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A Hemispheric Policy Focused on Strategic Infrastructure Capacity

A Hemispheric Policy Focused on Strategic Infrastructure Capacity. Norman F. Anderson CG/LA Infrastructure LLC & The Latin American Leadership Forum World Economic Forum Financing for Development Initiative June 23 & 24, 2005 - New York. Where We Are.

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A Hemispheric Policy Focused on Strategic Infrastructure Capacity

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  1. A Hemispheric Policy Focused on Strategic Infrastructure Capacity Norman F. Anderson CG/LA Infrastructure LLC & The Latin American Leadership Forum World Economic Forum Financing for Development Initiative June 23 & 24, 2005 - New York

  2. Where We Are A Confidential Report on Progress & Directions

  3. The Weakness Uncertainty Bad Design Slowness Destructive Lobbying Public Works Sub-optimal design Sub-optimal perform. Sub-optimal finance The Solution Performance Know. Financial Physical Strategic Know. Finance-ability Competitiveness Regional Results Competitiveness OPPORTUNITY CREATION Strategic Capacity The Source Code HISTORICALLY VERY BAD PERFORMANCE - COUNTRY/TYPE OF PROJECT

  4. Bad to Good to Great Bad RESULTS 1. Rapid Finance 2. Performance 3. Track Record 4. Competitiveness Project Concept Good Feasibility CRITERIA 1. Vision/Capacity 2. Physical 3. Financial 4. Opportunity

  5. Focus of Policy - 4 Benefits • Central to Country Competitiveness • Central to Equity - Opportunity Creation • Each $1 Billion Invested Creates 15,000 Jobs • Each $1 Billion Invested/Country yields .75 GDP • Critical to the Political Agendas of Every Government • Brazilian & Mexican PPP Programs • Optimal Project Design & Financing • Imperative for the Creation of Long-term Cooperation & Strategic Positioning Currently 1-2% of GDP goes to Infrastructure; Needs 3-4% - China is 9%

  6. Basis for a Rich, Sustained, Policy • Region’s Infrastructure Cast of Mind is • Market-oriented • Rate of return conscious • The Chilean Model is Successful • Priority projects, based on competitive vision • Domestic origination, control, investment • International participation -- as critical catalyst • Brazilian PPP Model is Teetering • Other Countries are Searching/Troubled Don’t Impose Chilean Model, BUT note that it Yields @ 7% of GDP Invested p.a.

  7. Timing & Structure • Convergence of Four Factors = Right Timing • Market consensus • STRONG felt need/receptivity • Local model creation • Requirement for national + international partnerships • Structure Success • Strategic Competitiveness not Public Works • Exceptional Performance - Physical & Financial • Sustained Wins for Equity/Economic Opportunity Structure Rich Policy on top of a Four Factor Convergence

  8. The Action Items • Immediate Actions - Create Fund/Show Results • Signal the Central Role of Infrastructure • Generate Rapid High Quality Financial Investment • Begin to Rate Projects - Physical + Financial • Medium-term Actions • Bond Fund • Equity Fund Create the Conditions for Infrastructure, based on Performance

  9. Seven Key Questions • Where does the money come from? • How is the agency structured? • Where does the agency reside? • Who does the work? • Who participates? • What is the professional structure? • What are the measurable benefits? Objective: Get Projects Running; Create Jobs; Competitiveness

  10. 1. Where Does the Money come From? There are a Series of Options • US Agency • MDB Initiative Under US Leadership • Public/Private Partnership • US Catalytic Support • Latin Private Sector Support (Leadership) • Latin MDB Participation • US/Spain Partnership Need: Leadership; Speed; RESULTS -- No Large Board

  11. 2. How is the Agency Structured? The Private Equity Model is “Good Enough” • Small group of investment professionals • Rapid decisions • Scoring based on • Projects going forward • Performance of those projects • Jobs created by those projects • Competitiveness improvements - country/region Need: Results, not Bureaucrats; Risk, not Caution; Relationships

  12. 3. Where Does the Agency Reside? It’s a Global, Digitized, Results-Expectant, World Brazil/Chile Railroads Bndes Airports CAF Metrics Leaders Highways Cabei Ports Banobras Water The Future Washington Mexico Need: Dynamic Free Market Attitude, Close to Market Leaders

  13. 4. Who Does the Work? Work must be done by local firms, under the guidance of multidisciplinary team of people who know finance • Local engineering firms • Local financial houses/executives • Local competitiveness brains • Local job creation brains Top level, world-class, oversight • Project decisions • Critical coaching Need: Draw and Guide Local Talent; Manage for Results

  14. 5. Who Participates? Has to be a significant public sector component - Credibility - Vision Has to be a significant private sector component - Market Logic - Discipline - Action Strategically a Public/Private Partnership Might Work - BOARD

  15. 6. What is the Professional Structure? • Public Private Board • Strictly Limited - Oversight & Performance Reviews • 50% Public & 50% Private • 50% Latin America & 50% ROW • Professional Staff • Multidisciplinary & Eclectic • Great Conceptual Capability • First-class Technical Staff Structure Like a Private Equity Fund - But Blue Collar

  16. 7. What are the Measurable Benefits? • Gross Increase in Infrastructure Investment as a Percent of GDP • Increase in Pace of Project Creation • Documentation of Physical Performance • Documentation of Financial Performance • Dynamic Increase in Opportunity Creation Objective: Create a Track Record of Results for the Region

  17. ResultsGrowth * Projects * Markets Growth Projects Markets Transparent Metrics Efficiency GDP Jobs Opportunity Velocity Quality Performance Competitiveness Halo Effect: Knowledge, Experience, Market Confidence

  18. The Halo Effect Results Good Projects Bond Fund Current Efforts = 50% Additional Efforts = 50% Strategic Capacity Good Job Creation Pension/ Equity Catalyze Monitor Decide 1% GDP Growth Physical Feasi- bility Fund Performance Rating Improve Equity Financial Plus Market Confidence & Plus Improved Regional Reputation

  19. Window of OpportunityBest Performance in Decades + New Leaders 5.5% 4.0% 0.6%/2.1% -8.3% +17.3% $30 MM = 75 - 100 Studies/Year @ $200K/Study

  20. The Infrastructure Gap • “The 1980s and 1990s saw a widening of the infrastructure gap between Latin America and other successful developing economies like those in East Asia. The World Bank • “…the private sources that were supposed to meet the investment needs, have lost their appetite for infra-structure at a time the public sector is investing less rather than more - less than 1 percent of GDP in most LAC countries compared to the 3 percent needed. The World Bank

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