Bridging the Global Infrastructure Gap
Government Urged to Launch Infrastructure Revolution

Aprilie 2009

DANIELA NEMOIANU ISTOCESCU - Advisory Partner KPMG ROMÂNIA S.R.L.

The world’s pressing need for infrastructure improvements and investment still looms large on many national government’s agenda, representing a problem which is not about to disappear just because cash is harder to come by. When considering the scale of the infrastructure challenge which the world faces, some of the figures which are readily bandied around in the media are simply frightening. Taking into account the ‘lifecritical’ infrastructure projects – energy, water, transport etc – which the world’s population needs delivered, current OECD estimates suggest that this equates to USD 30-40 trillion of investment between now and 2030. That is a huge number, making even the U.S. government’s USD 700 billion bail-out of the financial services sector look like small change. Numbers like these look even bigger in today’s economically constrained times, making it tempting to think that infrastructure improvement programmes will now inevitably grind to a halt – but this will not be the case.

For a start, many of these projects are not exactly “nice-tohaves”. They are projects which are essential to life itself, which national governments simply cannot afford to put to one side, pending a return to happier economic times. The constraints on public sector funding remain though and are exacerbated around the world by the various commitments to bail-out packages that governments have put together for other purposes. This is why we could now see up an upswing in the number of infrastructure projects being delivered by Public-Private Partnerships (PPP), tapping into private sector funds and resources to deliver public infrastructure amenities.

While not wholly unaffected by the credit crisis, many large infrastructure funds are currently sitting on large piles of cash, raised before the credit crisis hit. In terms of investment opportunities, the M&A market is pretty much closed to them with deal activity having slowed to a trickle, leaving these leviathan funds sidelined, kicking their heels in frustration. Whatever happens, private and public sector alike should consider exactly what impact the credit crisis has had on the infrastructure market and how it may come to affect the traditional PPP model. Then they need to better understand how they can work together, leaving some of the politicking and arguing behind.

Tackling the infrastructure investment challenge would be far harder if there was no money out there. The people in charge of the funds’ purse-strings will need to be persuaded that governments are serious about using PPP to deliver these projects. Leveraging the limited public money available through accessing private funds will have the maximum input on infrastructure worldwide.

Hopefully, the current slowdown in the M&A market will not last forever. When it does begin to awake from its slumbers, infrastructure could be one of the first sectors to benefit as – to many investors – it perhaps represents the ultimate safe, physical investment. At that point though, the focus of those large investment funds could inevitably swing back to more traditional, transaction-based activity. This means that national governments arguably have a limited window of opportunity in which to convince those funds to step off the sidelines and into the fray.

Romania risks falling behind in the global race to develop efficient and sustainable economic infrastructure and the nation’s future economic growth depends on the success of a rapid and coordinated national approach to the revitalization of Romanian infrastructure.

The credit crunch and growing global infrastructure demand mean Romania now faces even greater competition for the finance and resources we need to complete our most pressing projects. Unless we can fund these infrastructure projects, we face the prospect of an increasingly stagnant economy and attendant increases in the level of unemployment.

The direct link between infrastructure and investment was borne out in a global KPMG study – released earlier this year – of more than 300 chief executives and other senior business executives around the world. The KPMG survey, Bridging the Global Infrastructure Gap, was conducted by the Economist Intelligence Unit during late November and December 2008 with 328 global executives and was published at the end of January 2009.

 

Summary findings

The current investment in infrastructure is seen as inadequate to support business growth

• Business leaders expressed concern with current levels of infrastructure investment – more than three quarters – 77% – globally responded that current infrastructure investment is not adequate to support the long term growth of their businesses.

 

Not surprisingly, concern was most acute in Eastern Europe, where 89% are concerned about investment in infrastructure, followed by Asia-Pacific where 84% express concern, the Middle East/Africa region was next, with 80% expressing concern, and Latin America with 77% expressing concern. Notably, the US, with 74% also demonstrates a high level of concern that infrastructure investment is not sufficient to support business growth. The perception of infrastructure investment is somewhat less of an issue in Western Europe, but even there 64% are concerned with the current level of investment.

• Infrastructure impacts where businesses locate and expand – a consistently high percentage of business leaders globally – 90% say the availability and quality of infrastructure affects where they locate and expand their businesses.

Virtually all in Asia-Pacific, 97%, say infrastructure impacts where they locate and expand their businesses. More than 90% of respondents in Eastern Europe and Middle East/Africa agree that infrastructure impacts where they do business.

The US and Western Europe are also at a high level, with 84% and 84% respectively saying infrastructure impacts where they do business. The importance of infrastructure is growing, the vast majority of respondents - 80% - say that infrastructure will be more important to their businesses in five years.

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