A journey: Private investment in infrastructure in emerging markets

By: Katelyn Godoy
Affordable housing in Vietnam

By Simon Kim, MPS-RE ’17 (Baker) and EMI contributor

*Opinions in this article are the author’s and do not necessarily reflect those of Cornell, Johnson, or the Emerging Markets Institute.

Before Cornell, I worked for an infrastructure advisory team at PwC Korea. Back then, I provided financial advisory services to help Korean investors invest in infrastructure assets in emerging markets. At Cornell, I got an opportunity to work for an Australian infrastructure investor for my summer internship and was involved in a highway project and several other projects in New Zealand and Australia. Thankfully, the Cañizares Fund, awarded by Roberto M. Cañizares, BS ’71, MBA ’74, and the Emerging Markets Institute (EMI) funded my internship. Through the experience, I learned about the infrastructure market and how to bridge the gap in infrastructure development and investment in emerging markets.

My answer to bridging the gap is public sector participation. I strongly believe without cooperation or initiatives from the public sector, infrastructure investment in emerging markets is limited. The public sector ranges from multilateral development banks (MDBs) to bilateral finance institutions or development finance institutions as well as to governments. My company, GuarantCo, is a development finance institution (DFI) whose sponsors are five G12 governments: U.K., Sweden, Switzerland, Netherlands, and Australia. Our mission is to promote private investment in infrastructure in lower income countries. Our main product is providing a long-term guarantee for lenders and investors for infrastructure projects. In particular, GuarantCo has been focusing on local currency financing and local capital market growth. In this respect, my company is differentiated from other MDBs, such as the World Bank and the Asian Development Bank. According to our internal policy, eligible countries are those who have a low level of gross national income (GNI), below $4,000.

Work and life in Singapore

As a financial center, Singapore offers major networks of financial players, such as banks, institutional investors, funds, and infrastructure developers, as well as law firms. These branches focus on Asian business and give access to valuable information and speedy decision-making processes. As for the geography of Singapore, I can reach clients in the main Asian countries (Indonesia, Vietnam, Philippines, Myanmar, and so on) within three hours. However, the competition is fierce in Singapore, as a hub in Asia. The workload is demanding in the financial sector, but most colleagues and workers espouse a mindset of diversity and mutual respect. When it comes to family life, Singapore is one the safest countries. It’s easy to raise children without stress or worries about safety or security. Infrastructure is well-organized and managed in Singapore. Public transportation service is excellent. There are several options for international schools, too.

Highway construction in Vietnam
Site visit of highway construction project in Vietnam

Infrastructure in emerging markets

Demand for infrastructure in emerging markets is rapidly increasing. And yet, these countries are limited in capacity and resources to respond to such huge demand. Private sector investment in infrastructure is crucial inevitable for bridging the gap between supply and demand. However, private investors tend to hesitate to invest in infrastructure in emerging markets. This is mainly due to the high risk profile as well as political risk and credit risk. It is thus pivotal to mitigate such risks. One tool is providing guarantees. Namely, if the borrower fails to repay the loans or bonds in the event of default, guarantors can ensure the debt service or repayment of loans or bonds through guarantee products, leading to the promotion of private investment. Since I joined my company, I have been involved in affordable housing, wind power, satellite broadband, and toll road projects in Asian countries. Value creation through infrastructure in emerging markets is rewarding. I have enjoyed learning about new products and markets, devising creative solutions to mitigating risk, and making the impossible possible.

Recommendations for international students

Emerging markets have high potential. The basic investment principle of “high risk-high return” is perfectly applicable in emerging markets. The key is to manage those risks and not underestimate them. I found that a guarantee is a good solution for the mitigation of risk. I thus applied for the guarantor position. Mitigating risks in emerging markets can be different from those in advanced markets. Best practices are only applied through modification or customization. Flexible thinking and connected thinking are basic qualifications to finding creative solutions for unprecedented transactions.

It is worth highlighting the importance of networks. In applying for positions, I sought to heed the insights of industry experts. Through conversation, we sharpen our rationale and evaluate whether we are on the right track. In this regard, I think the EMI is a good tool for communicating and building up networks with internal and external experts. EMI conferences and the course, Leaders in Emerging Markets, provide a series of opportunities for deepening insights and expertise over several topics in emerging markets.

Last but not least, I recommend case analysis. Most emerging markets lack legal frameworks and regulations. We accumulate knowledge of the implications through each case to generate insight and individual viewpoints. Since some cases cannot be found via internet surfing or desktop research, it is worthwhile communicating with other people to identify lessons learned from specific cases.

Link to learn more about the Emerging Markets Institute

About HyungJoon (Simon) Kim, MPS-RE ’17

Simon Kim

After completing his master’s degree at Cornell University in 2017, Simon Kim embarked on a new journey as a guarantor at GuarantCo in Singapore. Starting his new career in Singapore, Simon appreciated this exciting opportunity to work in a new industry and to work in a bustling emerging market. Kim acknowledges Singapore, like many emerging markets, offers high potential, but to realize business goals and understand the risk and rewards, we must deepen our insights and expertise in emerging markets.