April 14 2015 Fadoua NASSI
Investment Research

2014 G20 Summit: Towards a greater promotion of infrastructure investment

During the 2014 G20 summit held in Australia, leaders of the major world economies stressed the high importance of funding infrastructure investment, a key driver of economic growth.

According to the B20 Infrastructure & Investment Taskforce (a working group of business leaders of G20) the need in additional infrastructure capacity from now to 2030,  is estimated to reach USD 60-70 trillion while under current conditions only USD 45 trillion is expected to be achieved. To close this USD 15-20 trillion gap, the B20 taskforce provided a list of recommendations related to six key areas, including national infrastructure investment strategies, infrastructure pipelines and independent national infrastructure authorities, a global infrastructure hub, promotion of FDIs, and increasing long-term financing.

At the end of the summit, leaders of the 20 major world economies have already agreed to establish a four-year mandate global infrastructure hub to share the best practices of infrastructure projects and financing. The hub, based in Sydney, is expected to collaborate with government authorities, the private sector, development banks, and international organizations. In terms of financing, the “Sydney Morning Herald” reported that Australia will be the main contributor yet other countries including the UK, China, Saudi Arabia, Korea, and Mexico have also made financial commitments.

At state level, most G20 governments have revealed infrastructure stimulus plans to be carried out in the medium and long-term. To support infrastructure growth, Brazil anticipates an investment of over USD 900 billion by 2020. Another major plan was unveiled by the European Union which, through the creation of the European Fund for Strategic Investments (EFSI), aims at mobilizing around USD 375 billion of infrastructure investment over the period 2015-2017. In this regard, countries such as France, Germany, and Italy have sent investment project lists to the European Commission to be considered by the EFSI. Turkey has also disclosed an ambitious infrastructure development plan for the next 10 years. As part of this new plan, Turkey intends to invest USD 400 billion through Private-Public Partnerships.

Although all of the G20 states have announced investment plans to finance infrastructure growth, more details about these projects, such as exact targets on infrastructure investment as percentage of GDP, have not been automatically provided yet.  Australia has put into place an infrastructure and regional development department, responsible for national policies and programmes, that will work to promote, evaluate, plan, and invest in infrastructure. On the other hand, most of the other G20 countries have not yet reported to set up dedicated independent infrastructure bodies.

The B20 emphasized the positive impact of the promotion of capital flows on the economic growth and infrastructure development. Major investors are likely to cooperate with the hosting governments in their infrastructure expansion programmes. As a response to this recommendation some initiatives have been disclosed by the G20 countries. For instance, France committed to achieve an additional 1,000 foreign investment decisions annually by 2017. In Indonesia, new rules have been introduced to attract additional FDI into the manufacturing industry. These are expected to increase the country’s FDI level by 18% by 2015. Mexico adopted reforms to boost FDI, including opening up the country’s energy sector to foreign investors, which is expected to result in an additional USD 10 billion in FDI annually starting from 2016. Also, India announced to increase FDI cap in the defence sector from 26% to 49%-100% (depending on the type of investment) to stimulate FDI inflows while Japan aims to reach an amount of around USD 291 billion of FDI by 2020. Nevertheless, for an extensive implementation of the B20 recommendations, G20 states also need to take additional steps such as reporting specific KPIs (e.g. inward FDI flows as % of GDP targets) and mandating international organizations to conduct relevant studies.

Alongside governmental initiatives, the collaboration of the private sector as well as international organizations is also required to close the infrastructure investment gap. The major multinational development banks (the IMF, African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank, the Islamic Development Bank and the World Bank) disclosed in a joint statement their approval and support to the G20 infrastructure initiative. A meeting is expected to be held with G20 leaders in the first half of 2015 during which infrastructure related issues will be discussed.

Fadoua NASSI, Senior Analyst, Infomineo



B20 I&I Taskforce policy

European Commission

World Bank

Business Insider

The Sydney Morning Herald

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