Investment Gap in the CEE Region: How Much Investment is Needed and Strategies for Delivering It
The CEE region faces a multi-billion investment gap. In order to catch up with its western European counterparts, the countries will need to make sizeable investments in their infrastructure, particularly in the transport and energy sectors. The investment pressures are further exacerbated by the increasing need for climate change adaptation and green transformation. Fulfilling these investment needs will be no easy feat and will require utilizing all funds possibly available – including public, private, and EU funds.
This paper assesses the size of the investment gap in the CEE region utilizing both a top-down and a bottom-up approach. Both approaches lead to the conclusion that the region must invest tens of billions every year to narrow the gap to the rest of the EU in the medium- to long-term. The transport and energy sectors, which are crucial factors in the green transformation, will require the greatest proportion of funding. The complexity of projects within these sectors also creates the space for utilizing PPP financing.
The findings of the work below have several policy implications:
- Investments in infrastructure must be increased across the board.
- The needs are particularly acute in the energy sector, which is vital for preparing the region for green transition.
- Public investments by themselves are unlikely to suffice even accounting for the extensive funding available from the EU. If the region is to fulfill its investment needs, utilizing other financing means will likely be necessary.
- Public-private partnership (PPP) funding is a viable option to fill the gaps in funding, especially at times of high public deficits.
- However, PPP projects are not risk-free and their suitability to a given investment plan must always be carefully considered. The value-for-money principle should be applied to both cases of public and PPP funding.
- PPP projects are not suitable for outsourcing public funding due to weak institutions. Managing PPP projects requires a well-prepared and capable administration able to carry out professional and transparent tendering processes as well as overseeing the progress of the project.
- PPPs are a good option for highly complex projects that require particular expertise and extensive managerial capabilities. In these cases, the costs of funding the investments publicly might be higher due to lacking capabilities relative to the public sector, which is more flexible and might possess more expertise in the given investment area.
- There are sectors naturally more suited for PPP investments such as transport and energy sectors. Meanwhile some other sectors remain more difficult for running PPP projects and require complex solutions, higher level of management expertise and innovative ideas if a PPP model is to be used.