Infrastructure Overview | EY
China has become the largest investor in infrastructure, spending the equivalent of 8.5% of its annual GDP3
on ambitious projects, such
as high speed rail, highways and airports. While Brazil has projects planned with a value of more than $240 billion. Gone are the days, though, when “emerging markets” referred only to the BRIC countries – Brazil, Russia, India and China. Now large parts of the Middle East, Africa, Latin America and Southeast Asia are experiencing rapid growth, as abundant natural resources and cheap labour provide advantages in the global economic race. The MINT countries – Mexico,
Indonesia, Nigeria and Turkey – are now beginning to prevail as challengers in global trade and influence. Mexico is planning a wide array of projects totaling $316 billion between 2013 and 2018.4 Nigeria continues to pump its oil wealth into production, refining and export facilities and is a major trade partner of the UK, due to its strong cultural ties. Association of South East Asian Nations (ASEAN) is investing heavily in road, rail, air and seaport facilities, with Indonesia identifying a future infrastructure deficit worth $150 billion5
and
calling out for European investors to provide some of the capital required. Turkey has big plans to expand its airport, health and energy infrastructure. Its position straddling between Europe and Asia also affords Turkey the opportunity to become a regional trade hub to leverage its strong historical and cultural links to its energy rich neighbours in the Middle East and Central Asia. These regions themselves are seeing cultural infrastructure projects funded by oil and gas wealth, with Azerbaijan hosting a number of major sports events and Abu Dhabi investing in eye-catching museums at Saadiyat Island.
Developed but still investing While emerging markets steal the
headlines for flagship infrastructure projects, much of the developed world is coming to terms with austerity and planning routes to future sustainable growth. The US is pumping $350 billion into its water infrastructure, while the UK is seeking to upgrade its fragile
global-opportunity.co.uk
rail network. Australia plans to spend £13 billion expanding and upgrading its road network, New Zealand will spend £20 billion rebuilding Christchurch following the earthquake of 2011, and western European countries are seeking to expand their transport networks.
Financing challenges and opportunities
While plans are certainly ambitious, the recent financial crisis and economic downturn has led to caution among policy-makers who must weigh up the benefits of vote- winning, job-creating investment opportunities with a less palatable need for tighter fiscal responsibility. Public Private Partnerships (PPP), when well-implemented, can be an effective method for ensuring greater delivery efficiency, but such deals usually involve a risk sharing, milestone-based agreement. PPPs will become increasingly important in funding and delivering the world’s infrastructure investment drive, but attention should be paid to procurement and contracting strategies to ensure that delivery disciplines are sustained through the project lifecycle. Although global credit markets are opening up and investors’ risk appetite is returning, there will still be challenges in gaining the necessary capital to fund the myriad
MALCOLM BAIRSTOW
l Malcolm Bairstow leads EY’s global Capital & Infrastructure Practice
which advises governments and corporate clients on all aspects of major capital programmes. He is currently leading advisory teams in the UK and across EMEIA. Recent clients have included the Olympic Delivery Authority, Network Rail, the BBC, Transport for Greater Manchester, Glasgow 2014 and a number of international organisations. A Chartered Civil Engineer, Malcolm is on the Board of British Expertise and the Advisory Board of ACE.
infrastructure projects planned around the world. Risks have been caused by macroeconomic shocks, political instability in the EU and the Middle East and worries over US budget responsibility. While infrastructure and project finance markets are still fragile amid the roll-out of Basel III, equity funds will be able to meet much of the funding demand, as pension funds and sovereign wealth funds seek diversified, long term, low-risk returns provided by infrastructure. Meanwhile, China will continue to finance projects both domestically and overseas, partly to increase demand for its own construction materials and labour.
Opportunity for UK businesses UKTI’s High Value Opportunity
programme is an important initiative to grow demand for a skilled and knowledgeable workforce, and provides private companies in the UK with early intelligence on upcoming international infrastructure deals and access to decision-makers and industry specialists. The first stage of winning business overseas is awareness, and the publication of “Global Opportunity” is an initial step on what promises to be a long and profitable journey. EY is committed to growing its
presence in the global infrastructure sector with an integrated network of teams advising on the funding, financing, inception and delivery of major investment programmes around the world in both developed and emerging markets. As part of this commitment, our UK firm is keen to support British businesses involved in the design and delivery of international infrastructure and capital programmes.
GO 1 McKinsey Global Institute, Infrastructure
Productivity: How to Save $1 Trillion a Year, 2013 2
Revision, 2012 3
UN, World Population Prospects: the 2012 IHS Global Insight, 2012
4 Wall Street Journal,
http://online.wsj.com/
Reuters,
http://in.reuters.com/article/ 2013/03/28/southeastasia-infrastructure-idIN- DEE92R01V20130328, 2013
article/
BT-CO-20130715-709800.html, 2013 5
FURTHER INFORMATION Maximilian Harris
mharris3@uk.ey.com Tel: +44 (0) 20 7951 7010
ISSUE 01 | GLOBAL OPPORTUNITY 2014 67
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