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Citi Perspectives for the Public Sector
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2015 – 2016
23
Re-thinking Strategies to
Accelerate Institutional
Capital Allocation to
Infrastructure Financing
Private investment capital, primarily from institutional
investors, is critical to finance emerging economies’
infrastructure. But to attract investors, new ways must be
found to isolate and manage risk and share best practices.
Joaquin Jugo
Public Sector Group,
Latin America Head,
Corporate and
Investment Banking,
Citi
Jorge Ordonez
Public Sector Group,
Corporate and
Investment Banking,
Citi
In recent months, a number of Latin American
countries have announced ambitious
investment programs designed to bridge their
sizeable infrastructure gaps and support the
needs of their growing populations; multi-
year plans announced by Mexico, Brazil and
Colombia amount to almost $200 billion in
transportation alone.
1
These announcements
are welcome given the region’s legacy of under-
investment in infrastructure and should help
boost Latin America’s economic growth and
global competitiveness.
However, these infrastructure programs face
significant financing challenges. Traditionally,
infrastructure capital comes primarily from
governments, and is supported by funds
from commercial banks, Development
Finance Institutions (DFIs) and Export Credit
Agencies (ECAs). Over the past year, rates and
commodities have become more volatile and in
many countries economic growth is slowing as a
result, fiscal prudence has become a watchword
among governments and there is greater
sensitivity to external debt.
Latin America’s infrastructure programs will
therefore only be possible if new sources
of debt and equity financing — primarily
from institutional investors, such as pension
funds, insurance companies and sovereign
wealth funds — are tapped. Institutional
investors already provide a growing source
of infrastructure funding: global project bond
volume has grown significantly in recent years,
from $7 billion in 2008 to $37 billion in 2014.
However, this remains small relative to bank
debt: project finance loan volumes reached
$320 billion in 2014, up 14% from 2010.
2
More
importantly, this investment is tiny relative to
institutional investors’ assets. According to the
Organisation for Economic Co-operation and
Development (OECD), pension funds, insurance
companies and sovereign wealth funds allocate
less than 1% of their assets to infrastructure.
3
1
Council of the Americas, “Mexico Update: Infrastructure Plans Unveiled”,
http://www.as-coa.org/articles/mexico-update-infrastructure-plans-unveiled; last accessed 09/18/2015
Financiera Nacional de Desarrollo, “Innovating Infrastructure Financing”;
http://www.fdn.com.co/sites/default/files/images/presidencia/FDNPresentacion_FDN_ColombiaInsideOut_VF.pdf ; last accessed 09/18/2015
Ministério de Planejamento, Orcamento e Gestao, “Program of Investment in Logistics”,
http://www.planejamento.gov.br/assuntos/program-of-investment-in-logistics-pil; last accessed 09/18/2015
2
Dealogic Project Finance Review, Full Year 2014
3
OECD, “Fostering Investment in infrastructure”, p. 23,
http://www.oecd.org/daf/inv/investment-policy/Fostering-Investment-in-Infrastructure.pdf; last accessed 09/18/2015