Changes, but not (yet) at the top

 

Given just a little more time before going to press, it was quite feasible that the outcome would have been different. But, given what we knew at the time, Australia – for the second year running – was selected by Infrastructure Investor as the hottest infrastructure investment market in the world.

What we already knew was that the apparently serene progress of Australian deal flow – which had delivered on a certain amount of its promise, but with plenty more expected to follow – had begun to stutter. The predicted A$100 billion (€72 billion; $76 billion) privatisation wave looked significantly less secure as Queensland elected a new government which took tens of billions in anticipated deals off the table.

What we didn’t know was the outcome of the imminent election in New South Wales, where hanging in the balance was the state’s intended 99-year lease of electricity ‘poles and wires’ assets. At the time of going to press, the polls seemed to indicate that incumbent Premier Mike Baird – chief cheerleader of the poles and wires plan – had a significant lead over the opposition.

PLAN WITHOUT FANS

However, while Baird himself is popular, the plan is not – some 58 percent of voters said the assets should stay in government hands while only 20 percent thought they should transfer to the private sector. Moreover, the opposition Labor Party’s victory in Queensland came in spite of polls pointing to a victory for the incumbent Liberal National Party. Therefore, nothing can be taken for granted.

So, it’s possible a changing of the guard may be taking place. Were Australia’s grand plans to continue crumbling, investors would be expected to pack their bags and book a flight to wherever the next big opportunity is perceived to be. For now, those investors will stay put to see what transpires in a country that – for all the nervousness around current political developments – deservedly retains its position at the head of the pack.

If those outbound flights do ever get booked, where would be the likely destination? Perhaps Mexico, which keeps the number two position it was awarded last year. The country’s lofty status reflects the likely impact of its energy reforms which effectively seek to pass much of the responsibility for oil production from the public sector to the private sector. This is likely to trigger all manner of energy investment opportunities, including for those operating in the midstream infrastructure space.

Here, too, there are concerns – not least the government’s admission that some projects could be delayed as a result of the declining oil price. But while the reforms may suffer the occasional setback, it is highly unlikely that they will be completely derailed. Investors are surely right to remain highly enthused by Mexico’s prospects.

So where are the changes from last year, you may be wondering at this point? Outside the top two, there are some significant developments. Brazil’s $121 billion logistics programme helped the Latin American giant to number five in last year’s ranking. This time it disappears from the top ten completely. Delays and cost overruns for key projects, fiscal pressures and stifling bureaucracy have all played their part in Brazil struggling to live up to investor expectations.

Taking a tumble from third place to sixth is the Philippines, which was generating a buzz this time last year as Asia’s standard-bearing public-private partnership (PPP) centre with strong deal flow promised. While hopes remain high and deals are indeed coming through the pipeline, there have been bumps in the road with bidding processes seeing disqualifications, controversies and reruns. Perhaps it was inevitable that a little realism would set in once the Philippines model got some proper road testing.

Meanwhile, Europe – completely absent from last year’s ranking – this time has three representatives, albeit occupying the last few places. The Netherlands has put together a much-praised PPP pipeline, the promise of the UK – while much of it remains promise rather than confirmed reality – is too large to ignore, and Turkey appears ready to deliver on its huge potential as the international investment community begins to get a look-in.

Of course, arriving at a top ten means making some agonisingly tough judgement calls and it would not be surprising if our readers, in the same position, would opt for some different choices. In Latin America, Peru and Chile make a strong case; in Asia, Japan continues to draw attention to its renewable energy market and India moves steadily towards a better place; in Europe, it’s hard to ignore the Nordic markets, particularly given the multi-billion Fortum Sweden deal which closed just before press time. But ultimately, decisions had to be made.

One last thing: A reminder of a point we made last year that we are not associating ‘hot’ markets with overheating/intense competition/unsustainable valuations. Any or all of these characteristics may be present in our chosen markets but they have been chosen simply because of their perceived attractiveness to private capital.

On the articles that follow, you will find more detailed analysis of our top ten.