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Global infrastructure investment faces crisis

Global infrastructure is facing a crisis, suffering from severe underinvestment, a lack of high level strategic vision and a paucity of robust finance models, senior industry figures warned last week.

The world invests “50% less than it should” in infrastructure which is now in crisis, said infrastructure analyst and project consultant CG/LA Infrastructure president and chief executive Norman Anderson.

He was speaking during a private meeting at the Global Infrastructure Leadership Forum in London last week.

After the event, he told NCE that the problems were common across the world and stemmed from banking crises.

“No capital and no expertise”

“The loss of private banks, means there’s no capital and no expertise,” said Anderson.
Infrastructure UK (IUK) chief executive Geoffrey Spence agreed there was a problem. He told the Forum’s keynote event that there had been a backlash against the private finance initiative (PFI) and public private partnerships (PPPs).

“There’s been a breakdown in traditional models for financing infrastructure in the UK,” he said. “They have generated a degree of negativity not seen in other countries,” he said.

“I’m a bit embarrassed to talk about PFI with our friends overseas at the moment and we’ve had to reduce our engagement with the overseas finance ministries.”

He added that the Treasury’s PFI consultation exercise had just ended and received 150 responses.

Despite problems with this vehicle, Spence said that the UK - helped by its plans to open up infrastructure investment to pensions - was open for business and ready to attract international investment in economic infrastructure.

Spence emphasised IUKs commitment to pension fund involvement in infrastructure investment pointing to the organisation’s decision to help set up the Pension Infrastructure Platform. This aims to tap into the £800bn that UK pension funds could invest in infrastructure. He refused to be drawn on when it would be set up, however.

Anderson said that it was unlikely that pension fund investment would solve all of the problems with private infrastructure investment in the UK and elsewhere.

“We need infrastructure; we need money. Pension funds, sovereign funds, family offices - they all have money [to invest],” he said.

“But essentially pension funds are the most risk averse group of them all.”

At the closed event, the speakers also expressed concern that too much attention was focused on how to pay forinfrastructure and not enough on strategically prioritising projects. Some have argued that this has resulted in too much attention being focused on major projects.

Basic problem

“The basic problem is that we see infrastructure through the paradigm of major projects,” said contractor Geoffrey Osborne chairman Simon Murray.

“[In developing countries] usually the appropriate solution is to build new infrastructure,” he said. “However, if you look at the UK economy [and that of places like the United States]
we have broadly satisfied the requirements for infrastructure - instead it’s about the quality of service and price.

“I don’t think building large new infrastructure projects is usually the solution. We should be looking at innovative ways of maintaining our assets, but we’re way behind the pace.”

Anderson countered that “countries need iconic projects” but agreed with Murray that solutions were too often driven by what suited the supply chain.

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