DIFC Economics Workshop explores alternative financing methods for regional infrastructure development



Arab economies ready themselves to build for future but conventional funding still limited as a result of global financial crisis

Top-level delegates representing major economies from across the region gathered in Dubai today to discuss and identify the best possible means to access channels of funding for the on-going and proposed infrastructure development projects in the region.

The interaction hosted by the Dubai International Financial Centre (DIFC) as part of its DIFC Economics Workshop series, featured top executives from leading developmental and financial institutions from around the world as well as senior officials from the DIFC Authority, on the speakers panel.

Dr. Nasser Al Saidi, Chief Economist at the DIFC Authority, pointed out that the regional economies - and particularly the Gulf countries - are relatively young and unhampered by historic and obsolete technologies that some of the more mature economies face. This allows the GCC countries to leap ahead and adopt the most modern technologies,without going through intermediate phases

“Infrastructure investment has been a major driver of economic growth in the Gulf region over the past six years. Despite the global financial crisis, there continues to be enormous demand for new infrastructure across the GCC countries and the region driven by population growth, economic development and diversification imperatives as well as the overall aim of being counted amongst the most advanced nations. Indeed counter-cyclical fiscal policy has focused on maintaining or even increasing government expenditure on public works and infrastructure,” said Dr Al Saidi.

“The size of infrastructure projects in the Gulf is currently estimated at the whopping figure of some US $2.3 trillion.

“Effective financial solutions, the availability of long-term finance and continuous and timely funding are critical to the smooth implementation of new infrastructure projects, and in turn, to the sustained economic growth of the GCC countries and the region,” pointed out the DIFC Chief Economist.

“However, due to the global financial crisis, banks have tightened access to financing limiting funding options. The DIFC Economics Workshop on infrastructure finance was organised to explore alternative means and methods of financing infrastructure development,” Dr. Al Saidi added.

Some of the alternative means of funding identified by the workshop included Project Financing, Public-Private Partnerships (PPP), Build-Operate-Transfer (BOT) models, Capital market based financing, Housing Finance as well as raising Public Debt and recourse to Islamic instruments such as Sukuk (Islamic bonds).

Apart from Dr Al Saidi, other speakers were drawn from leading banks and financial institutions involved in providing infrastructure finance and included Adil Marghub, Manager, Infrastructure Cluster at the International Finance Corporation (IFC), Suresh Vasan, Director of Energy Financial Services at General Electric (GE) and Frank Beckers, Managing Director and Head of Project & Capital Advisory at Deutsche Bank.

Frank Beckers managing Director of Deutsche Bank commented “Given the challenging amounts of financing to be raised for infrastructure developments, we will have to explore all available liquidity pools. This will likely require a more diversified approach towards funding sources compared to the bank loan focused approach we have seen so far. However, the strategic nature of most infrastructure developments in the GCC, evidenced also by strong government support, will continue to support those efforts.”

Adil Marghub Manager, Infrastructure Cluster at the International Finance Corporation (IFC) added “Beginning in the fall of 2008, the tightening of global credit conditions adversely affected global infrastructure finance. Lending from commercial sources declined substantially while state owned and multilateral and bilateral (IFIs) have emerged as growing players in funding infrastructure finance”, said Mr. Marghub. “The MENA region has been one of the more active regions globally in infrastructure projects, and the underlying fundamentals for an increasing role for the private sector in infrastructure remain strong.”

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