![The politics of infrastructure](https://www.benefitscanada.com/wp-content/uploads/sites/7/2010/12/infrastructure-bridge-blue-sky-e1479152743593.jpg)
The politics that naturally accompany infrastructure projects are a major headache for the private half of public/private partnerships (P3s), resulting in cumbersome decision-making and slow implementation, according to a KPMG International survey. However, the asset class is nevertheless expected to grow in popularity with institutional investors.
KPMG’s global survey of more than 455 infrastructure executives globally—including 129 from North America—conducted in co-operation with the Economist Intelligence Unit, found growing concern about the future of infrastructure investing.
According to Stephen Beatty, a partner with KPMG Canada and Americas Leader for KPMG’s Global Infrastructure practice, there is anywhere from a $1 trillion to $3 trillion need for infrastructure investment over the next five to 10 years for North America alone.
The need for infrastructure is well recognized within the industry. It’s a fast-growing asset class among institutional investors looking to create projects that will create relatively predictable long-term returns on capital.
The survey found that despite a wave of stimulus spending, infrastructure remains a neglected expenditure. Seventy-two per cent are very or somewhat concerned that current infrastructure spending is insufficient for the long-run health of their companies.
By far the biggest impediment viewed by respondents was the lack of effectiveness of government partners in infrastructure financing at 69%. Sixty percent of respondents say the current economic conditions are impeding infrastructure investment and while another 60% noted that restricted availability of financing is making investment more difficult.
Government partnerships are vital for projects to get underway. But with government money come political headaches and a relatively lengthy process from the announcement of a project to the deployment of that capital.
Nearly of half of all respondents (42%) said that government’s natural politicization of projects was an impediment to infrastructure priorities. More than half (51%) of respondents said that government bureaucracy was the largest contributor to government ineffectiveness.
More than a third (36%) of North American infrastructure providers indicated the politicization of infrastructure project priorities as their biggest government headache. Thirty-one percent and 30% noted a lack of sense of urgency and frequent changes in public policy, respectively, as other major hurdles.
“The infrastructure process will never be completely depoliticized and nor should it be—it is an emotive topic involving large amounts of taxpayers’ money,” Beatty says. “However, the private sector providers are quite clear on how they believe certain aspects of the political process are slowing or preventing the delivery of much-needed infrastructure improvements.”
According to Beatty, there is a clear consensus in North America that private partners—particularly large pension plans and infrastructure investment firms—will take on an increasingly larger burden of the financing of infrastructure. Often this will still require government partnerships, so called public/private partnerships.
“There is significant appetite for infrastructure investment. At a recent gathering at Stanford University which brought together both large Canadian and American pension plans, as well as project sponsors, there was very clear agreement that the private sector could play a larger role in funding infrastructure investment,” Beatty says.
In Beatty’s view, the success of these partnerships is usually determined by clearly defined goals for each partner.
“Much of the money comes from a government loan, payment of user fees or taxes. The split between financing whether it’s done between a public or private really depends on how the market evolves in the next few years. The respondents in the survey wanted to see private sector involvement and increased partnering with the public sector so they could deliver more,” he says. “The partnerships that are successful are the ones that have a true sense of partnership between the public and private sector. There is an acknowledgement of the joint responsibility for success or failure. That’s not a partnership in the legal sense, but a partnership in how they deal with performance obligations.”
Beatty also says there needs to be a greater awareness about the need for infrastructure investment, particularly on the government side of funding.
“People talk about infrastructure a lot, and we talk about these things in trillion dollar terms, but I’m not sure if there is a [generally recognized] need to make these investments, which are so important for the long term competitiveness, of cities, regions and even countries,” he says. “National competitiveness is what’s at stake and substantive actions are required, not more talk.”