Private investment vital to improve infrastructure

Private investment vital to improve public infrastructure

Global competition for private capital to fund roads, bridges, water projects and other public properties to heat up over next decade predicts Ernst & Young report

A report released today, Investing in Global Infrastructure 2007: An Emerging Asset Class, by Ernst & Young’s Global Real Estate Centre, predicts greater and more sophisticated private involvement in infrastructure projects around the world.

“There are lessons for New Zealand decision makers in the experiences of other countries looking for solutions to infrastructure funding issues” says New Zealand’s Ernst & Young Director, Iain Blakeley

“Governments are struggling to fund much needed infrastructure improvement projects from public money and are looking more and more to enlist the help of private investment.

“The New Zealand Government is continuing with extensive programmes to improve transport and other infrastrucure assets around the country. In his 2007 Budget address Dr Cullen highlighted the significant increases in Government spending on transport initiatives that have occurred since the nineties.

“The question is, can work to eliminate New Zealand's infrastructure deficit continue to be funded exclusively by Government operating surpluses and specific measures such as regional fuel taxes and user charges? If the experience of other countries is anything to go by the answer is; No! Other solutions have to be found” Iain continues.

“Australia, the UK and Canada have already adopted public/private partnership models. In the USA, Brazil, China, India and Russia investment in much needed infrastructure projects is predicted to balloon and private capital is likely to be part of the solution. There is no doubt the experiences of those countries will greatly assist the development of our own solutions to these issues.” Iain concludes.

Key points of the report include:

• The huge capital demands of large-scale infrastructure projects around the world – running into the US$ trillions over the next decade – will likely create intense competition among governments to attract private investment. The report estimates private sources could account for 10% to 15% (US$240 billion to US$360 billion) of the capital needed for infrastructure projects annually worldwide.
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• Governments with the political will and a coordinated approach to building and preserving key infrastructure will attract the most attention from private investors and be offered the best terms, according to the report.
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• In the United States the American Society of Civil Engineers (ASCE) estimated in their 2005 Infrastructure Report Card that US$1.6 trillion needs to be spent over a five-year period just to bring the nation’s infrastructure up to ‘good’ condition.
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• In Australia, the average cost of toll road construction has doubled in the past few years from US$427 million (A$500 million) to US$854 million (A$1 billion) per road project.
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• In Brazil, public funding of infrastructure has been severely constrained by the fact that the country already has a huge national debt running roughly 50 percent of Gross Domestic Product (GDP).
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• In China, the government is investing state funds heavily in infrastructure development but is also inviting foreign investors and their advanced technologies to take part in toll road, water supply, and renewable energy projects.
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The report is available at www.ey.com/infrastructure

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