The Pacific Islands Investment Forum says economic conditions caused by the coronavirus pandemic are an opportunity for the region’s superannuation, pension and provident funds to accelerate plans to pool their resources and invest in commercially-viable infrastructure across the Pacific.
Pacific Islands Investment Forum (PIIF) members—18 superannuation, pension and provident funds with combined funds of approximately NZ$ 75 billion (US$50 billion) —are keen to look at opportunities where they can work together to support national development and grow member funds.
CEO of the Cook Islands National Superannuation Fund and the PIIF Secretariat, Damien Beddoes says they have offered governments the option to exchange cash for equity—that is, to buy shares in government entities. Beddoes says this provides the funds with an opportunity to diversify beyond currently-volatile public markets (publicly-listed stocks) and gives governments “an initial large sum payment into their books, into their finances.”
“They can then choose to do with that cash what they want,” Beddoes says. “They can reinvest it into other areas of infrastructure that may be social, that may provide options to use it for budgetary support, however governments choose to use that money is entirely up to them. “
Beddoes says it would give PIIF members consistent returns for their contributors and the ability to contribute to the responsible management of national infrastructure projects, as well as “a chance to build the infrastructure, to reinvest, to grow it, to make it more resilient, to improve its outputs, to take it in new directions, by investing in that infrastructure we believe we can improve it for our people and assist in the long term development within our countries.”
The PIIF favours investments in monopoly utilities, such as electricity providers, and aims to take a significant stake, allowing it to bring expertise, transparency and independent board members with a long-term commitment.
As Beddoes says: "We're not just there for the initial 'here's the cash, thank you for the 50% ownership'." Pacific Islands governments are largely looking to donor partners and multilateral financial institutions for grants, soft loans and debt restructuring to keep their economies afloat and fund economic stimulus measures. Beddoes says, “the Pacific region actually has the money to solve its issues”, although there are a number of barriers to investment including double taxation, dividends, stamp duties, capital gains taxes and other fees and charges. The PIIF has urged Pacific Islands Forum Economic Ministers to look at easing these barriers, or to provide an exemption to PIIF members to allow free movement of investment funds around the region.
Forum Economic Ministers are due to meet again next month, and Beddoes hopes this matter will be on the agenda.
He says the PIIF has approximately NZ$3.5 billion (US$2.32 billion) available for investment across various sectors, but that this figure is growing. The Cook Islands National Superannuation Fund for example has grown by $80 million due to compound interest in the past four years.
The Pacific Way was coined by the late Fijian and Pacific Islands stateman, Ratu Sir Kamisese Mara, in which people of different races, opinions and cultures can live and work together for the good of all, can differ without rancour, govern without malice and accept responsibility as reasonable people intent on serving the interests of all.
The Pacific Way of doing things is not taught but is a culture in the Pacific Islands, people are always ready to help each other.
Today and in years to come, Pacific Islanders will need to work together to address the impact of COVID-19 as well as adapting to and mitigating the effects of climate change.
The pandemic has stressed national budgets of many island countries, an experience faced by governments the world all over. Governments’ capital expenditure on infrastructure that is climate resilient would be limited.
It is estimated that the Pacific will need to spend US$3.1billion a year on infrastructure until 2030, which is more than the annual budgets of most of these island nations. COVID-19, climate change and the threat of natural disasters can easily increase the capital expenses of governments beyond their reach.
The International Finance Corporation (IFC) is leading World Bank Group efforts to work with pension, provident and sovereign funds in the Pacific region to help spur investments in essential infrastructure such as telecommunications, water, financial services, transport, sustainable energy and health. IFC works in the Pacific with support from the governments of Australia and New Zealand to stimulate private sector investment and reduce poverty in the region. The funds who are members of the Pacific Islands Investment Forum (PIIF) collectively manage over US$45 billion worth of assets.
It makes sense for pension funds to co-invest in infrastructure for a number of reasons. Pension funds play such a dominant role in the financial systems of Pacific Islands, as most have assets worth more than the overall financial system in their countries. Most funds will inevitably play a broader role beyond financial returns for their members. This was quite evident during this pandemic and a survey undertaken by PIIF and IFC will provide some data on the impact of COVID-19 on funds in the region.
Co-investment brings two major benefits to funds and their members. First, investing in infrastructure will improve services and secondly, members will get better returns.
Pension funds joining forces to co-invest and invest across borders is becoming a global trend. Large funds like the Canadian funds have invested in infrastructure alongside the pension funds in Mexico or alongside the funds in India. In Kenya for example, a group of the local pension funds have come together to form a co-investment entity. IFC and the World Bank Group is bringing some of these global experiences to the Pacific.
A few funds are by regulation or legislation restricted from investing outside of their country. This primarily arose during the early stages of the funds’ existence, when they were accumulating capital, and it was important to retain that capital in the domestic economy. But now, as the funds have grown in size, limiting capital from moving outside of the country creates more risk, because they are concentrating on fewer and lesser investment opportunities.
The opportunity exists for PIIF to tap into new investment opportunities, but members must take the necessary steps to clear their own regulatory bottlenecks and figure out the best structure for the funds to channel their investments – and this is where IFC’s technical expertise can assist.
IFC is also in a position to co-invest with members of the PIIF and there are other potential co-investment partners such as the Australian Infrastructure Financing Facility for the Pacific (AIFFP).
The AIIFP is an initiative by the Australian Government to provide funding of up to AUD$2bn for high priority infrastructure in the Pacific through grants and loans.
When the time is right and a co-investment entity can be set up, the governance of these investments would also be paramount. We must ensure the interest of the members of the funds remains front and centre, the investments are set at the right level of risk, and suitable to the needs of pension fund members. Transparency too is vital so members can see how decisions are made and on what basis. It should be a case of – together forward, the Pacific way.
*PIIF Members are: Cook Islands Superannuation Fund, Fiji National Provident Fund, Kiribati National Fund, Nauru Sovereign Wealth Fund, NZ SuperFund, Ngati Awa Growth Holdings, Nambawan Super (PNG), NASFUND (PNG), Samoa National Provident Fund, Solomon Islands National Provident Fund, Tokelau Trust Fund, Tonga Retirement Fund, Tonga Retirement Fund Board, Tuvalu National Provident Fund, Tuvalu Trust Fund, Unit Trust of Fiji, Unit Trust of Samoa, Vanuatu National Provident Fund
Thomas Jacobs is IFC’s Country Manager for Australia, New Zealand, Papua New Guinea and the Pacific Islands
Building quality infrastructure in the Pacific means going beyond a narrow focus on hard assets, to thinking about the ways that new infrastructure, and accompanying services, will contribute to lasting development outcomes. This requires sustained engagement with island governments, and with Pacific civil society and the local private sector, in the design, construction and management of infrastructure. Ultimately, there is no shortcut for quality.
Our new report, Building Together: seven principles for engaging civil society to deliver resilient, inclusive and sustainable infrastructure in the Pacific islands, argues competition to finance infrastructure projects in the Pacific islands should lead to lasting development outcomes, driven by local priorities. It also suggests civil society should be considered a key partner in the design and delivery of Pacific infrastructure.
Released last week at the Australasian AID Conference in Canberra the report is based on extensive research and consultations in Australia and the Pacific. It sets out seven key principles for policymakers to follow when designing new infrastructure. It is hoped that by adopting these principles, new infrastructure investments in the Pacific will grow local employment, support skills development, promote gender equality, and create more accessible infrastructure for people with disabilities.
The key driver of renewed investment in Pacific infrastructure is growing geostrategic competition in the region. However, there is also no doubt that Pacific states do have significant infrastructure needs. The Asian Development Bank estimates, for example, the Pacific will require US$3.1 billion in infrastructure investment each year until 2030. Pacific island countries also have unique infrastructure needs. Being among the most isolated states in the world, and especially vulnerable to the impacts of climate change, investments in resilient infrastructure can help mitigate intractable constraints on growth in the Pacific.
In recent times, major infrastructure initiatives have been announced. The United States, Australia, Japan and New Zealand have, for example, initiated a major investment in rural electrification in Papua New Guinea. The Australian government is financing new telecommunications infrastructure for Papua New Guinea and the Solomon Islands, and has committed to a ten-year $250 million bilateral infrastructure program in the Solomon Islands. Australia, long the region’s largest provider of development finance, has also established a multi-billion-dollar infrastructure bank dedicated specifically to Pacific island countries. The Australian Infrastructure Financing Facility for the Pacific, which uses a mixture of commercial loans and grant financing, represents a significant change in Australia’s aid program to the region.
Taken together, these new initiatives represent an opportunity to consider, and promote, shared standards for quality infrastructure. Our report is intended to stimulate thinking about best standards for infrastructure investment in the Pacific.
The Australian government has focused on involving the private sector in delivering new infrastructure in the Pacific. The Minister for International Development and the Pacific, Alex Hawke, has, for example, suggested it is time for Australian businesses to step up in the Pacific. In addition to the private sector, our report suggests there should also be a focus on engaging and supporting civil society groups. Working with Pacific civil society in the design and implementation of new infrastructure is critically important for ensuring transparent decision-making; including in tendering and monitoring infrastructure. New infrastructure projects are also an opportunity to stimulate economic growth in the Pacific directly, through the creation of local employment opportunities, skills transfer and capacity development, and through partnerships with local businesses and civil society groups. Given their closeness to communities, civil society organisations can facilitate the engagement of people with disabilities, and women, in infrastructure planning and delivery, helping to ensure that priorities – and design features – are based on local need, minimise risks to marginalised groups, and benefit these groups in their delivery and beyond.
Typically, it is the actions taken by island governments themselves to manage projects, and to develop robust policy frameworks governing the use and maintenance of infrastructure, that are a key determinant of positive outcomes. This means development partners should be supporting the strengthening of infrastructure governance, the ‘soft infrastructure’ that accompanies construction of hard assets. Often this also requires support for collaborative decision-making that includes Pacific civil society groups at regional, national and project levels. The Pacific Islands Association of Non-Government Organisations (PIANGO) was one of the partners consulted for this report. PIANGO executive director, Emeline Siale Ilolahia, told us it was critically important that new projects be driven by local priorities. “If we’re not careful these projects will be driven by the needs of the people proposing them, and the only beneficiaries will be the companies building them”, said Ilolahia.
“Building Together: seven principles for engaging civil society to deliver resilient, inclusive and sustainable infrastructure in the Pacific islands” was initiated by the Research for Development Impact Network (RDI Network) and co-produced by RDI Network and Pacific Connections (Australia). The report was co-authored by Wesley Morgan, Rebecca McNaught, Sally Baker, Fulori Manoa and Jope Tarai.
This article first appeared on the DevPolicy blog.