CIP workshop

When city met finance: how to fund and build resilient infrastructure in emerging economies

Seventy-five percent of the infrastructure that will exist in 2050 has not been built yet, according to Global Infrastructure Basel.

So, how can we ensure that this infrastructure gets financed and built in a way that factors in environmental, social and governance (ESG) issues?

Cities in emerging economies, particularly in Africa, face numerous challenges in making responsible investment decisions. First of all there is a general lack of institutional and staff capacity and a chronic skills and information gap on climate risk exposure and financial literacy. There are no tools to make these decisions and very little data to assess the impact of new infrastructure projects on urban resilience.

The private, and in particular the insurance and finance sector, can play a role in partnering with local authorities to help them bridge those gaps and develop innovative tools to finance sustainable and resilient infrastructure projects that also make sense from an investors’ point of view.

For example, insurers can provide incentives and work with urban designers to influence projects in a way that makes them more insurable.

As Vanessa Otto-Mentz, Head of the Group Strategy Unit at the South African insurance firm Santam, put it, “what insurers actually underwrite are storms, floods, fires. A poorly designed infrastructure means that the costs of damages go up, claim expenses go up, premiums go up”.

The money itself is not necessarily the issue. Vast reserves of capital are present in the African continent. It’s just not used to spur sustainable economic development through responsible investments in resilient infrastructure.

Most large cities in Africa are divided cities, with rich islands of large wealth surrounded by poor areas and slums, such as in Johannesburg, where the so-called “richest square mile” of Africa, the neighborhood of Sandton, is just a stone’s throw away from the large township of Alexandra.

The finance sector can help bridge this divide by partnering with local authorities to develop tailored financial tools, such as city-level social bonds, to leverage existing capital within rich areas of the city to be invested in infrastructure and business development in poorer areas of the city.

What can cities do to ensure that the investment climate is favorable enough to allow such partnerships to take place? In short: do their job.

Predictability is the most important thing for investors. Good governance of social processes and enforcement of rules, such as codes on buildings and safety standards, are important enablers of any long-term infrastructure investment.

Investors also need data. Increasing availability, accessibility and comparability of data would allow more reliable risk assessments by potential investors, who would in turn be able to make more sound investment proposals to the city.

Finally, cities need to put the right stakeholders in the room, and can act as mediators between the investors, the project designers and the communities, especially the most vulnerable, who are actually the ones more likely to be affected by potential disasters.

Of course, cities are not the only decision-makers. Often contradictory regulations and even political wills can hinder innovative processes and problem-solving at city level. A vertical alignment of the local and national levels of government is instrumental in creating and maintaining a positive investment climate.

This morning’s session “City Innovation Platforms (CIPs) for African infrastructure risk and resilience” brought together current partners of the CIP for African Infrastructure Risk and Resilience, together with interested stakeholders. These are the ideas that participants discussed, while trying to understand the space in which public and private sector can come together and work together for the benefit of all.

The session was facilitated by Tom Herbstein, Programme Manager at the Cambridge Institute for Sustainability Leadership’s (CISL) ClimateWise, who asked participants to split in three groups and debate the main challenges and possible solutions for responsible investments and public-private partnerships on the local level.

Now to Dar Es Salaam, where the first CIP will be implemented starting from August 2016, bringing together partners as diverse as ICLEI Africa, Santam, UNEP FI PSI, and ClimateWise.