Improved Governance Needed in G20's Report on Infrastructure Development

A few months back, I attended the US-China-Brazil Forum on Sustainable Infrastructure and Development, organized by the International Fund for China’s Environment. I was joined by a few other development experts, including representatives from the Institute for Governance and Sustainable Development, Pacific Environment, the Brookings Institution, and the Heinrich Böll Foundation of North America. Our “Infrastructure Investment Strategies and Project Selection Criteria” panel provided an opportunity to discuss the final report of the G20 High-Level Panel (HLP) on infrastructure.

The HLP report, “High Level Panel on Infrastructure Recommendations to G20-Final Report,” acts as a guide for infrastructure project selection in the developing world. While the report successfully draws attention to the important topic of infrastructure development in developing countries, it has been criticized by civil society groups for failing to include effective governance strategies and for focusing too much on large-scale projects.

Infrastructure Development in the Developing World

Development is an integral part of the G20’s global economic agenda because it promotes many of the group’s essential tenets, such as shared economic growth, poverty reduction, and sustainable development. Infrastructure development—which includes advances and improvements to water and sewage systems, energy, transport, and more—directly impacts economic growth in poor countries.

The G20 High-Level Panel Report

One key decision made during the G20’s June meeting in Los Cabos, Mexico was to implement the recommendations of the HLP’s report. The report outlines criteria that governments and public and private institutions should use in deciding which infrastructure project to fund. The criteria includes: regional integration, political support, potential transformational impact, maturity of the project, institutional capacity, and potential attractiveness to the private sector. The HLP worked with multi-lateral development banks to identify 11 exemplary regional projects: five in Africa, two in the Middle East/North Africa, three in Asia, and one in Latin America/Caribbean. The projects vary widely in focus, ranging from railways to solar energy systems.

5 Governance Concerns with the HLP Report

Panel members at the U.S.-China-Brazil forum discussed and debated the criteria included in the HLP report. While some attendees supported some of the ideas put forth, the NGO members of the group, including WRI, identified a number of governance-related concerns, such as:

1. Heavy Emphasis on Large, Centralized Projects and the Private Sector: The HLP places priority on investment and involvement by the private sector as opposed to the public sector. In addition, projects deemed “exemplary” are generally large, centralized projects and as opposed to smaller, distributed projects. This is potentially problematic because selection—including whether to have large or small projects—should depend on country and local population needs, taking into account environmental and social considerations.

2. Limiting PPP Approach: The report recommends that public-private partnership (PPP) approaches tested in developed countries be adopted for use in developing nations. This policy may be limiting, though, because institutions, norms, and practices in these developed nations may be entirely incongruous to developing countries,

3. Inadequate Risk-Mitigation Requirements: Infrastructure projects in any country— especially developing countries where governance structures are still being developed—are highly vulnerable to political, regulatory, and execution risks. In addition to economic risk (which is discussed in the report), environmental, social, regulatory, and political risks are threats to the success of a project, but they are not mentioned in the HLP report. People approving infrastructure projects should generally be interested in seeing how risks are identified, mitigated, and managed, so introducing safeguards or relevant policies—which are not mentioned in the report—would strengthen the likelihood that a project would be approved. Safeguards and environmental/social standards should be included as a form of risk assessment, and could be used as either an extra criterion or an underlying aspect of the other criteria.

4. Stakeholder Engagement: It is important for a host country to have ownership of a project to make it successful over the long-term. Projects should be aligned with the country’s goals and citizens’ demands. Public participation, accountability, and transparency are all important for public works sector projects. While the HLP report mentions stakeholders, the focus is on financiers and operators. This leaves out a significant portion of some of the most important stakeholders, such as civil society and affected communities.

5. Financial Concerns: There is concern among civil society about the ability of low-income nations to repay debts arising from large infrastructure projects, an issue not discussed in the HLP report. In addition, there is a risk many consumers in project countries will be unable to afford access to these new infrastructure services.

Focus on Environmental and Social Sustainability

Good governance is essential to the long-term success of infrastructure investments in the developing world. In fact, it is an indispensable component of any successful infrastructure project. As G20 leaders consider how to implement the recommendations of the HLP report, they should ensure that strong governance, as well as environmental and social sustainability, are at the forefront of the agenda.