The Dogs That Didn’t Bark
2017 saw many developments of great interest in the infrastructure space: ever-falling prices for solar energy, continued opening of new natural gas markets, electric vehicles beginning to achieve critical mass, new innovations in procurement scale and contract standardization, the first full-year of operation for the Asian Infrastructure Investment Bank, among others. But 2017 was also notable for things that didn’t happen. Let’s take a look at developments that did not materialize in 2017 – the dogs that didn’t bark.
1. The US did not launch a trillion-dollar infrastructure market. Back at the time of the 2017 World-Bank-IMF Spring Meetings, there were many expressions of either anticipation (a huge new market for private infrastructure!) or concern (will there be a giant sucking sound of capital leaving EM infrastructure for the US?) around the much-publicized plans of the new US Administration, for its “trillion-dollar infrastructure plan.” Conceivably, the US could have become the biggest market in the world for private infrastructure, with the expected emphasis on privatizations and PPPs. Fast-forward to 2018: no such market, no such plan, but still plenty of attention. Both the anticipation and the concern around the plan seem far more muted than a year ago. The US has a ways to go to becoming the #1 world market.
2. None of Indonesia, Nigeria, or Vietnam lived up to the hype. Back 12 months ago, each of these three countries looked like potential candidates to be a top-five Emerging Market for private infrastructure – and potential global hot spots for infrastructure. Indonesia’s relatively recently elected President Jokowi was thought to be gaining room to implement his $400 billion 5-year infrastructure plan, with an unprecedented role for the private sector and likely reforms for Indonesia’s SOEs. In Nigeria, with the election solidly behind and his health improving, it seemed like President Buhari might move on the $50B backlog in power – replicating the successful Azura IPP transaction – and transport. While in Vietnam, the shift from IDA borrowing status and accumulated infrastructure backlogs was also expected to trigger tens of billions in new opportunities. None of this materialized.
3. Maximizing Finance for Development, and the IDA-18 Private Sector Window, were not instant game-changers. The New Year in 2017 saw lots of hope around two big multilateral bank initiatives, both deriving from the 2015 Third Conference on Financing Development, held in 2015 in Addis Ababa. The first of these was the new Private Sector Window, established under the IDA-18 replenishment which was concluded in late 2016, while the second of these, “Maximizing Finance for Development” (MfD, and also known as “the Cascade”), called for much more crowding in of private capital for the financing of infrastructure. The objectives of both entailed much higher levels of private investment into infrastructure, the first in IDA countries, the second across Emerging Markets. Both, appropriately, targeted host government sector policies as the key to achieving their objectives. While the direction of these two appears “spot-on,” 2017 underscored that changing these policies, to open more space for private financing, is complex and not time-intensive. No overnight success yet.
4. The post-Paris Tidal Wave has not reached shore. The Paris Agreement on climate, reached in late 2015, was expected in many quarters to lead to major revisions in energy planning across the world. While multiple countries are moving forward with their Nationally Determined Contributions to lowering emissions, in many places it is hard to see the difference. New coal plants in East Asia and India, which together account for some 90% of the world’s planned new coal-fired generation for the next five years, remain on the drawing board. At the sector planning level in these countries, one rarely hears GHG emissions as a relevant planning parameter. So it is a pretty good bet to expect growing political pressure for further constraints on coal generation.
5. The planned world’s biggest Carbon Market remained a plan. Late 2016 brought a lot of excitement in the climate change and carbon trading communities, with announcements out of China on the country’s plans to create the world’s biggest carbon trading market. The plans still seem large, and on target, but launch was delayed and 2017 trading was minimal. With a raft of December 2017 announcements on details, hope looks strong in this quarter for 2018.
6. Cyber-attack costs on infrastructure did not rule the headlines. The cyber-attack on Ukraine’s power grid in December 2015 spawned wide-ranging concerns about similar attacks, with potentially far more costly, eye-catching, if not deadly consequences. 2016 and 2017 saw a rapid rise in cyber attacks on many targets, in many countries and in many sectors. But no large-scale repeat, or escalation, of the Ukraine grid attack in the infrastructure space. Seems hard to believe.