Political risk worries investors in Australia

Appetite for infrastructure assets in the country has dipped by 24%, with only 70% of investors ‘highly likely’ to remain committed to the market.

Political risk, particularly uncertainty in the energy market, has become a significant concern for investors in Australia, according to fresh research by policy body Infrastructure Partnerships Australia and financial services group Perpetual.

The 2017 Australian Infrastructure Investment Report takes in the views of 26 domestic and international investors, including sovereign wealth funds, pensions, fund managers, developers, banks and insurance companies, which collectively own or manage more than A$220 billion ($172 billion; €145 billion) of infrastructure across the globe.

It pointed out that 70 percent of investors said they would remain “highly likely” to invest in Australia, although this reported intention has shrunk by 24 percentage points from 2016’s 94 percent.

Two-thirds of the participants were “not optimistic” about the country’s infrastructure policies. The research also highlighted “political risk” as a major concern for 62 percent of the respondents, followed by sovereign-type risks for 35 percent.

“Political interventions on projects and unpredictable rule changes see Australia now receiving the type of investor commentary that’s more usually associated with emerging economies,” commented Brendan Lyon, IPA chief executive.

He noted that appetite for south Australia has tumbled by 80 percent to just 4 percent, indicating that investors will “punish jurisdictions who act in poor faith”. This follows the state’s unprecedented attempts to dishonour and frustrate its health PPP contract in the face of a deterioration in public finances, as well as a “surprise” tax policy imposed on banks by the Commonwealth and the state.

He also felt worried that three-in-four investors are “badly spooked” by energy policy uncertainty amid an increasingly urgent demand for investments in electricity.

Despite the headwinds, the country remains an attractive investment destination for its improved visible project pipeline, as well as its overall infrastructure track record. The research found that roads remain the most attractive asset type, followed by renewable energy generation, water infrastructure and tunnels.