- Infrastructure projects in emerging and frontier markets are seldom financially viable on their own due to financial, technical and regulatory barriers.
- “Patient capital” provides the time and space to start high quality infrastructure projects.
- Targeted investments of public funds can catalyze private sector investments in infrastructure projects that contribute to global net zero.
Sub-Saharan Africa, South and Southeast Asia have some of the world’s lowest historical and current greenhouse gas emissions per capita. However, they are often the most affected by climate change, facing risks to health, livelihoods, food security, water supply and economic growth. Patient capital and development leadership can spur efforts to provide climate resilient infrastructure that responds to these impacts. The long-term nature of patient capital – combined with the fact that it is often supported by both the public and private sectors – means that it is an important lever in the just transition to global net zero.
The challenge of attracting smart capital to where it is most needed
Infrastructure development straddles several sectors identified as the main drivers of the race to net zero: energy, transport, logistics, agriculture, water and sanitation. While CO2 emissions in developing markets remain low compared to countries like China and the United States, populations are growing rapidly. Without access to infrastructure that goes beyond fossil fuels and combustion engines, emissions in these regions will increase over the next decades. There is also the issue of social justice. Access to infrastructure must be equitable, it must allow jobs and meet the aspirations of the predominantly young population, and it must be delivered quickly.
Although we have seen increased investor interest in renewables in recent years, the lack of bankable projects remains a major challenge in bridging the infrastructure gap in emerging markets.
What is “bankability” and why is it important?
In short, bankability is whether a project or business has the potential to be commercially viable. If this is the case and meets the strict thresholds of a funder or lender, the project secures the investment, whether it is a bank loan or long-term debt. term and an investment in shares of private investors or pension and insurance funds. As the risk / return profile of most investors is not well suited to developing projects in frontier markets, many good projects fail to become bankable.
This is where patient capital comes in
In the context of infrastructure, patient capital takes a relatively small amount of public money – and invests it in projects that could help fill a market gap and bring benefits to the communities they are meant to serve.
By leveraging the value of public sector funding, but doing so with a private sector mindset, it is possible to target the link between an innovative concept and a bankable reality. By demonstrating the value of new economic models and piloting technical solutions, the objective must be to mobilize the private investments essential to make these projects sustainable..
Transformation of a renewable energy project on the grid from concept to operation can take between five and 10 years in emerging markets. These deadlines require patience, political will and a willingness to innovate to overcome obstacles; these behaviors can be activated by the support of multilateral donors in the form of patient capital.
What distinguishes the patient capital model from pure business investment is that while it seeks a decent return, it is not just an investment of money, but an investment of time.
And this time should be used wisely.
Creating sustainable infrastructure projects involves working with key stakeholders, including governments and regulators, to develop new regulatory frameworks favorable to the private sector. Throughout the process, we work hand in hand with local partners to develop their business models and integrate international standards of governance, health and safety, environmental management and more. We prioritize the empowerment of women and girls.
In short: patient capital and development leadership drive a process that is neither quick nor easy, but which holds the key to projects that are more resilient, profitable and capable of attracting more private investment to the market. long term.
Show – don’t say
The key is not only to deliver a successful wind power project or electric mobility initiative, but to allow that success to expand. Successful projects must be replicated in a way that transforms lives and livelihoods while supporting the clean energy transition that is so vital in the race to net zero.
Just like baking, once you’ve perfected the recipe and baked your first cake – a cake that smells and tastes great – you can do a lot more. InfraCo Africa is close to completing its first large-scale mini-grid project, serving 12,500 clients in rural Sierra Leone, and recently completed a second such transaction, using the expertise gained here. to provide electricity for the first time in rural Kenya.
InfraCo Asia pioneered run-of-river hydropower generation in Vietnam’s Lao Cai province, reducing dependence on imported fossil fuels and increasing access to clean energy . After working with government and local stakeholders to develop a high-quality facility, the project attracted an initial investment in the region from a large international investor, allowing the company to sell its stake and reinvest its capital. in other projects. Driven by the favorable environment that the project has helped to create, 1,500 megawatts of new small hydropower capacity have since been developed by the private sector in Viet Nam.
Patient capital has enormous potential to offer this rare combination: an impact on sustainable development and financial returns. When patient capital is deployed with these goals in mind, businesses and financial structures that strive for inclusive and sustainable growth have the starting point they need to thrive. Rather than being knocked down by difficult market dynamics, infrastructure companies operating in emerging markets are becoming agents to achieve the United Nations SDGs and the transition to net zero emissions.
And the genius of this approach is that it can be replicated. With the right regulatory frameworks in place and government officials with experience in driving renewable energy projects, private investors are more confident to engage. Over time, new projects emerge which may stand on their own in terms of sustainability of investments and ability to overcome obstacles to development. Patient capital is the key ingredient to this successful recipe; it can be used over and over again to fill gaps in the emerging market infrastructure space and beyond.
This Agenda blog is part of a series dedicated to mobilizing investment for clean energy in emerging and developing economies. Learn more about the related initiative, a project led by several stakeholders associated with the World Economic Forum with the aim of removing barriers, identifying solutions and enabling collaborative actions to significantly increase investment in clean energy in emerging markets and in development.