Despite seemingly having left the worst of the pandemic behind us, the global economic outlook remains uncertain. Countries around the world are beset by inflation and energy crises, along with the staggering outcomes of climate change. Although many may feel the need to exercise caution around foreign direct investment (FDI), in truth, it’s an excellent chance to use capital in a way that can transform the lives of millions.
This has already taken the form of Environmental, Social and Governance (ESG) investments and other financial instruments geared towards sustainable development — but there’s always more that can be done. Energy shortages and the need to meet Sustainable Development Goals (SDGs) ultimately call for stimulus in infrastructure: in other words, real, physical assets that can generate benefits for years to come.
Since it is a stable, non-cyclical form of financing with low variable costs, funding infrastructure is a crucial means of achieving a sustainable future across the world. Although it’s not a silver bullet, with the right planning and targeting of resources, FDI can produce real, tangible benefits for many countries and therefore millions of people. In terms of where to put your capital, here we’ve selected three countries from around the world with exciting sustainable infrastructure opportunities.
1. Dominica
Dominica is heavily dependent on tourism, and the impact of Covid-19 on travel made a significant dent in its GDP. Its struggle goes deeper than that, however, since it is an island nation acutely vulnerable to environmental hazards — having endured Storm Erika in 2015, and the catastrophic Hurricane Maria in 2017 that destroyed 90% of the island’s structures. Yet all this has resulted in a forward-thinking mindset from the Dominican government, which has pursued sustainable development and ‘climate resilience’ with a great deal of help from FDI.
One of the reasons behind this success is the country’s Citizenship-by-Investment (CBI) programme. Investors receive citizenship in exchange for their funding of new infrastructure in the country, or by purchasing real-estate property. The majority of capital investment is channelled into the Economic Diversification Fund — “a government fund that supports socio-economic initiatives in Dominica”, as CS Global Partners explains.
Through the CBI programme, investors have helped construct hospitals and schools, agriculture and fishing infrastructure, and fund affordable energy such as a geothermal plant — plus much more. By investing in Dominica this way, you can choose from a range of infrastructure projects and enjoy the benefits of seeing it come to fruition — as well as soak up the Caribbean sun.
2. Costa Rica
Costa Rica is renowned for its stability and living standards, but it also faces challenges in terms of poverty and inequality which spur the need for targeted improvements in infrastructure. Overall though, the economy has performed remarkably in terms of FDI, having received “more than 13 times its fair share of inward greenfield FDI compared with what could be expected given its level of GDP”, according to Investment Monitor.
Therefore, while Costa Rica’s ability to productively use FDI suggests that this is a strong strategy to tackle its “severe underinvestment in infrastructure”. The government recently requested a $700 million loan from the IMF’s Resilience and Sustainability Trust to finance sustainable infrastructure, but independent investors with ESG focus could equally make transformative investments into the economy.
For example, improvements to the deteriorating roads and bridges would reduce congestion and therefore vehicle emissions, as well as helping to bring many out of poverty by creating better access to transport and therefore employment. The government also incentivises FDI by allowing “tax-free operations for 8-12 years, extendable on certain conditions, including reinvestment in the country”, as well as “dedicated aftercare services”.
3. Panama
Next door to Costa Rica is Panama, home to the Colón Free Zone — the main commercial centre for Latin America and the Caribbean — and, perhaps most famously, the Panama Canal. The country’s geography, infrastructure and FDI incentives have long made it a popular destination for investor capital.
Panama’s pursuit of public and private investment partnerships signals how sustainable and durable infrastructure can be achieved through FDI. One such example can be found with the construction of the Corredor Norte Toll Road route, which has hugely reduced travel time to and from Panama City. As for the crown jewel itself, the Panama Canal Authority is “looking for new water supply solutions, such as pumping or desalinating seawater or building new reservoirs that could supply drinking water to two million people from the same source”.
There are many other incentives for foreign infrastructure investments. For example, funding regenerative agriculture in Panama will guarantee that investors pay zero income tax “if annual gross income is lower than $250,000”, as PwC asserts. Elsewhere, Panama is pursuing sustainable water provision in the City and Bay Sanitation Project, and foreign investment towards this is organised by the Opec Fund for International Development. Since the utilities are privatised, similar to other countries in the region, this may well be a safe and sensible option for an FDI portfolio.
