With disruption and uncertainty the status quo around the globe, offshoots of these forces such as the rise of populist governments, the call for greater transparency, and needed changes in investment models, pose enormous implications for the future of infrastructure, according to the 2017 Emerging Trends in Infrastructure report from KPMG International. The report spotlights 10 global trends, many of which underscore a drive for more responsible leadership, both from the public and private sectors, to improve approaches to funding, developing and operating infrastructure.
“Political agendas and social expectations are changing. Global, regional and national institutions are weakening. Power is shifting and technology is disrupting everything.” said James Stewart, KPMG’s Global Infrastructure Chairman and a partner with KPMG in the UK. “And infrastructure is at the center of this evolution.”
“The development and interaction of many of these trends could very well transform the way governments, business and users interact with and invest in infrastructure.” explained Stewart. “They may also help decision-makers and investors better understand the changes flowing through the sector and catalyze leadership on a global scale.”
1. The confluence of energy, transportation and technology will likely sharpen.
Over the coming year, the reports’ authors expect to see more responsible governments that will look for new ways to improve alignment and drive integrated planning across these three sectors. In some cases, this will require the establishment of new structures that encourage shared investment and planning across different government departments. In other cases, it may be driven by focused leadership and strong policy direction.
2. The populist agenda will likely disrupt infrastructure markets.
This shift towards populist agendas, underpinned by infrastructure, will likely lead to three key ‘sub’ trends. The first trend is that infrastructure budgets should increase. The second sub-trend is one of protectionism which prioritizes domestic players over international experience. 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.
3. Understanding consumer behavior will be key to infrastructure planning and management.
In 2017, KPMG expects governments to take a more ‘bottom-up’ approach to infrastructure planning and development, taking the time to understand the changing demands of both current users and future generations to help shape their infrastructure agendas. The report also suggests that governments take advantage of these changes to solve some of their larger infrastructure challenges by incentivizing the public.
4. Investors will begin to care about social and environmental impacts, not just financial returns.
Over the coming year, investors (public and private) are expected to make serious efforts to measure and communicate the real impact of their investments. In some cases, this will lead to difficult choices as plan managers and their beneficiaries gain greater awareness of their social and environmental footprint. It will also likely lead to growing competition for projects that are able to demonstrate these benefits.
5. Technology will enable greater infrastructure productivity and increases obsolescence risk.
This year, it is expected that infrastructure owners and operators will begin to focus on developing robust technology plans, balancing the need for competitive advantage against the desire to achieve quick returns on their investments. A select number of governments will move from being technology followers to technology leaders and using the advantage to better relate to their citizens and increase the efficiency of their infrastructure.
6. New investment approaches will seek to get more out of existing infrastructure.
In the developing world, the challenge continues to revolve around the need for basic infrastructure to improve capacity. In the mature markets, it is anticipated that infrastructure owners will focus on making smaller investments that, in turn, unlock improved performance, capacity, reliability and service delivery. Also, it is the expectation that governments – particularly at the city level – start to think about how they might incentivize behaviors that help better manage peak demand in various sectors.
7. Governments will look to unlock the funding paradigm.
A more strategic solution is required to fund infrastructure and KPMG believes that 2017 will bring renewed focus on asset ‘recycling’. To be successful with any alternative funding solution, governments will need to be clear with their populations about how the proceeds will be used.
8. Credit enhancement facilities may go back to basics.
Governments will need to think more about the broad benefits that infrastructure delivers rather than focusing purely on closing a financial deal. They need to recognize the need to take on more risk at the early stages of their infrastructure program knowing that – as they mature – they will be able to pass these risks back to investors or sell out completely. And that they have a role to play in establishing markets, recognizing the additional risk they take on will be far outweighed by the benefits that new infrastructure brings, particularly in emerging economies.
9. The search for yield is expected to drive convergence in the investment market.
Over the coming year, the lines between different types of investors start to blur as the search for yield continues. Some infrastructure teams will make the transition successfully by building up skills and becoming more sophisticated while entering new markets or bringing new projects into scope. The risk, however, is that some may move too quickly and, in doing so, take on risks that they do not fully understand with unexpected results.
10. The globalization of infrastructure will continue.
This year the report also suggests that infrastructure players will pick up steam in expanding their global capabilities and transcending national borders. But also, the report’s authors suggest there will be forces acting against globalization: rising protectionism and nationalist agendas; shifting social preferences; increasing focus on ‘localization’; disruptive trade negotiations and other uncertainties that may dampen enthusiasm for globalization.
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Over the past 5 years, KPMG International’s Global Infrastructure leadership team has tracked the key trends that – in their opinion – will influence the world of infrastructure over the coming years. Each year, the Global Infrastructure team hopes this report’s insights serve to not only highlight major trends but also help infrastructure players see some of the less obvious long-term changes affecting our sector.
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The views and opinions expressed herein are the personal opinions of the interviewees and authors based on their personal experience working as Auditors in the industry and do not necessarily represent the views or opinions of KPMG International or any KPMG member firm.