Investment commitments in infrastructure projects with private participation in developing countries declined sharply in 2016, falling by 37 percent compared to 2015, says a new World Bank Group report.
A large drop in investment commitments in Turkey – which in 2015 saw three mega-projects reach financial closure, including the US$35.6 billion IGA Airport in Istanbul – contributed significantly to the year-on-year decline. Without the Istanbul Airport project, the decline in private investment in infrastructure would be 8 percent, according to the annual report of the Private Participation in Infrastructure Database.
The US$71 billion of investment commitments in 2016 also represents a substantial slide from the US$121 billion average annual investment charted during the years 2011 to 2015. The overall trend of lower investment may be attributed to three countries which received more than half of investment commitments for infrastructure projects with private participation in recent years: Turkey, India, and Brazil.
“Infrastructure in developing countries are untapped investment opportunities, with only a small percentage of projects attracting private sector investment so far,” said Laurence Carter, Senior Director for the Infrastructure, PPPs and Guarantees Group at the World Bank. “The potential within regions and sectors is enormous, and the World Bank Group will continue to prioritize supporting infrastructure investments in order to boost more inclusive growth.”
The PPIDB looks at infrastructure projects in 135 developing countries, but only a few dozen countries see significant private sector investment in infrastructure. A 43 percent increase in commitments in East Asia and an equally significant pick-up in the renewable energy sector were bright spots in an otherwise sluggish year.
Investment commitments in renewables continued to rise in 2016, comprising 88 percent of the 144 electricity generation projects supported by the private sector. The projects are mostly focused on hydropower, solar PV, and onshore wind technologies. Compared to declining volumes in the transport and water sectors, private sector investment in energy projects increased overall, by 11 percent year-on-year. The data also indicates a sixth straight year of declining investment in coal-fired power projects.
China and Indonesia were popular investment destinations. Investment commitments in China reached US$11.4 billion in 2016, an increase of 75 percent from the 5-year average, and the improvement may reflect early success for China’s recently launched PPP program. Investment volumes in Indonesia rose to US$6.9 billion. The East Asia and Pacific region were also active investors, as bilateral financing from Japan and China in particular has increased. However, support from multilateral development banks has remained even, at around 13 percent of all deals.
As for the world’s lower-income countries, investment commitments in privately-funded infrastructure projects are higher than 2015 figures, but below the previous 5-year average. Investments amounting to US$2.9 billion reached financial closure for 14 projects across seven IDA countries, with Ghana and Honduras reporting the most activity.
“Strengthening private investment in infrastructure in the world’s poorest countries is a priority for the World Bank Group. We are committed to working with development partners to address and de-risk challenging environments, in order to attract more private sector investment in a broader range of countries,” said Clive Harris, Practice Manager for the Infrastructure, PPPs and Guarantees Group at the World Bank Group.
The PPI Database comprises of more than 8,700 infrastructure projects with private participation, dating from 1984 to 2016. It is prepared by the World Bank Group’s Public Private Partnership Cross-Cutting Solutions Group and tracks investment commitments in infrastructure projects in low and middle income countries with at least 20% private ownership.