Diversification

On why long-term investors should fund infrastructure

Investing in developing country infrastructure is a win-win strategy for long-term investors

Note: A version of this article was first published in the OECD DAC Newsletter

The world faces two major financial problems for which, luckily, there is an attractive common solution. This might be just the right time for taking the first steps towards implementing it.

The first problem is the scarcity of capital in general, and of money for infrastructure investments in particular, in large swathes of the developing world. It is widely recognised that poor infrastructure holds back development, reduces growth potential and imposes additional costs, in particular on the poor who often do not have access to energy, water, sanitation and transport.

The second problem is the current sclerotic, even negative real rate of return on listed bonds and equities in many developed economies. The concentration of the portfolios of many long-term investors in such listed securities also exposes them to high levels of systemic, and often hidden, risk.