Globalisation has ushered in an unparalleled period of economic growth that has lifted nearly 1.1bn people out of extreme poverty since 1990, reducing the proportion of the world’s population living in dire circumstances from 35% to under 10%.
But the benefits of globalisation have not been universally shared. This has led to growing calls for protectionism in some countries. Erecting barriers is not, however, the way to help those left behind.
World leaders must make a better case for globalisation while exploring new dimensions that could make the world safer and fairer. One possible measure is the expansion of cross-border infrastructure investment, especially in developing countries. Infrastructure investment – together with investments in human capital – is an effective way to promote inclusive growth and foster local resilience to cross-border shocks. In addition, it can provide new sources of economic dynamism to the global economy and worthwhile opportunities to investors in advanced economies.
The decline in interest rates across all major advanced economies can be explained by higher savings from aging populations and reductions in capital intensity brought about by technological change.
Infrastructure investment can help the world respond to the macroeconomic imbalance between savings and investment. Supporting ‘climate-smart’ projects, in particular, would reduce the carbon footprint of economic progress, while increasing global productivity and creating long-term income streams for investors in aging societies. By improving the economic outlook and reducing the risks of climate change, such investment could also lift confidence and increase aggregate demand in investing countries.
Yet infrastructure investment carries significant risks, especially if it is carried out in distant jurisdictions. Sometimes these risks are more acute than aging savers are prepared to accept. The World Bank Group is helping to reduce the gap between the risks of infrastructure investment and investors’ capacity and appetite for risk.
As part of ‘de-risking’ investments, the World Bank helps governments develop a favourable legal environment, prepare projects, and lower informational barriers. The Global Infrastructure Facility hosted by the Bank is working to develop a pipeline of investment-ready infrastructure projects. The Bank has benchmarked the environment for public-private partnerships in 82 countries.
The World Bank Group is making the range of guarantees it offers easier to understand, helping to increase the supply of safe assets with positive returns. We are also creating opportunities for institutional investors to pair with the private-sector-oriented International Finance Corporation through our Managed Co-Lending Portfolio Programme for Infrastructure. This is in addition to several equity funds already managed by the IFC Asset Management Company.
The Bank supports the development of local capital markets to mobilise domestic resources and create a better environment for foreign investment. Further innovation could entail developing tools such as fixed income infrastructure indices and bonds linked to emerging market infrastructure, and fostering the recycling of assets on governments’ books.
The large-scale mobilisation of private capital may require public resources to support de-risking. Given the positive economic impact on advanced and developing economies of meaningful climate-friendly infrastructure, the world can use public resources to support guarantees by multilateral financial institutions—an effective way of expanding investment opportunities to all and moving the international economy on the path of inclusive and sustainable growth.
Joaquim Levy is Managing Director and Chief Financial Officer of the World Bank Group.