/ Construction / Market is Ripe for Infrastructure Investment in US, ARCADIS Report Finds

Market is Ripe for Infrastructure Investment in US, ARCADIS Report Finds

Matt Ball on October 6, 2014 - in Construction, Corporate, Financial

he US is now one of the top 10 most attractive markets in the world for investment in infrastructure, according to a new report from ARCADIS (EURONEXT: ARCAD), the leading global natural and built asset design and consultancy firm. As the country continues the debate on how to fund much-needed infrastructure, the information in this report draws out key points for new partnering opportunities between public and private investment. Already, some high-profile projects are demonstrating how these alliances can benefit both investors and economic growth and prosperity.

The findings come from the second ARCADIS Global Infrastructure Investment Index, which ranks 41 countries by their attractiveness to investment in infrastructure. To gauge their appeal, the study looked at several criteria, including the ease of doing business in each market, tax rates, GDP per capita, government policy, the quality of the existing infrastructure and the availability of debt finance. Combining all of these factors provided a strong overview of the risk profile for each market and how attractive each one is likely to be to potential investors.

Country Infrastructure Investment  Index Ranking Gain Overall Rank 2012 Overall Rank 2014
USA 3 11 8
UK 3 13 10
South Africa 3 25 22
UAE 1 4 3
Singapore 0 1 1
Qatar 0 2 2
Sweden 0 5 5
Norway 0 6 6
Malaysia 0 7 7
Canada -1 3 4
Australia -1 8 9

Rising three places from its ranking in 2012, the US has made it into the top 10 for the first time. Improvements across all business indicators and an improved financial environment have increased the appeal of US projects, but one of the major factors is the huge, unmet need to rebuild or maintain aging infrastructure like public transportation, roads and water systems. Additionally, planners are rethinking how to make cities and communities more resilient to flooding, drought and other challenges. The report cites estimates from the American Society of Civil Engineers (ASCE), pointing to the need to rehabilitate $3.6 trillion in assets by 2020 against a budget forecast of $2 trillion. To bridge that $1.6 trillion gap, government leaders are looking at alternative and private investment models.

 

Connecting Private and Public Investment

According to Manju Chandrasekhar of ARCADIS, “Good infrastructure is critical for the competitiveness and long-term economic development of a country, but many governments are struggling to finance major infrastructure projects. The current debate in the US demonstrates the tension between the need for infrastructure and recognition of the unsustainable nature of models that solely rely on the burden being borne by taxpayers. This same dynamic has led more governments to seek out private finance for infrastructure, as they work to ensure their countries are globally competitive, while meeting their social and economic objectives domestically.”

Chandrasekhar continues, “While it is positive that the US has become more attractive to infrastructure investors over the last two years, we cannot afford to stand still. Public funding for infrastructure has remained slow, so we need to work with both the public sector and investors to help build the business cases to advance major developments in the US. We risk experiencing a stasis in infrastructure investment and economic growth if we cannot demonstrate reasons for investor confidence.”

Replacement of Aging Infrastructure

While public private partnerships (PPP) and investment is not the norm in the US, given the enormous need for infrastructure improvement, planners have opened to PPPs and other forms of alternative financing, with increasing ingenuity. On September 24, 2014, high-level representatives from financial institutions, government planning organizations and private developers met in New York City at a round table discussion titled, “Alternative Financing Structures & Risk Assessment for Climate Resilient Infrastructure.”

Opening the discussion, the Executive Director of The Port Authority of NY & NJ, Mr. Patrick Foye set the tone for the financial leaders. He noted that climate-related pressures have stimulated more projects to add resiliency to infrastructure and in turn, by taking a more holistic and portfolio-based approach, the Port Authority is tapping into alternative and private financing to advance these and other critical projects concurrently. ARCADIS cited a current plan for a multi-purpose levee to help defend the lower east side of Manhattan from future storm surges and weather events. This plan calls for a private, multi-use development, which will simultaneously raise the elevation of the waterfront, providing lower Manhattan another defence in the event of another hurricane like Sandy.

The group also looked at how the Goethals Bridge, linking Staten Island with New Jersey, is incorporating private financing and transferring some of the risk from the Port Authority of NY & NJ to a private consortium. A financial discussion reviewed best practices in the Netherlands combining incentives and risk distribution to make private investment more attractive.

Considering this discussion, Chandrasekhar also noted, “For funds with global mandates, emerging markets seem to be winning the race to attract a higher distribution of funds to projects. A key differential we have seen in markets outside the US is that countries that have a clear integrated strategy which ties the infrastructure development plans to business and economic objectives tend to be nearer the top of our ranking. This gives long-term clarity to investors and is something the US, would do well to emulate, given the global nature of capital flows that now persist and the competitive implications thereof upon countries seeking to attract investment.”

The full ARCADIS Global Infrastructure Investment Index report can be downloaded from ARCADIS.

 

The ARCADIS Global Infrastructure Investment Index ranks the world’s 41 most dynamic countries with the greatest potential for growth and investment in their economic infrastructure. Economic infrastructure comprises the infrastructure that makes business activity possible such as transportation, communication, distribution and energy assets. A total of 26 criteria in five key areas were analysed and given a weighting to create an overall score for each market. The indicators selected are those most pertinent to investors when making an investment in infrastructure. Most weighting goes to indicators of dynamism but the overall blend of indicators creates the final ranking
The five main indicators are:

  • Economy: GDP per capita, long term GDP growth, gross fixed capital formation, investment forecast, domestic market size, household consumption
  • Business: Ease of doing business, government regulations, transparency of policy making, prevalence of foreign ownership, legal framework efficiency, freedom from corruption
  • Risk: Political terror scale, political instability, inflation, strength of investor protection, cooperation in labour employer relations
  • Infrastructure: Quality of infrastructure, local supplier quality, ease of access to loans, global connectedness
  • Finance: Effect and extent of taxation, tax rate on profits, availability of financial services, financial credit rating, insurance

Data Sources: World Bank, World Economic Forum Global Competitiveness Index, Heritage Foundation, DHL, Economic Intelligence Unit, Business Monitor Index and Political Terror Scale (PTS)

About ARCADIS

ARCADIS is the leading global natural and built asset design and consultancy firm working in partnership with our clients to deliver exceptional and sustainable outcomes through the application of design, consultancy, engineering, project and management services. ARCADIS differentiates through its talented and passionate people and its unique combination of capabilities covering the whole asset life cycle, its deep market sector insights and its ability to integrate health & safety and sustainability into the design and delivery of solutions across the globe. We are 22,000 people that generate $3.4 billion in revenues. We support UN-Habitat with knowledge and expertise to improve the quality of life in rapidly growing cities around the world. Please visit: www.arcadis-us.com.

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