The Fourth Industrial Revolution, along with internet penetration and access to smartphones, has generated demands for improved infrastructure especially for the developing nations.
This aspiration is particularly acute in the developing world, given the poor infrastructure and huge development financing needs.
It is estimated that infrastructure investments needed in energy, transport, telecommunications, water and sanitation, education, and health projects will amount to more than 5% of gross domestic product (GDP) in developing countries. Meeting the financing gap needed for infrastructure services will be one of the biggest challenges in development.
While the infrastructure financing gap is huge in the developing world, the potential for attracting private investment for infrastructure projects is also huge.
Many developing countries have launched programmes to attract private investments into infrastructure projects. India has experienced a rapid increase in the number of public-private partnership (PPP) infrastructure projects during the last two decades.
Commercial banks have dominated the financing of infrastructure projects. This amounts to the government transferring a huge amount of risk from public to the private sector.
Changing the composition of capital flow also has the potential to increase the efficiency and sustainability of public finance and infrastructure projects.
Taxation will play a key role in incentivizing investment and ensuring that the proceeds of investment are redistributed and reallocated in line with sustainable development priorities. A lot more regulatory and institutional reforms are also needed to make infrastructure projects more attractive for private investors.
Rural road networks, investments in education and health, and women-headed small enterprises are examples of projects that have greater social benefits than the cash flows they can generate.
No country can sustain growth and reduce poverty without maximizing development finance. Maximizing finance for development, from billions to trillions, will not come from a single financing instrument.