5 Key Takeaways from the Indo-Pacific Infrastructure Forum
- The trilateral Indo-Pacific strategy prioritizes open sea lanes, sustainable infrastructure projects, and bolstering investment into the region as a whole. The United States, India and Japan are working together to build a comprehensive and results-oriented strategy of cooperation focusing on preserving a free and open Indo-Pacific region. The focus will be on supporting an estimated $26 trillion unmet demand by 2030 to finance sustainable and community-driven infrastructure projects which are vital to the development of the region. Several speakers concluded that we can only make progress on addressing the infrastructure gap by leveraging the assets and resources of the private sector. This will require a sustained dialogue between governments and industry to identify areas for meaningful partnership.
- Private capital is required to meet the infrastructure financing gap, but investors need engaged local partners; politically viable projects that benefit local communities at large; and predictable regulatory structures. National governments can serve as facilitators for infrastructure investment and take on project start-up risk, but can’t fill the gap. Similarly, there is not enough domestic capital in emerging markets to meet the needs. Foreign funds will be required to bridge the large financing gap. Finding ways to hedge foreign currency risk is imperative to secure overseas financing. Industry leaders commented on the importance of local buy-in for private sector financed infrastructure projects; while country capitals can play a key role by providing regulatory certainty, project success often hinges on the right local business partners and support from community stakeholders.
- Multilateral and bilateral finance institutions can supplement local financing and de-risk infrastructure investments. Budgetary support for infrastructure both at the Centre and State level remains constrained. Equity and long-term debt from local institutions is in short supply. There is a mismatch between the time horizon of many bank loans and the timeframe needed to complete large infrastructure projects. The lack of a deep bond market in India also creates a significant barrier to investment. Multilateral development institutions like the World Bank and IFC, along with their regional counterparts, are already playing a significant catalytic role in providing and mobilizing equity and long term debt, along with technical assistance, for infrastructure projects. Bilateral institutions like OPIC are also potential financiers of infrastructure. For example, OPIC President Ray Washburne highlighted OPIC’s provision of longer-term loans (15-20 years) at low interest rates (3-4%) to qualified U.S. companies, with $7 billion of capital waiting to be deployed. In addition, the U.S. Congress is considering a new U.S. Development Finance Institution, equipped with new authorities and innovative financial tools to support private sector-driven development.
- Unlocking potential national savings and innovation are key to creating new sources of financing for infrastructure. Panelists emphasized the need to unlock potential national savings from government programs to enhance the pool of government funds available for infrastructure. The recently created National Infrastructure Investment Fund (NIIF) by the Government of India to mobilize equity from domestic and foreign investors, and innovative rupee debt instruments like the Masala Bonds floated on overseas exchanges to foreign investors, are among several initiatives that can generate new sources of financing for infrastructure.
- Connectivity requires more than just physical infrastructure. Connectivity spans a number of sectors: ports, roads, and other infrastructure that links the region physically; digital connectivity linking businesses and governments to the global flow of information; and alignment of security principles and practices to link like-minded powers. Indian Ambassador to the United States Navtej Sarna highlighted the importance of technological connectivity across the Indo-Pacific, supported by the adoption of similar digital and cyber norms. Infrastructure investment should be demand-driven and follow international best practices for environmental sustainability and labor standards.