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Asset Monetization As An Integrated Means Of Finance In Infrastructure Development

For any nation, achieving sustainable economic growth in the long term is one of the critical goals. Without a doubt, infrastructure is at the core of this success story. Infrastructure is intimately related to growth due to its inherent power to support livelihoods, fuel businesses, create jobs, and enhance the quality of life. The key to development and economic growth is high-quality, well-managed infrastructure.

With many unexpected circumstances weighing on economic activity in several countries, a significantly increased degree of infrastructure investment is essential for growth. The recent COVID pandemic has highlighted the importance of robust, sustainable, and innovative infrastructure systems. Investing large sums in world-class infrastructure will result in a high growth trajectory, but this is primarily dependent on the availability of long-term capital at a large scale. Infrastructure financing consequently necessitates various alternatives, particularly in transitional economies such as various developing nations. Meeting the required amount of infrastructure spending requires a reimagined methodology.

One of the methods of reimagining infrastructure and raising funds for its development can be done through monetizing existing assets. Infrastructure consulting firms in Dubai, such as Green Urbane, can help you further monetize assets and raise funds for any infrastructure project. This article will take you through various aspects of asset monetization and explain why it is seen as one of the most integrated means of raising finance for infrastructure development globally.

Why Asset Monetization Is Considered an Important Part of Raising Finance

Asset monetization has a special place at the table when we discuss raising funds and money. Asset recycling and monetization achieve two fundamental goals: first, they unlock revenue from public infrastructure investment, and second, they access private sector efficiency in infrastructure operations and administration. When government organizations look forward to raising funds, they seek help from project finance and infrastructure advisory firms in the UAE. Reputable infrastructure advisory firms such as Green Urbane, with their years of experience and expertise, help any government and private organization fully achieve its goals.

At its essence, asset monetization is a distinct move from “asset privatization” and “slump sales” to “structured partnerships with the private sector inside established contractual frameworks.” Asset monetization is motivated by factors other than its financial impact. It represents a paradigm shift in infrastructure operations, upkeep and maintenance, innovation and development, augmentation, and regular maintenance, not just a funding mechanism.

Many governments, including the government of the UAE, have made significant progress in recent years in constructing a network of infrastructure through different build-out programs with the assistance of project finance and infrastructure advisory services in the UAE. The public sector or public funding has influenced most sectors.

Cash-rich governments such as that of the UAE need asset monetization because while the public sector and government organizations can construct infrastructure, they are rarely able to run it efficiently. So whenever government organizations hire infrastructure and project finance advisory firms in Dubai, PPP and asset monetization are often recommended solutions.

Also, it is widely acknowledged that the private sector has far superior resource efficiencies when it comes to creating and operating infrastructure. As a result, the government is increasingly looking to collaborate with the corporate sector. However, for effective collaboration between the public and private sectors, PPP models must be rebooted with the help of a reputed PPP and project finance firm in the UAE, such as Green Urbane.

The Global Position of Asset Monetization and Recycling

The different results obtained from a survey conducted in developing nations such as India, Brazil, Mexico, and Indonesia and even developed nations such as Japan, the United Kingdom, and others suggest an increasing acceptance of asset monetization and recycling among government organizations and private players. Infrastructure advisory firms in the UAE predict that, shortly, more countries will consider asset monetization a reliable means of raising finance for a project. However, the survey and data collection also reveals that there is a need for an end-to-end approach to the selection of the right asset for monetization, the bundling of different asset monetization models, and the need to develop governance for asset monetization. Other aspects related to drafting contracts and negotiating terms can be achieved by hiring an experienced project financing company in the UAE.

Risks Involved With Asset Monetization

Most asset monetization projects are spread over long terms, with the period in most cases extending for more than 25 years. When public assets are involved for such an extended period, the likelihood of residual risks increases when compared to a project with a typical tenure.

To manage the various risks involved, a robust and transparent policy is needed to manage the project. Moreover, a regulatory, institutional framework and a transparent process from the government and private organizations are necessary. The above should meet with strong political commitment and stability for successful project completion with minimum risks.

A robust risk management approach is essential throughout the asset monetization process, including asset selection, investment models, monetization modeling, assessing private sector risk appetite, the capacity of the market for financing, and additional proceeds of management. Stakeholder consultation, procurement, and risk allocation should all be considered. Working with an infrastructure advisory consultant in Dubai gives clear insights into various aspects of risk management and finding probable solutions for them.

Concluding Lines

Asset monetization is an ambitious concept for mobilizing investments in the global infrastructure sector. Utilizing diverse investment models and sector-specific policies gives investors a clear vision and the confidence to advance. The government sector can try and address all difficulties related to monetization, but the key to its success relies upon selecting the correct model for monetization and its effective execution. As these massive public sector infrastructure projects are multi-stakeholder transactions and involve various players such as the federal government, state governments, public sector organizations, and private entities, all are expected to fulfil their roles reasonably, diligently, and by maintaining complete transparency.

Aside from selecting a suitable model for monetization, the success of monetization is also dependent on the regulatory environment’s clarity and stability.