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week 4 infrastructure update

Infrastructure business model

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week 4 infrastructure update

Infrastructure business model

Uploaded by

omg66762
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© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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https://business.gwu.

edu
/2023-nordic-female-lead
ers-panel
Week 4 - The importance of
infrastructure
The Industry, Innovation and Infrastructure goal aims to “build resilient infrastructure, promote
inclusive and sustainable industrialization and foster innovation.” Infrastructure is the backbone of
any country as it generates jobs, boost economic growth and improves the quality of life for the poor.

Take, for example, a hospital in the Democratic Republic of Congo that needs electricity to ensure
the safe and healthy delivery of a newborn. A young, rural Cambodian girl needs to have a safe road
to walk to school and Bangladesh needs clean water for the essential livelihoods of its citizens.
These are just a few of the myriad of ways that infrastructure investments alleviate poverty.

https://borgenproject.org/tag/infrastructure-in-developing-countries/

Based on the Pre-work you did for today’s class, how did your selected
country rate when it came to some infrastructure indices?
Defining the term.
Infrastructure…
• Includes capital goods which provide
services
• Is “lumpy”
• Is long-lasting
• Is space-specific
• Is associated with market failures
• Often requires some form of public
intervention
• Serves both households and enterprises
• Is frequently “networked”
Social and enterprise effects
Labor force efficiency/productivity Physical plant/distribution (direct
(indirect benefit) benefit)
• Clean water & sanitation
• Transportation
• Housing
• Roads, ports, airports, trains
• Hospitals and health care
• Energy
• Electricity
• Schools • Telecommunications
• Roads and transportation

Thinking question: T/F – Infrastructure always increases production.


(Prud’homme, 2004)
Infrastructure’s
contributions to
development

• Space-shrinker
(production)
• Market enlarger
(consumption)
• Enlarges size of labor
market
• Enlarges “ideas” market
• Facilitates trade
Assigned
reading
summarie • http://www.ipsnews.net/2017/04/economic
s. -growth-continues-to-be-thwarted-by-lack-of
-infrastructure/
Volunteers • https://unctad.org/en/pages/PressRelease.a
?: spx?OriginalVersionID=471
As estimated by McKinsey, just keeping up with projected global GDP growth of 3.5 percent will require
investing around 57 trillion dollars in infrastructure by 2030. A tough task, especially when global
infrastructure needs exceed financial possibilities of governments.
Forecasting infrastructure needs
(World Bank data)

What’s driving these numbers?


Global Infrastructure Spending = $2.7Trillion
Global Infrastructure Spending Need =
$3.7Trillion

Is the Belt and Road the answer?

https://www.youtube.com/watch?v=j8zz
L2aBo2M

https://www.youtube.com/watch?v=j8zzL2aBo2M
Do some critical thinking about
the BRI.
1. If you were a developing country with limited tax revenues or other sources of capital, and you
have a desperate need for financing infrastructure development, would you participate in China’s
BRI initiative?

2. Considering the case of Sri Lanka are there concerns about the BRI and the motives behind it?

3. Given China’s current economic slowdown and increasing government debt, what’s the current
thinking about the BRI? Is it the solution to the infrastructure funding shortfall?

4. Finally, has it worked? Have the countries involved seen the promised increase in trade and
economic activity or are they just saddled with lots of debt and have little to show for it?

Work in groups to answer these questions.


• Natural disasters
• Political risk
• Potential for appropriation
• Regulatory risk
• Inaccurate estimates (and wishful thinking)
Why do so • Weak rule of law/governance

many EM • Unenforceable or weak contract rights


• Corruption
infrastructu
• Delays/inefficiency
re projects • Changes in the macro-environment (inflation, slow-down in
fail? growth, demographics, etc.)
• Changes in technology

“Costs are generally underestimated and patronage overestimated, by large amounts.


Errors of 50% or more seem to be the rule rather than the exception.” (R. Prud’homme
report to the World Bank)
Financing options:
• Pure public
• Pure private
• Public with toll
• Private with subsidy Most developing countries must double current infrastructure
investment levels of less than 3 per cent of gross domestic
• Shadow toll product (GDP) to around 6 per cent for significant
transformational impact (IPS, 2017).
• Delayed public option
• Do-nothing option

Thinking question: T/F – Private options are generally “better” than public
options?
Public private partnerships
A PPP is defined broadly as “a cooperative arrangement between the
public and private sectors that involves the sharing of resources, risks,
responsibilities, and rewards with others for the achievement of joint
objectives” (Kwak, Chih & Ibbs, 2009)
PPP investment over time
• Better value for money • Relatively new and
complex
• Help control public-sector
budgets • Lack of skill and
knowledge
• Delivery can be quicker
• Lack of competition
• Quality and efficiency can
• Complex negotiation
be higher
PPP • Can promote local
processes
• Likely delays
pros/cons employment and
• Higher borrowing costs
economic growth
• Less transparency
• Transfers risk from public
to private sector • May result in monopolies
and higher costs to
• Leverages private sector consumers
know-how
• Multiple parties with
• Facilitates innovation conflicting goals
• Government competence
• Appropriate concessionaire selection

PPP Success • Appropriate risk allocation between the parties


• Sound financing arrangements
or failure
depends on: Thinking question: Some experts argue that PPPs
simply do not work because of the incongruence of
objectives between the public and private sectors. Do
you agree or disagree?
Looking ahead
1) Wednesday – Guest Speaker 3:45-5
– FUNGER 209
2) Week 5 readings
3) First Tech House of Cards case
Sembcorp –
Case
Introduction
• Company background
• What’s their current (as of the case
date) dilemma?
• What’s ESG?
• What’s a GLC?
Working in groups, address your assigned question
(chose a spokesperson and be prepared to share)
1. Who are the Sembcorp’s main stakeholders and what are their interests?
2. How is Sembcorp doing financially (as of 2016)? Which businesses are the main
contributors to profit?
3. How does the “energy trilemma” create challenges for Sembcorp?
4. What countries are the main focus of the Utilities business expansion and what are
the opportunities and challenges they face in these markets?
5. What are Sembcorp’s typical modes of entry? What are some risks to each of these
entry modes?
6. Specific to India, what was the TPCIL project their “most difficult in 20 years?”
What’s going on with that project?
7. How has Sembcorp turned sustainability into a source of competitive advantage?
Use specific examples.
8. What is the role of the private sector in large infrastructure projects? The role of

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