Two years ago, we predicted that governments would move to unclog the pipeline. Last year, we noted a trend towards greater government intervention in infrastructure markets. Yet, with the impact of these actions proving largely ineffectual, we expect (and hope for) 2016 to see governments move a step further by focusing on getting projects out the door rather than trying to perfect the risk balance.
The reality is that many governments are starting to recognize that – by striving to take a minimalist approach to risk or to achieve structural and contractual ‘perfection’ – they have in fact been missing the point and, in doing so, have been making projects more complicated, less attractive to investors and slower to take to market. Simply put, they have been putting too much focus on being clever rather than reaping the larger rewards (such as economic and social prosperity).
We believe that 2016 will see governments start to take stronger action to unclog the pipelines by taking the steps required to get the private markets going. Government leaders will recognize that – in many cases – establishing markets and getting projects delivered (and realizing the long-term economic and social benefits thereof) is more important than minimizing risk or perfecting other variables.
Somewhat tellingly, it has been the developed economies that have most often tended towards interventionist activities and these markets are driving procurement innovation. But over the coming year, we expect to see many developing markets start to follow in their footsteps to catalyze investment. Indeed, should this trend unfold as hoped, we could start to see a repeat of the activity catalyzed 25 years ago in certain Latin American markets which, for example, led to Chile’s highly-successful toll road concession program in the late 1990s and early 2000s.
Essentially, governments are starting to recognize that it is the public sector that needs to energize projects and that, to date, they have relied far too much on the private sector to achieve their economic, social and environmental objectives. The reality is that the private sector is looking for commercial returns, whereas government is seeking to achieve long-term economic benefits and other national objectives. As such, we expect to see governments start to become more active in influencing and catalyzing their infrastructure markets.