x Abu Dhabi, UAEWednesday 24 January 2018

World Bank says Arab infrastructure investment threatened by unrest

Much-needed investment in infrastructure in the Mena region is being squeezed by government funding pressures, says a World Bank official.

Bridging a funding gap of up to US$40 billion (Dh146.92bn) a year in infrastructure investment in the Arab world will become more challenging because of the fallout from the recent unrest, says a World Bank official.

The bank and other institutions are close to finalising a fund intended to raise up to $1bn for much-needed investment in infrastructure projects in the Middle East and North Africa (Mena), said Raymond Bourdeaux, the lead infrastructure specialist for the region at the World Bank.

Investment in hospitals, schools, roads and other public services is viewed by the World Bank as a way of easing social tensions and laying foundations for economic growth. But infrastructure spending in some countries hit by unrest has been squeezed.

Dwindling foreign investment and pressure for government spending on subsidies and other social initiatives risk directing money away from improving public services.

"By default there's less public-sector infrastructure investment available coupled with the significantly increased perception of political risk," Mr Bourdeaux said yesterday on the sidelines of a Dubai International Financial Centre economics workshop.

Unhappiness with poor public services played its part in fuelling recent social unrest in the region, he said. "You have strong demand [for infrastructure] and less means for developing it. That's a problem that's not going to go away as populations increase."

In those countries affected by turmoil, there was likely to be a rethinking of where to direct infrastructure funding, said Mr Bourdeaux.

"From a political perspective there's likely to be a focus on projects that have more immediate demonstration of social benefit," he said. "Taking a choice between pursuing a hospital or road as a project, the government would probably choose the hospital as you can link it to the needs of the people in a much more direct way."

Housing, hospitals and schools were the target of a $129bn expenditure package unveiled in February and March by Saudi Arabia. But countries not flush with oil revenues are expected to struggle to boost spending.

With Egypt, Tunisia and other regional economies under transitional rule, decisions on infrastructure spending may also be delayed in some cases, said Mr Bourdeaux.

The World Bank estimates there is an annual funding gap of between $30bn and $40bn in infrastructure spending across the Mena region.

To help to stimulate greater investment in the Arab world, the World Bank last month helped set up a financing facility.

The organisation, based in Washington, is contributing $300 million in funding to the scheme, with the International Finance Corporation and the Islamic Development Bank also providing funds.

The Arab Financing Facility for Infrastructure will target projects with a regional focus, linking different countries. It is intended to step in at a time when private-sector appetite for investment in so-called public-private partnerships remains weak after the regional turmoil.

Private investors were recoiling from infrastructure investment decisions, said Kieran Zubrinich, the director of Macquarie Capital Advisers, the financial advisory arm of the Australian bank.

"We have seen that very recently," he said. "With political risk where banks, sponsors and grantors all want to wait and see."