Developing country infrastructure is projected to offer four times in returns, with significant impact on local economies. The sector is ripening up for private credit, offering limited partner investors (LPs) strong opportunities, as explained by ImpactA Global’s Co-Chief executive officers, Isabella da Costa Mendes [pictured] and Victoria Miles.
Much has been said about the importance of bridging the $1 trillion annual infrastructure gap in emerging and frontier markets. Every year, we see global impact investors declare their intention to increase investments in these regions, especially to tackle the challenges posed by climate change. And yet, the bulk of impact investment continues to flow into the developed world.
Despite valid concerns about the models of accurately measuring and reporting the impact of projects in emerging markets, it is widely accepted that the intensity of impact in these transactions tends to be greater than that of similar transactions in the developed world. Every dollar invested in the resilience of infrastructure generates $4 of return in developing countries. This is according to a World Bank study.
In Ghana, for example, a 10% increase in district-level electrification led to a 37% increase in female-owned firm creation, directly driving growth of local economies. This research is according to the to University of Oxford’s Centre for the Study of African Economies (CSAE).
Delivering at Scale
Infrastructure impact can be delivered at scale. Most infrastructure debt in the Global South is funded by debt, not equity. However, there are few asset managers dedicated to providing this specialised form of financing.
Infrastructure debt is a nascent asset class that has garnered heightened commitments from institutional investors over the past decade, with a focus on deployment in the developed world. Debt financing in the emerging world has historically been dominated by development financiers, multilateral development banks (MDBs), and other official sector creditors such as Export Credit Agencies (ECAs). But more participation by private capital is required to address the financing gap.
The infrastructure debt class has historically performed strongly in emerging markets. Infrastructure debt in low-to-middle-income countries has performed well over the past 20 years as an investment-grade asset, broadly in line with the developed world. This is based on research from the Global Infrastructure Hub (GI HUB) and Moody’s Ratings.
At ImpactA, we firmly believe that we are at an inflection point where private capital will choose to follow official funds to help address climate finance challenges. Infrastructure debt has proven to be impactful and resilient. Over the next decade, the asset class will provide rewarding investment opportunities at scale.
