Private finance has repeatedly failed to live up to the hype surrounding global infrastructure projects in developing nations, despite consistent efforts by international organizations to unlock these funds. The pattern repeats every time a new World Bank president takes office, promising to leverage modest public funds to attract vast private sector capital for green projects. Former Mastercard CEO Ajay Banga is the latest to promise this market-led approach, yet the historical record suggests the strategy often falls short of its goals.
A history of unmet expectations stretches back decades, from James Wolfensohn in the 1990s to the current leadership. The challenge has intensified with the global push for renewable energy and low-carbon technologies, requiring even more investment than traditional infrastructure projects. Donor countries like the UK, France, and Norway have reduced their direct aid budgets, shifting focus toward development finance institutions (DFIs) like the World Bank’s International Finance Corporation (IFC) in hopes they will “crowd in” private capital.
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However, the results have been consistently disappointing. According to a forthcoming book by former World Bank economist James Leigland, private contributions to developing-country infrastructure peaked at a low level in 2012, with only 10% going to the lowest-income nations, and have fallen since. The G20-commissioned expert group estimates a need for $240 billion in private capital mobilization by 2030, but the latest figure is only $71.1 billion, with the same 10% allocation to the poorest countries.
Another major hurdle is the near absence of institutional investors like pension funds. While Australian and Canadian pension funds are active in advanced economies, their share of total investments in developing countries has historically been less than 1%. Avinash Persaud, a special adviser at the Inter-American Development Bank, argues that currency risk must be reduced to attract these funds. Investment managers point to a deeper issue, suggesting that DFIs act like private investors rather than catalysts, and their bureaucratic processes often deter rather than attract other funds.
Infrastructure investment is inherently difficult, involving long-term horizons and political risks that require precise regulation and detailed information in recipient countries. The aid transparency initiative Publish What You Fund has released a report urging granulated disclosure of project-level data to inform private investment decisions, noting that the IFC and DFIs have been slow to act. Institutional investors such as AllianzGI and Africa Investor back these conclusions.
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The data problem and political risks
Hubert Danso, chief executive of Africa Investor Group, says a stable legal and regulatory framework and better data are far more important than multilateral development banks, which are often better at crowding out private capital than crowding it in. He and Publish What You Fund reject the IFC’s argument that publishing such data threatens commercial confidentiality. Development banks and their shareholders tend to judge themselves on how much money they get out the door rather than the impact of that money when it arrives, a mentality that is particularly unfortunate for DFIs intended to open doors for others.
Official lenders and governments should be more realistic about what private finance can achieve in infrastructure. The UK has been keen to push public-private partnerships (PPP) in developing countries, despite its own history with the Private Finance Initiative. That decades-long experiment had extremely mixed results and was terminated by the Conservative government in 2018, proving that creating incentives to invest and genuinely shifting risk to private investors is very difficult. A recent summit held in London to encourage private investors to fund British infrastructure was clouded by questions about lack of clarity and the UK’s business climate.
