unlocking clean land transport Investment

The green route: unlocking clean land transport investment in emerging economies

Asia and Africa have a challenge that is both demographic and environmental: rapid urbanisation, gridlock and air pollution. How can we connect technology with investment to create solutions for clean land transportation?

In many African and Asian countries, clean technology is beginning to transform land transportation.

Bus rapid transit (BRT) schemes are fast-tracking passengers previously snarled-up in smoky traffic jams. Electric vehicles are multiplying and light rail schemes are expanding. Cleaner engine technologies, such as Euro 6 and compressed natural gas (CNG) are also developing at pace.

Rapid change has been accomplished before. Parts of both continents skipped some stages of legacy communications infrastructure with the introduction of mobile phones. But change needs to move faster, and the key is unlocking investment through collaboration.

Roadblocks to growth

Infrastructure investment in Africa, including in transport, has plateaued at just 3.5 per cent of GDP since 2000. It’s estimated this needs to rise to 4.5 per cent1 to close pressing infrastructure gaps.

In Asia, infrastructure investment tends to be proportionally higher, although this masks considerable variations2. China typically allocates far more than most South-East Asian nations. The bulk of transport infrastructure funding in developing Asia also tends to come from the state3, creating clear opportunities for the private sector to contribute more.

Reasons for investors’ hesitancy have traditionally centred around issues including governance, the scale of projects and insufficient financing. But a new wave of more bankable clean technology investments is helping to reset this paradigm.

The green route: unlocking clean land transport investment in emerging economies

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Mobilising investment

One of the best ways to unlock this private capital has proven to be through BRT schemes. They are relatively quick and cheap to build, and can leverage the private sector effectively by enabling it to share risks and rewards with other stakeholders. These can include the bus manufacturers, commercial banks, export credit agencies (ECAs) and public sector partners at a municipality level.

This multilateral approach is illustrated by a BRT scheme that Standard Chartered recently helped co-ordinate in Abidjan, Côte d'Ivoire. Scania, the Swedish manufacturer, is providing hundreds of CNG-fuelled buses4 following an agreement with the Côte d’Ivoire Ministry of Transport and SOTRA, a transport company. A guarantee from the Swedish export credit agency, EKN, and lending from the Swedish Export Credit Corporation (SEK) has also helped unlock EUR200 million of project financing.

Battery-powered transport technologies also make use of a resource that is abundant in certain regions: electricity. A number of African nations benefit from excess power generation, driven in part by hydro schemes – a resource that has also been significantly scaled up in South-East Asia since 20005. Uganda’s Kiira Motors is harnessing this generative capacity with an electric bus pilot6.

Asia’s opportunities

The clean transport needs and opportunities in Asia, meanwhile, are vast and pressing. An estimated 4 billion people7 in the Asia Pacific region are exposed to damaging levels of air pollution. And as urban populations soar, motor vehicle fleets are doubling8 every five to seven years. The resulting congestion is constraining economic potential, with up to five per cent of GDP lost every year.

Many nations in the region are acting to address this, with the Philippines building a growing fleet of e-jeepneys9 to cut pollution and gridlock in Manila, and Jakarta rolling out metro infrastructure, for example.

But to align rapid urbanisation with sustainable goals, additional capital is needed. While clean energy transformation is accelerating in Africa, the gap in infrastructure is still too big, especially when compared with developed markets and some of Asia’s larger emerging economies.

Rethinking investment

The key to unlocking this finance is through partnerships. Projects can be unlocked by forging relationships with a range of stakeholders, whose investment horizons and goals support each other.

This includes mobilising the significant long-term investment appetite of multilateral development banks (MDBs) and export credit agencies (ECAs). By building alliances that span these institutions and governments, it is possible to create blended and private financing solutions that are bankable and attractive propositions for a broader range of investors.

But this can only be achieved if banks take a lead by working closely with the public and private sectors to design, co-ordinate and structure projects that satisfy the aims of all sides.

A blueprint for how to do this is on the rails - an important solution since train travel can generate significantly lower CO2 emissions per passenger mile, compared to car journeys.

Tanzania’s Standard Gauge Railway - which will be the longest and fastest in East Africa when completed- benefited from USD1.46billion of project financing arranged by Standard Chartered. The scheme was heavily oversubscribed. That is in large part because it was bankable.

In order to secure long term commitments from multiple ECAs, Standard Chartered created new ways to structure and streamline their participation. The bank also leveraged long standing local relationships with governments and institutions to help accelerate the solution, taking a more hands-on co-ordination role.

Tanzanian rail project

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Ending gridlock

Yet despite notable successes, the pace of change is still too slow. Moreover, while the World Economic Forum has called for sustainability to be put at the top of the corporate agenda, clean technology alone will not achieve this10.

Globally, clean public transport can be a core component of this sustainable growth only if stakeholders work together to create holistic and inclusive solutions. Mass transport projects can widen employment opportunities, especially for rural communities. But appropriate pricing is also key to maximise participation, as are creative ways to help existing transport providers transition.

Encouragingly, there is a growing recognition that Environmental, Social, and Corporate Governance (ESG) criteria are well aligned to clean transport projects. ESG also creates a virtuous cycle: the more aware governments and developers are that good governance attracts investment, the more incentive nations have to improve.

To help stimulate the investment needed, Standard Chartered has committed USD 40 billion of project financing services for infrastructure that promotes sustainable development by the end of 2024. Yet we all need to move faster.

The technologies are proven and the desire for change is palpable. Capital is available and the mechanisms exist to make investments bankable. It is now up to all of us to act to end the gridlock.

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