Creating Markets

AuthorMorten Lykke Lauridsen and Florian Mölders

Creating Markets Finance & Development, September 2017, Vol. 54, No. 3

Morten Lykke Lauridsen and Florian Mölders

Developing new markets is essential to increasing private investment and achieving the UN Sustainable Development Goals

Congested and crumbling roads have stunted Colombia’s economic growth for decades. Following the 2016 peace deal that ended half a century of armed conflict, the Colombian government had high hopes for infrastructure—and new roads in particular—to build a strong foundation for the country’s future.

But the government realized that financing one road project at a time would fall far short of providing the economic boost they sought. Instead they needed markets, one for the private construction of roads and another to channel savings into long-term loans to finance those road projects.

A key challenge was to put in place a framework that would attract large investors—pension funds, insurance companies, and hedge funds, among others—into ventures that until then were largely uncharted territory. Creating a market that would lure these institutional investors was critical to addressing the country’s infrastructure shortage.

In response, the International Finance Corporation (IFC), the Colombian government, and the Development Bank of Latin America created a new financial institution to address market failures that were obstructing infrastructure financing. The government also introduced a number of investment-friendly measures such as guarantees and project support and established new capital market regulations that made it easier for pension funds to invest in infrastructure projects. In January 2016 a substantial infrastructure debt fund to finance large-scale projects was launched.

As a result, Colombia will get thousands of kilometers of new roads—and a major boost to its economy—while investors get a host of new business opportunities.

Colombia’s road deficit is all too common in emerging markets, and the approach taken is an example of how countries can provide opportunities for private investors, whose participation will be essential to mobilizing the estimated $4 trillion a year investment needed to achieve the United Nations Sustainable Development Goals (SDGs) in developing economies.

Under current financing trends, the world’s poorest countries are likely to fall short of these goals by large margins without greater access to private capital. The issue, then, is how can governments and development...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT