Arab government and international finance institutions have agreed to establish a financing facility to target projects with a regional dimension, linking countries with each other and with the wider world to build pathways of economic integration, said a press statement.
The new Arab Financing Facility for Infrastructure (AFFI) intends to raise up to $1 billion in new financing that will leverage infrastructure investment in Arab countries and catalyse financing for the $40-billion annual funding gap.
The facility brings together the World Bank, the International Finance Corporation (IFC) and the Islamic Development Bank (IDB) as potential anchor investors in a regional investment vehicle to support both conventional and Shariah-compliant investments in infrastructure, as well as grant financing for technical assistance and policy coordination. AFFI will specifically target projects with a regional dimension, linking countries with each other and with the wider world to build pathways of economic integration.
Speaking at the start of the two day meeting of AFFI, Shamshad Akhtar, World Bank Group Vice President for the Middle East and North Africa (Mena), said: "The Arab spring has demonstrated that people want better public services and a cleaner urban environment and that means more efficient, better-designed infrastructure services. At the same time, government budgets are under pressure and the private sector perceives risk in the political upheavals, so it's become harder to finance those necessary infrastructure investments. This is where the IFIs can step in to help with financing and mitigating the risks faced by private investors."
The Mena region needs to invest between $75 and $100 billion a year to sustain the growth rates that have been achieved in recent years, and to boost economic competitiveness. Currently it is estimated that half of the population in the region does not have adequate access to water and, per capita water availability already less than a fifth of global access is expected to drop even further in the next 15 years. As the population grows, electricity consumption is also set to increase significantly over the next few years and will require investments of $30 billion a year to meet demand.
"We agreed that the AFFI will initially focus on a few demonstration projects that will act as catalyst for further investments," said Birama Sidibe, Vice President of Operations at the Islamic Development Bank.
"Countries interested in supporting AFFI have started a dialogue with the World Bank and Islamic Development Bank to identify and develop priority projects for AFFI financing. At the same time, we are moving ahead to mobilize private sector money for regional projects and are now in the advanced stages of recruiting a Fund Manager to oversee the investment fund vehicle being created."
The first day of the event centered around discussions between governments and international finance institutions about the challenges faced in infrastructure financing and the role that the AFFI could play in addressing them. The second day a Public-Private Partnerships (PPPs) conference focused on private sector participation, providing an opportunity for governments to promote key infrastructure projects and policies; share their strategic vision of the role of the private sector in PPPs in infrastructure; and listen to private sector views about investing in infrastructure in the region.
"Infrastructure will be a strong driver for growth in the region and indispensable for the increasingly critical water and energy deficit in many of its countries," said Dr Jafar Hassan, Minister of Planning and International Cooperation, Jordan. "Restructuring the risk-sharing mechanisms for the provision of private sector and development funding for such critical development and regional infrastructure programs is a key priority in enabling governments and the private sector in advancing such projects jointly."
A technical assistance facility for project development was also launched at the conference; and at the same time the modalities of a public sector window to provide funding and political risk coverage for strategic infrastructure projects was also discussed. The meeting agreed on the need to create a regional policy forum to coordinate infrastructure policies and promote a regionally coordinated approach to common problems.
World Bank (IBRD) lending to the Middle East and North Africa region for infrastructure, including electricity, transport and water, has exceeded $1 billion a year and is expected to increase further in the years ahead to help close the infrastructure gap. In addition, over the past four years, IFC has invested more than $1 billion in infrastructure projects in the region. IDB investment in infrastructure projects in the region over the past 5 years has exceeded $1.3 billion a year, including about $300 million in PPP projects.