A new investment landscape
The infrastructure industry can rise to the challenges brought by increased global competition and a changing delivery environment
Global infrastructure investment is rising and it is changing: in its nature, source and destination. The global competition for financing and delivering assets is heating up and new challenges are emerging. In response, the industry is developing new ways of procuring, delivering and maintaining assets to meet this burgeoning demand.
Political leaders now understand that infrastructure is a powerful economic lever. Developing economies need transport, power, communications and services in order to grow, particularly in the face of rising urban populations. In developed regions, ageing infrastructure needs updating and maintaining if countries are to keep ahead of the global competition.
There is a vast global pipeline of projects stretching out for the next few decades, with more to come. An estimated US$50 to US$70 trillion needs to be spent globally on infrastructure between now and 2030, compared to the US$38 trillion spent on such investments over the past two decades.
A changing global market
Spending power has shifted dramatically from West to East. By 2025 the Asia-Pacific market with China at its heart will account for almost 60 percent of global infrastructure spending, while Western Europe’s share will be just ten percent, half of what it was in 2006.
Governments around the world are committing significant proportions of GDP, typically between three and nine percent, to investment in infrastructure. Africa’s largest economy, Nigeria, is set to allocate over half of its total public investment to infrastructure by 2019. Similarly, countries such as Australia and Canada have laid out longterm infrastructure plans, looking decades rather than years ahead.
All about attraction
To achieve the ambitious levels of investment they have set themselves, governments need to attract funding from the private sector, including overseas investors. On the other side of the equation, we are seeing sovereign wealth funds and institutional investors looking overseas. Global project finance volume totalled US$432bn in 2013, up seven percent on the previous year.
Many countries are turning to public–private partnerships as a way to fund major infrastructure programmes, among them Brazil, Canada, the US and India. In 2013, Global PPP/PFI volume was US$97bn, nearly twice the levels of 2009.
Existing infrastructure in developed countries is also attracting investment from emerging countries. China’s top three targets for investment are the US, Japan and the UK. Recent estimates suggest China will direct over £100bn into UK infrastructure and real estate by 20254. In 2005–2006 alone its sovereign wealth fund, the China Investment Corporation, invested £11.7bn in the UK, including a ten percent stake in Thames Water, the UK’s biggest water utility company.
Rising to the challenge
In this new delivery environment, the importance of ‘intelligence’ – leveraging data and new technology to inform decision-making – is coming to the fore. Clients are driving their supply chain to unlock innovation and seeking collaborative new delivery models to both de-risk and extract maximum value from their investments.
The role of the client vs supply chain is evolving as well, bringing with it interesting new tensions and inspiring new models championing collaboration and integration.
As industry rises to meet the challenges of this shifting investment landscape, we are already witnessing the truly exceptional outcomes that new approaches are delivering for our clients.