By Hugh Jorgensen, Research Associate and Tristram Sainsbury, Research Fellow, both at the Lowy Institute's G20 Studies Centre.
Infrastructure has been a priority of the Australian G20 presidency, but we haven't seen much in terms of bricks and mortar proposals. Until now.
Writing in The Australian earlier this week, David Uren and David Crowe report that the Australian Government has gained G20-wide endorsement of a Global Infrastructure Hub. Likely to be based in Sydney, Uren and Crowe write that the Hub 'will develop a database of projects and try to get more agreement between governments on ways to cut the cost of transactions when private sectors bid for government tenders.' While the Hub has been given a non-renewable four-year time limit, the Prime Minister believes it will be 'a way of getting (Australia's) generally speaking, quite innovative approach to infrastructure before other countries.'
In September, Finance Ministers stated lofty ideals for the G20's infrastructure agenda, with objectives including developing a knowledge-sharing platform, addressing data gaps, and developing a consolidated database of infrastructure projects connected to national databases, to help match potential investors with projects. Somewhat vaguely, the Ministers left the 'implementation mechanism' to be announced by national leaders in November.
If the Hub succeeds in delivering on these ideals, it will make for a welcome addition to global infrastructure financing. The B20, a collection of business leaders, has lent enthusiastic support to the proposal, and has optimistically estimated that the Hub could lead to an additional US$2 trillion of infrastructure funds being sourced by 2030, mostly through the matching of governments with investors. The B20 believes the Hub 'could' also produce an additional US$600 billion in annual economic activity and 10 million jobs per year.
Yet the announcement does raise a few questions. [fold]
What will the Hub do to add value to the work of the World Bank's recently established Global Infrastructure Facility (GIF)? What should the G20's role be in agency creation? And given infrastructure financing challenges exist from the 'cradle to grave' of a project's lifespan, why is there only a non-renewable four-year mandate?
The precise details on how the Hub will work are still to be revealed, but if the B20 submission to the G20 which contained the initial proposal for the Hub is any guide, we can expect the G20 to:
...task a working group to establish the Global Infrastructure Hub, including defining its proposed mandate, governance, budget and location, and co-ordinating the appropriate public, private, multilateral, and NGO stakeholders needed to carry out its mandate.
A multi-stakeholder approach will be crucial for the Hub's relevance, as it will need to work closely with the World Bank to ensure it is reinforcing the Bank's GIF, launched only one month ago. The World Bank's work on the GIF has been ongoing for over a year now, and has been tasked with facilitating 'the preparation and structuring of complex infrastructure PPPs to mobilise private sector and institutional investor capital'. The GIF involves multiple stakeholders, including 'the world's largest asset management and private equity firms, pension and insurance funds, commercial banks, multilateral development institutions and donor nations as partners'.
At face value, this could be similar to the intentions of the Hub, and close cooperation between the GIF and the Hub could strengthen the underlying principle of quality project selection and management.
However, it is the long-term nature of infrastructure investment that makes the four-year death sentence for the Hub puzzling. Given it will likely start out as a relatively small pilot program, it would be a titanic achievement were it to unleash a US$2 trillion wave of investment in only a few years. For knowledge-sharing platforms and project pipeline databases to have an impact, they will need to stick around until well after 2019.
And while the Prime Minister is keen to stress that the Hub will not be a new 'international bureaucracy', the time limit means the Hub will need to work extremely quickly and intensely if it is to convince sceptical parties that it appreciates developmental sensitivities in other countries and the complexities of large projects that include social and environmental outcomes, as well as financial. In other words, the Hub will probably take some staffing.
And as for any G20 initiative, there is the perennial question over how the 177 countries that are not formal members of the G20 will feel about working with a program formed under a G20 umbrella. Generally, the G20 has been most influential when it works alongside existing bodies that are broadly representative and which have a well-established role (like the UN, OECD or the International Monetary Fund). The Hub, on the other hand, will be one of only a handful of agencies to be set up under the auspices of the G20. (The G20 had a key role in the establishment of the Financial Stability Board that brings together key global financial regulators, international financial institutions and major central banks. It also helped set up the Agricultural Market Information System which promotes market transparency and policy coordination in relation to a few key crops. It takes time for these organisations to win friends and supporters.)
As a self-declared 'infrastructure Prime Minister', Tony Abbott is clearly keen to publicise Australia's infrastructure experiences to the world, and has accordingly promised to put up most of the funding for the Hub. However there is a risk the Hub will encourage future G20 presidencies to pursue the establishment of 'legacy monuments' before carefully justifying precisely how they will deliver substantive outcomes. If the Hub falls into this category – and hopefully it won't — then the focused and streamlined G20 agenda promised for 2014 will have delivered a low-value outcome. It would be unfortunate if the true cost of the Hub comes in the form of the opportunity cost of the G20's precious time and energy, which could have been targeted towards more pressing parts of the global growth agenda.
Photo courtesy of Flickr user Glenn Brown.
