Potential infrastructure projects could be left unfunded as challenging economic and geopolitical conditions make investors cautious, according to the Asian Infrastructure Investment Bank (AIIB).
Joachim von Amsberg, vice-president of policy and strategy for AIIB, said the China-backed multilateral lender was prepared to “scale up” in the face of tougher conditions if the downward trend in project finance continued.
The AIIB earlier this month set up a US$500 million fund for corporate bonds in a bid to boost the flow of private capital into infrastructure investments.
And, on Tuesday, it published a report highlighting opportunities and challenges in the sector.
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The initiative comes at a time of rising borrowing costs, growing geopolitical uncertainty and slowing economies, underpinning what the AIIB said was a likely decline in the value of market transactions for infrastructure last year, after a fall in 2017 in eight countries it looked at.
Von Amsberg said potential investors might harbour a range of concerns, from worries that slowing economies would lead to governments failing to meet contractual obligations, to concerns that trade frictions would erode the potential of infrastructure projects such as ports.
“I think we are worried that the stagnant or slightly declining trend in project finance may continue because of the more challenging conditions, and that would just, from our perspective, be a huge lost opportunity,” he said.
“We think that even in a slowing global economy, even with rising interest rates, many projects are still worthwhile, and yet I think it will be harder to finance them.”
Asia faces an estimated US$460 billion investment gap for infrastructure, according to estimates from the Asian Development Bank. Analysts say some governments have struggled to prepare infrastructure deals in a way that is “bankable” and attracts private sector investment.
Von Amsberg said the AIIB expected a possible “flight to quality”, leaving some of the more marginal projects unfinanced.
The AIIB wanted to send a signal that infrastructure was an asset class ripe for investment and that the bank itself was “willing to do our share to scale up, actually, in this situation”, he said.
“But of course we cannot mitigate, we cannot offset the overall direction of the markets, which has become more challenging and could become more challenging this year.”