The Infrastructure Finance by INGO WALTER

1. Infrastructure, Performance 
and Economic Growth

To begin, we explore how infrastructure investments are, or should 
be, defined in a way that makes sense in the context of the world’s 
complex and dynamic capital markets. They must be clearly-defined 
and operationally viable in order to be financeable in the real world of 
performance-driven asset portfolios.
Legal issues are always an important consideration in infrastructure 
finance, including ownership and governance of projects, questions of 
eminent domain, and regulation of infrastructure projects in private 
(or joint public/private) control. Labor relations, health and safety, and 
other social concerns are also critical. So are environmental impacts 
and sustainable development.
 Here the public-goods characteristics 
of infrastructure often complicate the assessment of their benefits and 
costs in the real world of political economy. This raises the need for 
market discipline in the execution of infrastructure projects. 
It is impossible to escape the drumbeat of commentary by media 
pundits, business experts, and government officials about the world’s 
enormous infrastructure “needs” in the years ahead. 

In the US, for example, the American Society of Civil Engineers 
(ASCE) in 2015 awarded the country a minimally passing grade of 
D+ for its “crumbling” infrastructure. Attempting to estimate the 
opportunity cost of the most glaring deficiencies in terms of lost income, 
output, and growth, the ASCE identified some $3.6 trillion of unfunded 
infrastructure investment needed to remediate them. Other countries 
are said to be in better or worse shape than the US. Combined with the 
infrastructure needs of the developing world, such estimates highlight 
the enormous potential for infrastructure development — and the 
accompanying financial challenges. 
The consulting firm McKinsey & Co. has estimated that the world 
will need to spend an aggregate $57 trillion (at 2010 prices) between 
2013 and 2030 to keep up with infrastructure needs, or roughly $3.2 
trillion per year in real terms. This estimate suggests a GDP spending 
shortfall of 1% for the OECD countries from 2007 through 2012 (from 
3.5% to 2.5%) resulting from infrastructure under-spending, further 
retarding already sluggish economic growth around the world.2
More positively, OECD estimates suggest that annual worldwide 
spending on infrastructure will remain robust, averaging $1.8 trillion to 
$1.9 trillion annually through 2030, an increase from an average of $1.6 
trillion per year from 2000 through 2010.
The Brookings Institution issued a report assessing the global 
infrastructure investment need between 2015 and 2030 at around 
$90 trillion, or $5 trillion to $6 trillion per year [Brookings, 2015]. The 
reality of fiscal constraints — in Europe, the US, and many other 
countries — could translate into a materially larger private-sector role 
in overall infrastructure finance.
Some observers have highlighted the missed opportunity for 
infrastructure spending during a time of low growth, low construction 
costs, low inflation, and historically low interest rates in many countries. 
Others point to indecisiveness and inordinate delay (sometimes far 
exceeding the duration of World War II) of projects designed to plug 
fairly ordinary but nevertheless significant infrastructure gaps.
Whatever the numbers, people seem to broadly agree that 
infrastructure is a key dimension of economic and social development 

The Infrastructure Finance by INGO WALTER