China has been spending heavily on infrastructure over the last few years; India is also making significant investment. To help navigate the renewed infrastructure investment environment, KPMG's global infrastructure leaders have identified the following 6 key trends as likely to shape the way that infrastructure is delivered around the world over the next 5 years.
"A recent HSBC report identified that emerging Asia alone is likely to need US$11 trillion in basic infrastructure investment between now and 20301."
– Paul Foxlee
With the emergence of direct pension investors and dedicated infrastructure funds, infrastructure ownership is now diversifying as long-term buy-and-hold investors build market share alongside infrastructure funds, traditional owners and short-focused private equity investors. Government regulators will be challenged to stay ahead of such a diverse set of owners. These new owners also want to be more active in their portfolio of investments. This should lead to better maintenance and utilisation as long-term investors seek to maximise the useable lifespan of a project.
The affordability of infrastructure continues to be a major issue and public authorities around the globe are looking for creative ways to sustainably pass the cost of infrastructure to those who will directly benefit the most. In Toronto, a provincial government-appointed industry panel supported by the private sector has recommended raising local gasoline and corporate tax rates to fund congestion-reducing transit improvements.1 This is similar to the structure in place for London's Crossrail in the United Kingdom, where ongoing work on Europe's largest construction project is funded in part by a business rate supplement and community infrastructure levy.
There is a renewed recognition of the role of cities in driving national economic activity, reflected in the infrastructure development agenda for many regional and even, national governments. The debate is shifting from the fashionable concept of smart cities driven by technology to sound planning practice with viable housing and employment opportunities woven into the urban fabric. There is an integrated discussion around creating effective and efficient urban environments and placing sustainability, strong transportation links and improved quality of life at the core of the conversation.
One area that will require significant attention over the next few years will be the development of new infrastructure models to better recognise long-term objectives and lifecycle value. Unfortunately new funding models have been slow to develop and the institutional debt market has made less progress than anticipated. But new models must emerge if deal flow increases as expected and capacity in the financial markets come under significant pressure.
Every nation's published pipeline includes a high proportion of projects stuck in the development and approval stages. However, some progress is being made as multilaterals and other public sector finance institutions increase their support. The Asian Development Bank, for example, has completely changed its engagement model to focus more on assistance during the development stage of a project.
With the slow economic recovery, governments are finding it difficult to garner support for subsidised cleaner energy, so coal remains a significant part of new generation. Specifically in North America, shale gas continues to alter new generation developments. Governments from the United Arab Emirates to the United Kingdom continue to pursue nuclear energy, and large-scale hydro remains attractive wherever power demand and unexploited resource coexist. In the short to medium term, energy investment decisions are forecast to be driven by lowest cost.
INSIGHT: Population, a special report on the Asia Pacific's infrastructure market region, discusses some of the biggest challenges and opportunities emerging in the region as part of the publication's focus on linkages between shifting demographics and infrastructure.