PwC lists key barriers to attracting private investment in urban infrastructure

Five key barriers hinder the attraction of private capital to municipal infrastructure.

Report informs that Dan Dowling, partner at PwC, said this during the panel discussion "Financeable Municipalities, Liveable Cities: How can cities attract long-term financing at the required scale?" held as part of the 13th session of the World Urban Forum (WUF13) in Baku.

He said the first and main problem is the gap in the level of budget reliability.

"The private sector operates under strict transparency and reporting standards, while local authorities do not always ensure a similar degree of rigor, often for social and humanitarian reasons. The second obstacle is low profitability. Investment in basic infrastructure and social services, as a rule, cannot compete with alternative investment areas, such as data centers," Dowling emphasized.

The expert noted that when capital is allocated based on returns, municipal projects inevitably end up among the lowest priorities.

The third obstacle, according to him, concerns the scale of transactions.

"A significant share of municipal projects does not reach the threshold of interest to institutional investors: some are ready to participate only with volumes starting from $50 million to $200 million and only in a syndicated financing format. One solution may be to combine projects from different sectors or implement them within larger territorial units," he said.

The fourth factor is political risk, the PwC partner said.

"The private sector is not always able to correctly assess the local and national political environment, which directly determines the priorities of authorities and, consequently, the prospects of specific investments," he added.

Dowling identified currency risk as the fifth risk, especially important for international investors. At the same time, he stressed that many of these barriers can be addressed through credit enhancement instruments and guarantee mechanisms on the supply side.