Brookings: US needs foreign capital to fund infrastructure

One of the US' oldest think tanks has released a report arguing the country needs sovereign wealth funds to invest in its infrastructure, but post-financial crisis ‘protectionist’ sentiments are hampering their ability to do so.

The US is damaging its long-term prospects for economic competitiveness by shutting out foreign investment in infrastructure, according to a report by the Brookings Institution, a long-standing Washington DC-based think tank.

The report, Rebuilding America: The Role of Foreign Capital and Global Public Investors, argues that the US is unwisely shutting out foreign sources of capital like Middle Eastern and Asian pensions and sovereign wealth funds from investing in its infrastructure. The authors of the report, which include managing directors at The Blackstone Group and Goldman Sachs, pin this on the US’ desire to control “strategic assets” as well as “protectionist sentiment” following the financial crisis.

US policymakers are concerned “whether American interests are threatened by foreign investment in key American institutions or essential infrastructure”, according to the report. They cite the failed attempt by DP World, a state-owned company in the United Arab Emirates, to buy six US ports as one example of such strategic and security concerns.

But sovereign wealth funds are typically not interested in making controlling investments like the DP World deal, the authors argue, and “minority investment agreements have proven both durable and mutually advantageous” to governments in need of capital as well as to foreign investors.  The report estimates the US currently spends less than 2 percent of its GDP on infrastructure, compared to 3 percent in the 1950s to 1970s.

Despite this, prospects for foreign investment worsened in recent years due to the financial crisis, which spurred “protectionist sentiment”, the authors argue. Such sentiment manifested itself in “buy American” provisions in the stimulus bill as well as limits on the number of visas that banks accepting bailout money could apply for.

Regulatory uncertainty could also pose a threat to foreign national investors. Without citing any names, the authors said “one of the most common concerns we observed was a lack of clarity among [global public investors] about the long-term regulatory and political environment in the United States”.

The authors of the report were Darrell West, director of governance studies at Brookings, Rick Kimball, managing director at Goldman Sachs, Raffiq Nathoo, senior managing director at Blackstone, Daniel Zwirn, former hedge fund manager, Vijaya Ramachandran, senior fellow at Center for Global Development, Gordon Goldstein, senior vice president at Silver Lake, and Joel Moser, partner at Bingham McCutchen.