At the start of 2016, we predicted that political and social uncertainty would rise. Having witnessed Brexit, the recent US election results, the fallout of the Operation Carwash scandal in Brazil and countless other ‘unexpected’ events, it seems we (like many), may have understated the impact.
What is clear is that the underlying current has shifted towards more populist agendas. And that has pushed infrastructure onto center stage as a form of policy mitigation. Donald Trump is not the only politician to have offered voters a ‘path to greatness’ through infrastructure renewal; governments from Colombia to Canada are also staking their reputations on infrastructure. In many markets, infrastructure is being discussed in the same way it was during the Great Depression. And in Asia, it is being lauded as the path to sustainable prosperity. China has long viewed infrastructure as a panacea to social upheaval (as evidenced by the One Belt One Road project); Vietnam and Myanmar are starting to follow in the same footsteps.
This shift towards populist agendas underpinned by infrastructure will lead to three key ‘sub’ trends. The first is obvious: infrastructure budgets should swell. However, we expect many projects will be funded on a taxpayer-pay basis and, as a result, it seems almost certain that public deficits will rise.
The second sub-trend is one of protectionism. One can assume that part of the draw of infrastructure is the potential to create local jobs. For various reasons it is unlikely that the US will want to rely on foreign workers and developers as they strive to ‘make America great again’. From concerns about loss of control and national security through to impacts on local labor and consumer protection, various ‘reasons’ will be offered for closing borders to international players. In most markets, the chances of a regulatory ‘sideswipe’ that harms international developers and operators will rise.
The third sub-trend will be a shift in infrastructure priorities, not only towards more popular assets and ‘people first’ projects, but also towards new technologies and models that speed up infrastructure delivery. Indeed, the infrastructure investment playing field will likely become flatter as developing and developed markets gain simultaneous access to new technologies.
Consider, for example, how advances in solar technology has allowed governments in Africa to stop worrying about (and investing into) massive power grids and generating sets. Mobile telephone technology has eliminated the need for fixed lines in many markets. We expect technology to continue to play a significant role as governments, at all levels and in all markets, strive to respond to more populist demands and deal with social inequality.
Care will need to be taken to ensure that protectionist ideals do not diminish the value that international experience, ideas and capabilities can offer. In fact, at its ugliest, protectionism only increases the cost of infrastructure delivery and results in lower-quality assets as international competition and best practices are driven out of the market.
Those with national infrastructure strategies that focus on industrial competitiveness will sow the seeds of durable growth in national income and, in doing so, will support enhanced quality of life for their citizens.
Governments will continue to put ‘people first’ projects at the top of the agenda, thereby allowing social equality and other issues to influence infrastructure planning and shift priorities.
For governments and international developers, contractors and operators, the long-term challenge will be to articulate a much clearer story about the value they plan to deliver while seeking to allay local concerns.