WHAT WE HEARD: Canada’s International Infrastructure Financing Strategy and its Link to Global Development Efforts
The African Union has made it abundantly clear that infrastructure and green energy investments are two cornerstones to their 2063 agenda for inclusive and sustainable development. Further, a post-pandemic economic recovery strategy for the African continent will put even more emphasis on infrastructure and clean energy-based projects. It is likely that the scale and pace of economic recovery on the continent will be dependent on the quality and quantity of capital available for these projects.I
Infrastructure and green energy investments are a significant opportunity for Canada to better align public and private capital to promote sustainable development. Yet at this stage, Canada is nowhere to be seen.
In the current environment, our Canadian private sector (e.g. pension funds) is extremely hesitant to allocate any capital to infrastructure projects in sub-Saharan Africa due to real and perceived risks. We cannot afford to let this market failure be our ongoing status quo when the void is otherwise filled by less inclusive and less environmentally conscious capital.
After speaking with our panelists, they provided suggestions on two possible and distinct choices for Canadian global infrastructure investments:
The first choice: to create a Canadian feminist global infrastructure strategy as an integral part of our policy for Global Development impact.
There are three pillars to a successful infrastructure strategy.
- First, Canada needs to generate a pipeline of projects and de-risk early stage projects. PPP Canada, a crown corporation that was in charge of Public-Private-Partnership projects domestically used to fill that function but is now defunct. There is a gap now in Canada to support involvement in early stages of infrastructure and green energy projects globally. Learning from institutions like the USA’s Millenium Challenge Corporation could be a good start, in bringing real coherence and structure to the analysis of development needs in Canada’s partner countries.
- Second, Canada needs to support the bankability of projects, using blended finance. Domestically we have the Canada Infrastructure Bank that is able to do this and bring public and private finance together to scale projects. Globally, Convergence is the Canadian institution supporting global efforts to structure blended finance projects for development.
- Third, Canada needs to specifically tackle the question of how to unlock institutional capital, particularly from pension funds. It is achievable through securitization and intermediary products but will require key consultations with Pension Funds and intermediation between Pension Funds and project funders like Global Affairs Canada and FinDev Canada. It will also be instrumental to invest in Pension Funds’ level of understanding and knowledge of new markets. The reality is for now, Pension Fund managers do not know Africa at all. Programmatically, there may be an opportunity to create people to people connections between Pension Fund managers in Canada and throughout sub Saharan Africa as a starting point for better understanding.
Above all, as a first step, a clear political decision needs to be made, to put in place a Canadian Global Infrastructure Strategy. Is this what Canada wants? It is certainly a significant lever for impact, as recognized by the African Union. It seems though that the current government has not been interested in mobilizing Canadian know-how in this domain until now. Once that decision is made, the government would need to come together, break down the silos between different ministries and arms of the government and work together to create the strategy. A working relationship between Export Development Canada, FINDEV Canada, & Global Affairs Canada would need to be created, so that collaboration can occur. Ultimately it will take all three pillars working together to make a global infrastructure strategy work. While we may not have the capital or expertise to do all three simultaneously, working on one of these pieces at a time will bring us to a point where we can create this ecosystem.
The alternative choice: Continue funding infrastructure and green energy investments through our current multilateral channels.
The other way the Canadian government can have an impact on global infrastructure, would be to double down our efforts in the channels that already exist. Canada provides funding to multilateral banks for infrastructure development. There are multilaterals already that work in local currencies and they operate at the scale that you would need to attract the right kind of capital. When going down this route, the government would want to push these multilaterals not to only focus on gender equality and climate aspects of a transaction but to also mobilise other capital sources outside of the multilateral capital. If Canada as a shareholder worked to push multilaterals to mobilise 3rd party capital, we would see greater increases in the offshore flows of capital to projects within emerging economies.
There are multiple routes for the government to take but it requires Canada to think hard about what level of impact it wants to have and what’s important to us. We would argue that infrastructure is at the core of any growth economy to provide jobs, resources, and help people move out of poverty.
“Infrastructure & Green Energy Investments: Bridging the Financing Gap in the Developing World”
- Jean-Francois Arsenault; Managing Partner, CPCS
- Joan Larrea; CEO, Convergence
- Justine Leigh- Bell; Deputy CEO & Director of Market Development, Climate Bonds Initiative