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About Infrastructure Investment

Infrastructure spans all of the physical assets, services and facilities that help societies develop and grow. Examples of infrastructure include roads, railways, airports, power generators, telecommunications, utilities, schools and hospitals.

Modern infrastructure keeps cities moving, lights on, homes warm, children educated, populations healthy and rural communities connected. It’s crucial to quality of life as well as to successful economic development.

“Institutional investors and banks have $120 trillion in assets that could “partially support infrastructure projects”, with 87% of these funds originating from advanced economies.”

The Scale of Investment Needed

Worldwide investment in infrastructure needs to average $3.3 trillion a year to support global economic growth aspirations and provide citizens with essential services. In terms of sector areas going forward, $5.1 trillion will need to be invested in rail, $7.5 trillion in water and $11.4 trillion in roads between 2016-2030 in order to keep pace with projected growth.

However, if the current trajectory of underinvestment continues the world will fall short by 11% or $350 billion a year and infrastructure investment has actually declined as a share of GDP in 11 of the G20 countries since the global market crisis.

Source: MCKINSEY GLOBAL INSTITUTE – ‘BRIDGING GLOBAL INFRASTRUCTURE GAPS’

“$1 in aggregate public infrastructure spending leads to $3.21 in economic output (GDP) over a twenty-year period. ”

The Economic Impact and Financing of Infrastructure Spending
Cohen et al., 2012

Role of Private Investors

The primary private investors in the infrastructure sector are pension funds, life insurers, sovereign wealth funds and other funds acting on behalf of these investors.

Private investors typically work with governments by contributing funds to build and manage infrastructure. There are a number of ways in which this can happen. Infrastructure can be built by governments and subsequently privatised, or built from the ground up using private money, or developed through hybrid arrangements such as public-private partnerships and private finance initiatives.

The infrastructure sector is attractive to investors who are looking for long-term investments with a reliable return profile.   It can provide a steady income stream lasting years into the future, perhaps through track access charges, rail fares or through utility bills.

In addition to funding, private investors can bring development experience and management expertise to help improve the performance of their asset and the benefit it brings to users and society.

 

Benefits of Private Investment

Private-sector specialists bring skills and experience at running infrastructure which often delivers more efficient performance, ultimately benefiting the users and the public.

The involvement of private financing also averts excessive pressure on government balance sheets, allowing more infrastructure to be built and modernised without overstretching public finances.

Infrastructure investment leads to the development, maintenance and provision of essential services. It plays a key role in generating economic growth and building prosperous societies, helping governments support the needs of a rapidly changing world.

It creates jobs and develops skills across all levels of the workforce and it can catalyse economic growth through supply chains. In the UK, for example, every 90p in £1 spent on construction projects, stays in the local economy*.

*Source: CBI “Locally grown: Unlocking business potential through regeneration”