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Infrastructure innovation: How world leaders can spur growth

The history of America's development is replete with examples of infrastructure that sparked huge booms of economic activity: the railroads that linked East to West, the interstate highway system and most recently the Internet — all proof of American innovation in infrastructure that led to broad-based economic growth.

Despite decades of attention and resources, millions of people in the developing world remain mired in poverty with little hope of an economic environment that empowers them to pull themselves out. Aid alone can't eradicate extreme poverty; broad-based economic growth is its only certain end. To achieve that we must invest in infrastructure that facilitates trade and commerce.

If developing economies in areas like Africa become new growth markets, U.S. investors and manufacturers gain important new markets and investment prospects.

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For most businesses, access to good infrastructure guides where to locate. In the mining industry, we have to go where the resources are, which means we often operate where there is no infrastructure.

This fall, world leaders will gather in Brisbane, Australia to discuss how to increase global infrastructure investment, among other topics. From my perspective as a chief executive with experience in both the developing and developed world, G20 leaders should consider the following actions in regard to infrastructure:

Cass Scenic Railroad State Park, West Virginia
Image source: West Virginia Dept. of Commerce
Cass Scenic Railroad State Park, West Virginia

Improve developing country investment climates. A country can have the most valuable resource in the world, but if investors don't have certainty about the terms under which they can invest, great assets won't become tax paying businesses. The G20 needs to encourage countries to improve their investment climate and provide investors certainty.

Reform banking and insurance rules. G20 member country's banking and insurance laws should be reformed to allow institutions to hold more infrastructure-linked debt from countries with higher risk profiles. This can be done in a way that still protects the safety and soundness of the financial system.

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Adopt anti-corruption measures. Adopting strong anti-corruption laws, committing to transparency standards like the Extractives Industry Transparency Initiative (EITI) — and acting to prosecute violators — will help to establish confidence for both investors and the public.

Create a multilateral investment framework. The G20 should support and advance a multilateral investment framework that sets minimum standards for investment protection. Countries that adopt that standard — not unlike countries that adopt the EITI standard on transparency — would gain a common mark of predictability that provides investors further assurance.

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Infrastructure investment has transformed America — more than once. It can do the same in the developing world, but we will need to establish innovative partnerships at forums like the G20. Through these partnerships, we can build vital infrastructure that improves lives and fights poverty by creating sustainable economic growth that benefits all.

Sam Walsh AO is Chief Executive of Rio Tinto.

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