European infra cutbacks threaten industry, says report

Financial services firm Deloitte has issued a stark warning on the dangers of stalling infrastructure investments across Europe, as the continent seeks to cut public spending in response to pressure from international investors.

“At the current rate, there is a real danger that the wider industry surrounding infrastructure development will shrink considerably,” warns Michael Flynn, head of Deloitte’s specialised finance practice in Ireland.

Deloitte says in a statement that its “infrastructure experts […] are reporting that investment in infrastructure is being stalled and rationalised across Europe as governments across the region seek to reduce public spending”.

The firm is seeing increasing evidence that “all committed spending is coming under a significant level of review [and] that investment in planned infrastructure projects that has not been committed to may be cancelled indefinitely,” Deloitte warns.

Doing so could pose a long-term threat to economic growth, says Nick Prior, head of government and infrastructure at Deloitte UK: “There is a real risk that governments will cut projects simply where it is easier to do so rather than focusing on making cuts where the economic benefits are less clear.”

Flynn adds that infrastructure is an easy target for European governments, “as it doesn’t involve cuts to frontline services and isn’t immediately visible to the electorate”. But he cautions that “the knock on economic effects over the next three to five years could be considerable [and have] a tangible effect [on] economic growth”.

Recently, Spain’s transport ministry announced it would cut €6.4 billion from its budget, delaying projects including several of the country’s high-speed rail (HSR) tranches. Neighbouring Portugal also targeted infrastructure in recently announced cuts, postponing Lisbon’s new €5 billion airport and several portions of what was once estimated to be an €8.5 billion HSR network – both procured as public-private partnerships (PPPs).

In the UK, as many as seven project finance initiative (PFI) projects – the UK’s standardised process for tendering public works to the private sector – are said to have been put on hold as the new coalition government conducts a spending review.

New Chancellor George Osborne warned on the campaign trail that PFI would stop being taken for granted as the default procurement process for public works, with new projects having to demonstrate clear value for money and tighter risk transferral to the private sector.