tv Real Money With Ali Velshi Al Jazeera April 14, 2015 3:30am-4:01am EDT
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figure that problem out. the conversation we are having is about bridging the infrastructure gap. the infrastructure financing gan in particular. it's a remarkably important topic. many will not under why there is an infrastructure gap. there has been a remarkable change in the way we finance infrastructure projects in the world. over the last several years. some of it has had to do with the recession that this world felt, and the degree to which banks will get involved in infrastructure issues. as we will hear from our panellists many of the issues are country specific. these are different depending where you live in the world. in the developed world there are challenges and restraints involving around politics in getting things done. in the developed world there is a cry for improvements to infrastructure.
but i do want to start on my left, your right with the former prime minister of the u.k., gordon brown, who has headed the initiative at the world economic forum to figure out the best practices around the world and share the information with members. for my audience, sir, who may not be all that clear on what this problem is, when it comes to financing infrastructure, what is the problem? >> well, there are millions of people around the world who are without electricity, without the ability to travel, without hospitals, without schools, without water. or they have inadequate provision was be fail to brij of the infrastructure gap. that is it at least a trillion spent on building not just hospitals, scoops, but power plants and road and reals and improving the conditions of these. what we realised is as a result of the economic crisis,
governments do not have the money they may have had in the past. we know the banks are conditioned by new rules and regulations. we have to look for better ways where the public and private sector, instead of fighting work together to deliver infrastructure. we have to find ways of finances infrastructure. we need to find ways to get the projects up and running quickly. >> as a politician, there's an element to deal with in terms of what the public perceptions of infrastructure are. we have some countries where people vote for someone who says i'll give you the infrastructure you need. you'll be in some western countries where people associate the projects with government efficiency, waste, trying to buy votes. what do we have to do to get people on board with the idea that this will cost money, but it is necessary. >> people have to know that at
some point, whether it is paying for a road, railway or energy, the bills have got to be met. investors will not come in. we need the investors unless they know there's a return. we have to help with project preparation, which is expensive and time-consuming. we have to underpin the loan facilities available from investors, times from guarantees in difficult situations, and we have to make the public sector more efficient. the opportunities are immense, because the need is great. there's no shortage of capital or savings, and there's no shortage. but what we haven't done is produced the bankable projects. and there's an economic argument. we talk about secular stagnation, and that's basically a problem of demand in the world economy. we have low interest rates. this is the time to invest in
infrastructure, as long as we can get the right balance sectors. >> you spoke about many things at play in india. the state bank of india is headed by this woman. these are issues you have heard. if you have a conversation about infrastructure around the globe, every single challenge in that realm faces you in india. from 2006 to 2013 indian banks and financiers leant $153 billion to private corporations for roads, port, power, telecommunication, railways, according to jpmorgan, but you had cost over runs and delays, and an unfair system during which contractors were chosen. talk about that. >> yes, if you look at india, there's about a million youngsters joining the work stream.
we are talking 10 to 12 million a year that needs to be created. if you look in here, we realised that this was required, and from the year 2002 to 2003. we started an oon the experiment. what happened was that a number of mistakes were made. there were questions regarding the dolling out of natural resources, questions recording transparency, and environmental clearances and land acquisition, and anything that could go wrong did go wrong. as a result we saw the impact that we had from 2007 to 2013. as you said, the mood soured. projects were un viable there were cost overrun, and the banking sector, they are sitting with
stressed assets. we have realised that a number of mistakes have been made, but a new government comes solely on the platform. the country realised the only way to get out of the poverty strap is to get getter infrastructure. the government is how to get projects that are better planned. how they get in more agencies to participate in the funding. le earlier it was done by commercial banks, and projects that were a 30 year assets, we were asking them to re pay in eight or nine years. this meant the repayments from front ended. as a result projects were stressed.
and the people that promoted the projects couldn't take out anything. a fellow that produced a road couldn't take out money. changes are made in the financing models, changes by the government in ensuring that the projects are better prepared and the clearances come up front. as for the promoters, they realised that they cannot spread themselves too thin, and need to get in more equity to see the projects come to an end. today, we have three things - demand, democracy and democracy. we are you niningly positioned infrastructure. >> the speed at which they need to do this, and the need is so great there's not a lot of room for error. peter sands - you are one of those banks that has historically been involved with infrastructure. you operate in many countries. tell me where banks have been in
terms of degree to which they finance large infrastructure projects and why that has pulled back to the degree that it has? >> well, let me step back and build on the comments on both gordon. the bad news is there's a gap and need for infrastructure. the money is there. the leavers that need to be pulled to get the money into the right places to invest are ones that are sort of within our control. i would break the problem. one is are the projects investable. that means two things. the risks are getting executed. is it manageable. will it be built on time and to cost. and are the ongoing running economics going to yield a return to investors. if you have positive apps, you have an investibule project. the challenge for most investors and banks, is most of the projects we see, the answer to one question is no.
and not deliberately no, it's often that the bits have not been put together in a way that makes the projects investibule. there's a second set of problems around the way the finance situation works in the world. and there's no doubt that it has been made for difficult for good reasons, the degree of maturity mismatch and balance sheets has come down. they borrow short and lend long. it's a problem when you finance infrastructure, than when we did before the crisis. getting long-dated money into long-dated projects is more of a challenge than it used to be. it's a solvable problem. if we work with the participates of the financial market who have naturally long-baited liabilities, pension funds, sovereign wealth funds, we can act as
i'm ali velshi back at the summit in davos switzerland, now we'll talk about whether projects should be funded by the government or private sector. >> we have things to be done - rail, roads, energy. they are expensive, bike, and take a long time. everybody has said money is not the issue, making them into investable projects is the issue. i'll turn to you, you have spoken about the idea of
matching long-term projects with investors, who have long-term"ons, and taking them out of the realm of people with short"ans. and at the same time making projects investable. what does that mean, making projects investable. >> doing them. this is what we typically do. when we think about investing in infrastructure, i think you have to change the way of looking. investing is not the financial exercise. investing in infrastructure is integrating finance, policies, engineering, management. and also communities. >> yes, there is a gap. the capacity of governments in order to deliver infrastructure, but the private sector also had to bridge the gap by bringing the capacity. you can't just be the financier, and not engage in the communities on the long term, and not engage with the contractors or engineers to figure out what is the best
infrastructure and service you can deliver to the community. clearly, the community of investors that are looking for infrastructure are long-term. we have a population of investors looking to invest for 25 years. what are they looking for. >> who are these people, these companies. >> pension funds, most have pensions in the type of investors who invest in infrastructure. whether you talk to the teachers of california, the civil servants of sweden, or the national pension of korea, they want the same long-term investment. and for them investing in public service, public infrastructure, and the public private partnerships, and this is the key theep, and if you want us to bring our own block into this. >> i want to invite the minister of finance into the conversation, from rwanda.
for purposes of this conversation you are representing the continent of africa. like india, when you take africa as a whole. it's a large population, and you face similar concerns. in africa the issue tends to be of all the infrastructure deficits that exist energy is the biggest. in sub-saharan africa there's a population with no access to energy connected to a main or a system. rwanda dealt with tackling the basic infrastructure needs and broadband, wireless. tell me how you achieved financing on these fronds. >> thank you very much. i hope for the representing africa, that's a big promotion. >> he is there as well. we'll speak to him as well. >> thank you so much. >> don't tell him i you. >> now, thank you very much.
the challenge for infrastructure is so crucial. it's the biggest course of any investment in any country. >> we can talk about other methods we are using in terms of contracting investment. if we don't address the issue of infrastructure, the transport, energy, and other infrastructure product. usually it takes us a long time. in the case of rwanda, the infrastructure is part of the budget, because in the case of rwanda, from one of the biggest as you mentioned was the one of energy. and energy is so huge that once you take it into account, it's a course for anybody. we need to have a clil og. usually the hydro. the power, same regards to power.
we have had domestic, projects that are domestic in nature. we needed to - it can never be sufficient, the resources, no matter how they treat the budget. it cannot be enough. going to the generation. so that the distribution part is not done by the government. but providing as much information, as much incentives to the private sector. for the road transport, the government has been borrowing to fill the gap. we are talking to the private sector to see how they come in. especially for the road toll, where they can invest ahead of time. together for others like airport, other infrastructure, we have been doing that. for the technology, they have
been leading in this, knowing that we are countries of natural resources, the sector is leading the economy. to do that the technology has been crucial into this. and that's why it was linked to a vision to make sure we have the total infrastructure, and now we have the total, almost the country covered, and now we are moving to another level. lte, which is completed by 2015, all over the country. challenging. >> we heard an experiment where we belong to the community, together with tapz, kenya and brunei. when you have infrastructure linking the region, we used experimental corridors. a focus area was actually - was the railway. and from mombassa to kenya to uganda and later to burundi and neighbouring countries.
it was too heavy. how do we finance that. we can't as countries, neighbouring countries or finance anything else. what the state agreed on is should have an infrastructure. so now we are 1.5% of our own imports. so that we could have the correction to that. without establishing the developments that you have in your own countries. >> when we come back we'll discuss whether infrastructure projects will take advantage of the low interest rates. >> al jazeera america, weekday mornings. start your day with a view of the world. catch up on what happened overnight with a full morning brief, a fast paced look at the stories shaping your day. >> sending a strong message to the rest of the world. >> stories with impact. news with importance. >> people gotta have water. >> get a first hand look with in-depth reports and investigations, and the latest from the worlds of science
i'm ali velshi at the world economic forum in davos switzerland. we'll discuss whether projects boost of the economy. uber is part of the largest designed architecture and engineering firms, one of the largest in the world, the largest in europe. the issue of viability, and will it be built, will it be built to cost, and what is the sustainability, what is the return on the investment. i think it is important aspect. it's probably for the sake of sem plisty, let me re -- simplicity let me remind the audience, we are not just talking about the emerging world. if you have driven a car, you brim. >> we lost a bridge in the past week.
>> you are talking about electry fixation fixation. the subject a worldwide. it is about the question of making an investment case, and they are only three sources of money, three ts. it's taxes terrace or transfer of private money. these are the three sources we are talking about. we are not doing a good job as the industries that are involved in infrastructure construction engineering is providing certainty with regard to the revenue streams which are coming outs of infrastructure assets, and providing certainty with the cost of construction, and in these two case, if they are made in a thorough way, i agree with
peter, money is not the issue, but to make the connection, and make it as the minister said, in a way that not only at the beginning, the feasibility study is done in a thorough fashion, but during the construction, constantly during the implementation of infrastructure, cost conscious nous and the maintenance cycle of infrastructure put in place is top of agenda. only that guarantees at the end that we don't have cost overrun, which we typically had in the past, and that the feasibility, investment case remains to be intact towards the end of the construction phase. >> let me add two things - the good news is two fold. first of all, governments, as we see with the example of rwanda, highly capable engineering firms, all the way through. second technology helps us. now we are not talking only about a physical asset that is
constructed, we are having a digital asset of the infrastructure put in place, allowing us to do scenario planning. how do we do it more cost efficiently, how do we do value engineering and reduce maintenance costs. that is key to how to make the investment case in the long run. >> let me ask you gordon brown, as the minister does not represent all of africa, i'm not here to represent the united states, but in united states politicians are 100% the problem in moving forward on infrastructure, 100 - in fact, might by 120% although i don't think it's mathematically sound. what we are talking about is good planning expertise. a third run way at heath row, i avoid. i had hair when they started talking about it. >> we decided to build it, and it was cancel. that's one of the problems you
have - changes of government, changes of policy, people wanting to change the regulatory rules, and administrative inefficiencies, and you have political calculations. someone said a politician was someone that promised to build a bridge when there was no river. there's some truth in the idea that these are projects people announce and don't bother to do the work to make them happen. i think a proper relationship between the public and private sector conhelp to mitigate the risk. advances that we made in discussing project preparation - because remember the upfront cost of doing projects is high, 10% on average the cost of a projects, but there's no return for any of that period of time. we have to find a way of defraying preparation costs, and we need to do more to underpin the debt and credit that has to
be issued to get the projects under way. i think you have to break the problems down into specific problems. of course, there's sectoral difficulties, and different country experiences, and you need to bench mark each country over time, and the world economic forum which benchmarks competitiveness ought to bench mark the efficiency of countries in dealing with infrastructure and the setting of partnerships. what is interesting in the last year is you now have a new facility from the g20, an infrastructure knowledge bank. you have a number of project preparation facilities from the regional development banks, and the big asian initiative, the b.r.i.c.s and world bang initiative to provide public finance and guaranteees to help get the projects moving. big momentum at a time when, as i say, interest rates are low, the potential exists to move. >> this may be the best time
history to do this. >> absolutely. >> and the need in america and europe and the emerging markets is obvious. >> i'll end up on that. thank you to all the panellists who made it clear what the problems are that we are facing in the world. that is it for us on behalf of the networks and the world economic forum, i'm ali velshi, thank you for joining us. >> being a musician, there's no demand... >> world renowned artist lang lang >> the moment you're on stage, it's timeless >> american schools falling flat... >> there are no music class in public schools... >> and his plan to bring music back... >> music makes people happier... >> every sunday night. >> i lived that character. >> go one on one with america's movers and shakers.
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