Five reasons why investors choose infrastructure
Why do investors put their faith, and their funds, into infrastructure?
Earlier this month, WBEF joined Marie Lam-Frendo, CEO of Global Infrastructure Hub, to discuss the central role of infrastructure in global economic recovery efforts.
Alan Muse, Global Director of Built Environment, RICS
29 June 2020
Globally, infrastructure development is seen as key to the post-pandemic recovery. Around the world, governments are announcing huge infrastructure stimulus packages. The amount of public money spent on mitigating the immediate-term pandemic fallout is orders of magnitude beyond anything previously seen. Questions as to how infrastructure can be sustainably financed, used to enhance outcomes in social inclusivity, and better resist shocks and disruption remain unanswered. To examine this critical issue, RICS CEO Sean Tompkins joined Marie Lam Frendo, CEO of the Global Infrastructure Hub (GI Hub), for an engaging and insightful hour-long discussion.
GI Hub, created in 2014, supports the G20 in driving an ambitious agenda on sustainable, resilient and inclusive infrastructure through action-oriented programmes. Based in Sydney and Toronto, the GI Hub team provides data, insights and best practice examples to the sector. As the G20’s only dedicated infrastructure entity, it aims to create a common language on infrastructure.
Special edition webinar: Investible, inclusive, resilient Infrastructure in the post pandemic world
In this special edition webinar, RICS CEO Sean Tompkins interviews Marie Lam-Frendo, CEO of Global Infrastructure Hub (GIH), to explore how we can ensure infrastructure development efforts are at the centre of global recovery efforts. They probe the role of infrastructure professionals in the delivery of an inclusive and resilient sector under the current economic pressures, as well as delving into the future outlook of the sector and opportunities the pandemic will bring.
Confusion remains as to the business case for infrastructure. A skeptical public often mistakes major infrastructure developments for vanity projects. But Ms Lam Frendo notes that work undertaken by the GI Hub and others has confirmed the infrastructure spend multiplier in the economy is about 1.5. For every $1.00 spent, the benefit to GDP will be $1.50. Such returns outstrip those of “normal” public spending. In addition, governments are constrained in terms of monetary policy since inflation has remained low and interest rates are more likely to fall than rise. It is in no small part because of these two factors that public sector infrastructure investment has risen to the top of the stimulus agenda.
Ms Lam Frendo also points out the importance of ‘crowding in’ private sector investment in infrastructure. GI Hub work with the likes of Blackrock and Carlyle has shown that investors are comfortable with the inherent risks in infrastructure development and remain keen to invest. Public-Private Partnerships (PPP) are again being considered, though it is understood that delivery processes must be made more efficient. There is a window of opportunity here to improve the efficiency of PPP models; the pandemic is the perfect catalyst. Risk management and allocation will also be key. To this end, GI Hub has worked with the World Bank on the development of a risk tool for investors, based upon evidence from over 500 projects.
If, as expected, infrastructure does become a central pillar of the recovery, built environment professionals will play a crucial role in advancing discussions about digitalization, sustainability and resilience. In doing so, they can equip investors, governments and infrastructure clients with the tools necessary to make responsible decisions. Professionals will need to be bold and push for improved access to, and application of, data and quality indicators. It will also no longer be enough to focus solely on the technical aspects of design. In 2017, GI Hub published a report on inclusive infrastructure based upon 300 projects. It found that there was no consistent lifecycle approach to project inclusivity. Professionals must raise the flag on social and environmental issues. GI Hub obtained G20 commitment in 2019 to make infrastructure greener. There are different approaches to this commitment around the world, with different regions being at different levels of maturity in their journey towards fully green infrastructure. Nonetheless, the conversation is moving forward.
Today sees the launch of the World Built Environment Forum report: Bridging the gap: Private investment in future infrastructure provision . The primary research for this piece was completed prior to COVID-19 outbreak. It would be remiss not to acknowledge the immediate and probable long-term implications of the crisis for infrastructure investment.
There is a window of opportunity here to improve the efficiency of Public-Private Partnership models; the pandemic is the perfect catalyst.
The findings of the RICS Construction and Infrastructure survey for Q1, 2020 clearly point to an industry wrestling with growing financial constraints. Ms Lam Frendo stresses the need for bringing bankability into the design inception process. Investor checklists, benchmarks and other tools for ensuring the quality of ESG protocols and lifecycle costs are improving efficiency. GI Hub are working with governments on developing ESG criteria for early decision-making. Common international financial standards such as ICMS will be crucial to this endeavour.
The current crisis has raised the possibility of a global ‘new deal’ for infrastructure. In response to these hopes, Ms Lam Frendo highlights a number of cross-jurisdictional regional programmes in Africa that could serve as exemplars for greater global collaboration. She further notes that, in certain parts of the world, more basic tools are necessary. Among them is the relaxation of regulatory banking capital requirements (Basle 3 and 4 requirements).
In 2017, GI Hub published a report on inclusive infrastructure based upon 300 projects. It found that there was no consistent lifecycle approach to project inclusivity. Professionals must raise the flag on social and environmental issues.
Ms Lam Frendo also considers InfraTech to be a new frontier in the post-pandemic recovery – though work is required on industry awareness and skillsets. In particular, technologies that reduce costs by providing predictive maintenance for physical assets stand to reshape the industry. The potential of technologies that assess the likelihood of further public health emergencies is greater still. Investors are increasingly looking at the possibility of using InfraTech. The creation of collaborative international data standards will be important in progressing this technology. RICS CEO Sean Tompkins notes the active role taken by the institution in such efforts.
Although the pandemic has been a testing time for all infrastructure stakeholders, proposed recovery measures offer a singular opportunity. The case has been clearly made for additional investment in infrastructure. Investable, bankable projects which support the ESG agenda can help to drag the global economy out of recession.