.