Infrastructure Financing through Islamic
Finance in the Islamic Countries
32
Chart 2.4: Global Sector-wise Infrastructure Investments (%)
Source: PWC & GIIA (2017)
Chart 2.3 shows the involvement of different institutional investors’ stakes in the
infrastructure projects under PPP arrangements globally. While in all countries the
corporations are the major investors in the infrastructure sector, in developed economies such
as Australia, Europe and North America the infrastructure funds and investment firms also
contribute significantly to the sector. Chart 2.4 shows the global investments in different
sectors of infrastructure. Investments in the transport and energy sectors dominate in
developing economies such as Africa, Asia and Latin America. In developed economies such as
Australia and Europe, the social sector has also received significant investment.
2.4. Factors Affecting Financing Long-term Infrastructure Projects
Infrastructure can be considered as a separate investment class with risks and returns lower
than equity and higher than debt. Infrastructure assets, however, have some unique features
that affect the decisions for investment. Infrastructure projects are large, involve many
stakeholders and investment arrangements, and entail complex legal documentations and
intricate financial planning. The legal contracts have to ensure the proper allocation of risks
and returns to create the right incentives for attracting capital. The long timespan of
infrastructure projects also makes them less liquid. Investments in sustainable infrastructure
investments also appeal to ethical, green and impact investors. Some infrastructure projects
such as highway or water supply can be natural monopolies and governments would control
them directly or indirectly to ensure that monopoly power is not abused. The key factors that
affect private-sector financing of infrastructure projects are presented next.5
2.4.1. Infrastructure Policy Framework
The enormity of investments and the long-term nature of infrastructure financing require
appropriate policies and capabilities for implementation. Being large and long-term
5 Ehlers (2014), McKinsey (2016), GCEC (2016)
23%
33%
42%
25%
52%
13%
16%
10%
2%
19%
35%
6% 5%
12% 13%
24%
20%
6%
8%
39%
21%
6% 6% 7%
5%
9%
23%
3% 4%
2% 1% 1% 1%
7%
9%
44%
33%
11%
28%
24%
13%
39%
A F R I C A A S I A A U S T R A L A S I A E U R O P E L A T I N
AM E R I C A
M I D D L E E A S T NO R T H
AM E R I C A
% OF TOTAL
Transport Social Power Environmental Telecoms Renewal energy