DIFC official argues for investment in growth

'Virtuous circle' of financing to stimulate economy and create jobs in wider region needed

Up to US$100 billion (Dh367bn) a year needs to be invested in infrastructure to sustain the region's growth rates and boost its economic competitiveness, says the Dubai International Financial Centre's chief economist.

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The uprisings in the Arab world highlighted the need for significant infrastructure investment to achieve more inclusive growth and job creation, said Dr Nasser Saidi.

He was speaking as the DIFC yesterday released research about the economic benefits of infrastructure upgrades in the Middle East, North Africa and South Asia (Menasa) region.

"Well-developed infrastructure is a long-lasting contributor to a transformation of economies and societies, to the upward shift in productivity and in productivity growth," he said. "Infrastructure investment can be the key to inclusive development, bringing together economic geography and social geography by transforming regions that are less developed."

Up to $2.9 trillion worth of projects are planned or are under way in the GCC as the region ploughs some of its revenue from oil sales into building schools, hospitals, roads and bridges. India is executing a five-year, $500bn infrastructure programme that runs until next year.

But infrastructure spending is lagging in the remainder of the Menasa region as government budgets are squeezed. Dwindling foreign investment and pressure for government spending on subsidies and other social initiatives risk directing money away from improving public services.

Dr Saidi said such expenditure was important to create a "virtuous circle" of investment.

"Investment in infrastructure leads to higher productivity growth and improved competitiveness," he said. "This is turn translates into higher incomes and higher government revenues, which subsequently leads to more public investment in a mutually reinforcing pattern."

Efficiency gains in companies, technology transfer and human capital development are among the positive effects of infrastructure upgrades, he said.

To stimulate infrastructure development and ease fiscal constraints on governments, the private sector needed to play a bigger role in project funding, he said.

Abu Dhabi has been one of the few parts of the region to use public-private partnerships (PPPs) to finance projects. Up to one third of the Government's Dh300 billion investment in metro, tram, high-speed rail, motorway and bridge projects outlined in its 2030 plan could be built using PPPs, officials said last year.

"While there are some PPP schemes in the region, we require special PPP laws to mitigate the risks and changes to tendering policies and processes to further develop this participation and attract private sector funds," Dr Saidi said.

In addition, sovereign wealth funds have the capital and resources to play a greater role in infrastructure finance, according to the DIFC's research. Nearly half of all global sovereign funds are already invested in infrastructure.

To stimulate greater investment in the Arab world, in April the World Bank helped to set up a financing facility to raise $1bn for much-needed investment in infrastructure projects in the Middle East and North Africa.

The bank views investment in hospitals, schools, roads and other public services as a means of easing social tensions and laying the foundations of economic growth. The World Bank last week approved a $200 million loan to support the building of a sanitation project in Egypt.