The World Can't Build Enough Infrastructure To Keep Up With Investor Demand

The World Can't Build Enough Infrastructure To Keep Up With Investor Demand

September 2016


Chinese companies are building ports, financial centers, and free industrial zones across Eurasia, Belarus companies are building rail terminals in Poland, and investors from places like Abu Dhabi are building new city districts in places like Belgrade. Infrastructure development is booming worldwide, so much so that a peculiar conundrum has arisen: rather than a lack of available funding for infrastructure there is a lack of viable projects to invest in.

According to a recent study conducted by Global Infrastructure Hub (GI Hub) and EDHEC Infrastructure Institute-Singapore (EDHECinfra), which surveyed a group of 184 major infrastructure investors and advisers who have over $8 trillion of combined assets under management, 65% claimed to be looking to increase infrastructure investment over the next 3-5 years. However, where to make these investments is currently the question, as 92% of the surveyed participants expressed concerns that there simply is not enough attractive projects to invest in. This potential build up of “dry powder” means that money that could be going towards the building of infrastructure isn’t being adequately utilized.

RIO DE JANEIRO, BRAZIL – JULY 04: Construction continues on the cable-stayed bridge which will carry the new Metro Line 4 subway line into the Barra da Tijuca neighborhood on July 4, 2016 in Rio de Janeiro, Brazil. (Mario Tama/Getty Images)

However, this lack of options is pushing infrastructure investment into new frontiers. The surveyed group of investors mainly put their money in infrastructure projects in OECD countries, with just 20% investing in emerging markets, but without enough attractive projects in this realm to go around, this is a trend that may soon change. According to the GI Hub study, infrastructure investment in emerging markets is expected to increase 165% over the next 3-5 years, with an emphasis on Asia and parts of South America.

“The study revealed a strong response from investors that they expect to increase exposure to infrastructure in emerging markets,” Chris Heathcote, the CEO of the GI Hub, said. “As investors become more familiar with the asset class they will consider new markets and types of investments, particularly if the pipeline of investable opportunities in advanced economies does not keep pace with investor appetite.”

Statistically speaking, well-planned and implemented infrastructure development provides very promising returns for the countries which are actively engaging it. According to the IMF, for every $1 put into infrastructure $1.50 will be generated in GDP within four years, on average, with Heathcote adding that the returns can be up to $2.60 for best-practice projects. Creating quality infrastructure can create jobs, stimulate economic activity, and create long lasting productivity gains, which ultimately increases a country’s global competitiveness.

“Correctly chosen infrastructure projects create enough wealth to pay for themselves and more,” Heathcote said. “This virtuous cycle leads to greater wealth in a country and allows further spending in social benefits into the future. The ability for people to access electricity, water, and reduce their travel times is what ultimately boosts local economies and contributes to a stronger global economy.”

This article was written by Wade Shepard from Forbes and was legally licensed through the NewsCred publisher network.

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