Infrastructure projects are getting increasingly popular around the world. If done right, infrastructure projects are a way to juice a local or national economy.

Major infrastructure projects are mushrooming across the globe. There’s a simple reason for this: when done well, large-scale infrastructure projects are a dependable way to infuse much-needed capital into a local or national economy. Yet, local residents are not always thrilled about these new ventures. Their discontent is more than just a minor hurdle—it can have catastrophic implications for both the local populace and the project. So, the question arises: how can we maintain a fine equilibrium between profit and societal benefit?

“Major projects, meaning large-scale, high-risk, and complex capital-intensive investment projects, have long been a favored mechanism for building the capital that underpins the modern economy,” asserts Atif Ansar of Saïd Business School at the University of Oxford.

A significant investment is typically projected to create jobs and spawn new sources of income, be it wages, profits, or taxes. However, if it were solely about finances, large-scale infrastructure projects wouldn’t spark protests or public outcry. Gauging the advantages (or lack thereof) of a significant infrastructure project can be an intricate task, as real-life examples illustrate the complexity and range of social criteria needed for the successful launch and operation of large ventures.

A critical prerequisite for achieving socio-economic balance in project development is the mutual benefit of all stakeholders. “There must be a demonstration of why and how [investment projects] are adding social value, with evidence throughout, taking into account the needs of the community they are serving,” argue Peter Masonbrook and Penny Anderson. Failure to satisfy these criteria carries substantial reputational and financial risks, often shouldered by the government and taxpayers, as demonstrated by the example below.

In 2021, the Turkish firm ENKA canceled a contract worth hundreds of millions of dollars with the Georgian government to construct a hydro power plant in the Rioni Valley, largely due to significant backlash from local residents. The power plant would have accounted for 10-12% of Georgia’s yearly power consumption (most of which was imported at the time) and could have generated up to 2,000 new jobs.

However, local sentiment wasn’t as enthusiastic as that of the politicians. “Critics argued that [the power plant] would be a bad deal for Georgian energy consumers,” writes Tornike Mandaria. Independent analysts discovered that the cost of electricity would have risen for the residents of this small mountainous country once the plant was operational. This resentment was further inflamed when it was revealed that the contractor had virtually no obligations; the burden fell squarely on the government—and ultimately on taxpayers, as a leaked contract revealed.

Even though the project organizers and the government were insistent that allegations of unfair terms were “overblown,” the cancellation was unavoidable. The government was compelled to absorb the losses, both financially and in terms of reputation. However, Varlam Goletiani, a local resident and leader of the Saving Rioni Valley movement, suggests this was still preferable to continuing: “If the company had stayed in the Rioni Valley, the losses would have been far greater.”

Balancing community considerations with project goals isn’t always straightforward, and contractors can often find themselves in a bind due to external circumstances.

Cabo Delgado, a province in Mozambique, has been ravaged by an insurgency for years, culminating in extreme violence in 2021 that resulted in nearly a million displaced individuals and thousands of deaths. Oil and gas extraction, and mining projects have also come under fire, even though investors have assumed social responsibility since their entry into the country.

Mozambique LNG, for instance, “headed a broad stabilization project in the Northeast of Cabo Delgado, financing a circular economy in the region, [providing] humanitarian support, the recovery of economic and environment, rehabilitation of roads, reconstruction of schools and sanitary facilities and, even in the justice sector and security,” notes João Feijó. Unfortunately, the delivery of many benefits was delayed due to the conflict, but some, like vocational training for young professionals and business partnership programs, continued.

However, even the most concerted efforts can only achieve so much. Political or social instability, fragile states, and ongoing conflicts pose significant hurdles for investors. The Mozambique case is an apt illustration, with delayed social dividends and a stalled project. Yet, unlike in the previous example, there’s no talk of abandoning the project; in fact, the government is actively encouraging developers to press ahead.

The reason for this, according to the International Finance Corporation: “[The] private sector can help break the cycle of conflict, fragility, and poverty that persists in many fragile and conflict-affected situations.” As Feijó notes, international investors can indeed support Mozambique: “In contrast to the State, this private company has a budget allocation, capacity to attract national and international experts, [and] means of transport and escort by the armed forces of Mozambique.”

These considerations have encouraged Mozambique LNG and its stakeholders to increasingly factor in regional and local impacts and to work toward socio-economic solutions for vulnerable local communities. And although finding an equilibrium between investment and local interests remains challenging, their efforts are not in vain, as our final example demonstrates.

“I have witnessed this impressive industrial project being built from the ground up. I have seen ERC come to life and I’ve been fortunate enough to hold positions with Petrojet, the subcontractor for the project, Korea’s GS Engineering & Construction Corporation, the construction company on the project, and finally with EPROM, the operating company that runs the refinery,” recounts Mohamed Said Amer, a 32-year-old operations field engineer at the Egyptian Refining Company. Feedback like Amer’s is the ultimate testament to a project that has successfully weathered all adversities.

The ERC is a $4.8 billion oil refinery near Cairo, Egypt. Launched in 2006, it took 13 years for the project to come to fruition. During this period, the project faced numerous hurdles, including local resistance, environmental concerns, global financial instability, and the 2011 Arab Spring. However, these obstacles didn’t halt progress. The refinery invigorated the local economy, created thousands of jobs, and successfully implemented educational, economic empowerment, youth capacity building, and special needs programs.

How did they achieve this? According to Ahmed Heikal, it’s not about a single “key to success,” but rather a collaborative effort from all stakeholders. The resolution of financial and political issues required a united front. Investors also had to address environmental and social issues, listening to independent organizations and watchdogs.

However, the most critical element was the developer’s comprehensive understanding of responsibility and their adequate response. “Projects that do no more than throw resources at a need – even training – are susceptible to failure,” cautions Heikal. “The answer is inspiration. ERC is not a vague, distant benefactor. It is a member of the community, a real opportunity for their meaningful contribution, and – I hope – an inspiration for what they and Egypt can achieve.” This ability to integrate into the community, rather than just exist alongside it, is the key to maintaining a stable balance between major projects and host countries.