Infrastructure is the buzzword of the moment. It’s the political football du jour, intrinsically linked to the growth versus austerity debate. The government has a wish list of projects over 570 items long, with 40 of these deemed as “nationally significant”. Efforts have been made to help stalled schemes raise finance and attract investment. But despite the initiatives and despite the rhetoric, too few successes are visible. In fact, the UK is slipping down the international league table as funds increasingly view markets in the Gulf region and Asia as safer bets. But why is this the case? And what can be done to shift perceptions so that the UK is seen as a place of reward and return?
Although infrastructure is an increasingly attractive asset class to global investors, and although the UK desperately needs private investment to transform its ageing infrastructure base, it is not attracting a big enough slice of the investment pie. A recent EC Harris study into the attractiveness of different countries as locations for infrastructure investment illuminates the issue. Our Infrastructure Investment Index ranked 40 countries against 24 criteria and placed the UK in 13th position overall. The report found that whilst the UK would always remain of interest to investors, it is deemed a riskier place to invest in infrastructure schemes than markets such as Singapore, Qatar, and Chile where a clear vision and long-term, economically viable strategies have attracted investment from global players (see Fig. 1).
Fig. 1 EC Harris’s Infrastructure Investment Index ranks 40 countries according to how attractive they are as infrastructure investment locations
Let’s take Singapore and Qatar for instance. Ranked in first and second position in the Index, Singapore and Qatar are both asset rich and cash rich as opposed to the UK, which is asset rich but cash poor. Singapore’s success as the number one investment location stems from a number of factors: its historic role as a trading nation, its investment in human capital and its commitment to innovation. Underpinning all of this – and key to Singapore’s poll position – is a clear national vision, with a robust government working in partnership with international partners to develop long-term strategic goals.
Qatar, in second place on the Index, invested $100 billion in a long-term infrastructure programme, due to be implemented by 2022. By managing appropriate strategies to mitigate risks involved with the logistics of importing materials, the country’s growth prospects for infrastructure are strong. Again, what is striking about the Qatari approach is its clear vision – primarily achieved through transparency in both government policy-making and legal frameworks for settling disputes. This vision is key in determining attractiveness to investors (see Fig. 2).
Fig. 2: The infrastructure investment lifecycle indicates the trajectory of attractiveness for investment
In our analysis of what determines a country’s attractiveness as an investment location, three clear reasons emerge from the study for the UK’s less than stellar position in the table: a lack of political leadership; high levels of regulation; and the controlled planning and approval processes – all of which provide uncertainty in investment returns and have, therefore, resulted in important infrastructure projects being delayed or even scrapped.
The government set a target of investing around $450 billion into the UK’s infrastructure by 2020 but between this political intent and the economic reality, exists a significant gap. As an asset class the main attraction of infrastructure is the long-term, predictable return it can offer investors. However, to secure upfront capital, there needs to be a commitment to sustaining long-term policy levers that will make these schemes bankable. Sadly this type of political consensus is all too lacking. Public squabbling over the Energy Bill and the on-going paralysis around expanding Heathrow are just two examples of how weak leadership and a lack of clear vision is threatening to undermine the UK’s future competitiveness.
The complexity of UK regulation adds further delay and cost to infrastructure projects, hindering developments. Exasperating the problem is the fact that the planning, development and implementation of infrastructure is disjointed, expensive, and slow. The overly restrictive regulatory requirements and burdensome bureaucratic controls add further delay and cost. The planning process is encumbering progress and without strong leadership and a clear vision, investors will continue to look at other markets with fewer barriers to entry. Without change, the UK will slip further down the rankings. It’s time for a radical approach.
Attempts have and are already being made to address the UK’s infrastructure investment deficit with initiatives such as the Infrastructure Planning Commission (IPC) and Infrastructure UK (IUK). However they are relatively recent and, even in this short time span, successive governments have had different views as to how infrastructure should be addressed and a clear vision has not been aligned. As a consequence, none of the measures have been in place for a sufficient length of time to properly judge their efficacy. It is possible however, to discern certain structural deficiencies in these regimes. While they have had a degree of independence, they have all lacked the authority to give the market sufficient confidence to invest safely. In addition, the length of time to make definitive decisions has remained slow and too often been clearly politically motivated. The result of all this, of course, is an ageing infrastructure base, which is struggling to meet the demands of our modern society.
There is plenty of opportunity for infrastructure in the UK. The problem is that the replacement of the UK’s ageing infrastructure stock is magnified by current economic constraints that are limiting government funds available for infrastructure projects. But there is a considerable potential for job creation and wealth production through investment in programmes to improve infrastructure. With the slowdown in the world economy, global investors are increasingly viewing infrastructure assets as an important element of their investment strategy. So how can this opportunity be harnessed and encourage investors to actively assess opportunities in the UK?
With initiatives such as Sir John Armitt’s Independent Infrastructure Review underway, we’re at a critical juncture in determining the UK’s investment future. The Armitt review aims to address critical infrastructure issues, by assessing what type of institutional structure will best support the long-term strategic decision making demanded by infrastructure planning and implementation; and how a cross-party consensus will be fundamental to delivering these decisions.
Our fundamental view is that, much like in Singapore and Qatar, a long-term strategy and vision is needed, independent of short-term politics. Only a clear, cross-party consensus will ensure delivery of critical infrastructure. The government should remain responsible for policy but a truly Independent Infrastructure Commission staffed by high calibre people with real experience of actually doing projects must be set up to provide advice to government on infrastructure challenges, priorities and design. The Independent Infrastructure Commission would develop strategies for the implementation of government policies and its planning horizon would be medium to long-term, stretching from 15 to 100 years to ensure it is fully effective.
Significantly, Singapore has a similar approach with its Land Transport Authority, which has created a clear vision for transport backed by an economically viable strategy with a clear route to funding. It has a clear commercial philosophy for delivery and operation of infrastructure and a visible, dependable forward investment programme. By running an Independent Infrastructure Commission in a similar way with a business-led approach and on a commercial basis by those experienced at doing so, there is the opportunity for the UK to attract much needed private investment.
We believe that private delivery organisations should be commissioned to bring strategies and the projects that flow from the Independent Commission to reality. By expediting definitive planning decisions, this would remove the significant delay premium currently born by infrastructure projects. Crucial funding would also be unlocked through the creation, in the Independent Commission, of a Developer organisation run as a commercial business.
These measures would have a completely transformative effect by stripping out the barriers to investment and addressing the challenges head on. We must build on the success of the London Olympic and Paralympic Games, which showed that we can build infrastructure punctually when the investment and the will is there.
Without radical change along the lines we’re recommending, the UK will at best remain a mid league country for infrastructure and, at worst, will begin a downward trajectory. The status quo is not an option. It’s time to get radical. And with a radical approach will come reward.
* Mathew Riley is global head of infrastructure at built asset consultancy EC Harris.