The scale of global infrastructure projects, including those in the UK, means that finding private finance is essential
RICS recently launched a report into the role that private sector funding can play in helping deliver infrastructure investment. As we all know, PPP is nothing new. In fact, it was way back in the early nineties that the then prime minister, John Major, introduced the first programme aimed at encouraging public-private partnerships in the form of PFI. That said, we’ve come a long, long way since then and the world is now a very different place. Today when we talk about ‘infrastructure’ we’re no longer just referring to the likes of motorways and ports, but to things like high speed rail networks and state-of-the-art airport terminals to encourage economic investment from overseas.
Without doubt, it’s vital that we continue to invest in infrastructure projects, big and small, to ensure we are both servicing the needs of our growing nation and remaining globally competitive. In fact, we owe it to future generations to hand over a baton of global competitiveness. Speaking at our Commercial Property Conference last week, I mentioned McKinsey research that projects that global infrastructure investment needs to grow by around 60% just to keep pace with demographic and urbanising trends. However, these things cost money, and the money needed to deliver infrastructure upgrades over the next 18 years is, in reality, more than the total depreciated value of infrastructure already in place today.
This is a massive undertaking. The reality is that the public sector can no longer go it alone in terms of footing the bill. It’s for this reason – as our report shows – that encouraging private finance for infrastructure is a must. But in order for it to be successful it has to be done in an efficient and effective way.
The reality is that the public sector can no longer go it alone in terms of footing the bill. It’s for this reason – as our report shows – that encouraging private finance for infrastructure is a must
Our study looked into the views of stakeholders from Australia, Canada, India, the UK and the US. Among the conclusions was that PPPs are the most credible and recognisable source of funding available to make up the investment shortfall, based on the greater value for money they can offer. This is key, given the on-going drive towards cost effectiveness. It’s also reassuring to know that, with almost 1,400 PPP projects globally achieving financial close since 2005 at a combined capital value of around $485bn, we are doing the right thing from an economic perspective.
With this in mind, if we are going to become increasingly reliant on private finance for infrastructure, we need to ensure that investors understand the benefits that their involvement can bring, both to their own businesses and the wider economy. Here, the report found some encouraging progress has been made in the UK.
The UK government remains committed to partnership-based procurement and has recognised the need for reform in order to bolster value for money. In spite of this, though, there still remains a need for greater awareness among the investment community as to the opportunities and risks associated with infrastructure investment. In other words, the private sector needs to know exactly what it’s getting out of it.
All in all, if we are to achieve our aspirations as an increasingly globalising economy through the construction of ambitious infrastructure projects, we are going to need the funds to do so. Well informed and better engaged finance partners are the way to achieve this as PPPs and economic growth will, undoubtedly, go hand-in-hand.
Sean Tompkins is chief executive of the RICS