How COVID-19 is impacting perception for infrastructure financing

The global infrastructure gap in emerging economies is a pressing issue, projected to reach about $520 billion annually over the next two decades, according to the Swiss Re Institute. Jerome Haegeli, Group Chief Economist and Managing Director at Swiss Re, emphasized the importance of investing in sustainable, quality infrastructure to bridge access gaps and improve economic and social outcomes. In a recent interview with CNBC Africa, Haegeli discussed the perception of infrastructure financing amid the COVID-19 pandemic and the role it plays in today's economic environment. Haegeli highlighted the unique challenges posed by the current recession, describing it as the deepest and most significant crisis in a lifetime. Despite the economic turmoil, he pointed out that the low-interest rate environment across various jurisdictions, coupled with the need for returns and yield pickup, has made infrastructure financing increasingly appealing. The deployment of private capital into infrastructure projects has become more compelling, with infrastructure equity investments outperforming other asset classes. The pandemic has presented unprecedented challenges for both governments and the private sector in rethinking infrastructure contracts. Haegeli stressed the importance of structuring Public-Private Partnership (PPP) contracts with a risk-allocation framework in mind. He emphasized the need for best practice contract terms that incentivize investors to engage in long-term infrastructure projects, especially in the face of heightened political risks. As governments grapple with constrained fiscal buffers and challenging public dynamics, Haegeli underscored the importance of lowering barriers for private sector capital deployment. By incorporating risk management strategies and trade-bidding clauses into PPP contracts, both public and private stakeholders can work towards achieving a gold standard in infrastructure financing that facilitates sustainable development. When addressing the impact of COVID-19 on risk allocation for long-term contracts, Haegeli acknowledged the macroeconomic uncertainties and the varying degrees of risk in global markets. The pandemic has intensified the need for robust risk management practices, particularly in assessing credit risk for infrastructure investments. Haegeli suggested that involving multilateral development banks and utilizing credit financing guarantees could help mitigate risks and attract investors towards infrastructure projects. In conclusion, the implications of COVID-19 on infrastructure financing underscore the critical need for collaboration between the public and private sectors in structuring resilient PPP contracts. By embracing best practices in risk allocation and fostering a conducive environment for private capital deployment, stakeholders can navigate the complexities of the current economic landscape and drive sustainable infrastructure development for the future.