The industry needs to do more promote the positives of new and improved infrastructure as a path to economic growth and a better standard of living, says David Barwell.
When I was a young boy, I remember the excitement surrounding new infrastructure, with regular news coverage of the Queen, dignitaries or famous actresses and actors cutting ribbons at new airports, bridges, motorways and ports. With a construction boom for new infrastructure, projects were bold, even a bit glamorous, and they were certainly about improving quality of life.
In the intervening decades, society has become accustomed to the networks and services that fuel modern life. We’ve taken infrastructure for granted. Yet we still need improved airports, more and faster trains, better water systems, clean energy and all-round improved resilience to meet today’s demands and to help stimulate economic growth.
It is widely acknowledged that the UK will face mounting economic, environmental and social problems if the nation’s infrastructure fails to meet present and future demands. Government estimates propose that almost £500bn is required to bridge the infrastructure funding gap.
The National Infrastructure Commission’s first National Infrastructure Assessment (NIA) published in July set out a long-term plan for meeting the country’s identified infrastructure needs and priorities. While the government has committed to responding to the NIA within six months, one thing is clear - the state simply cannot finance all these changes and advancements alone.
There are trillions of pounds of private capital, both foreign and domestic, searching for a home. Yet despite infrastructure being critical to the growth and economic health of any country, the Organisation for Economic Co-operation and Development estimates that only a tiny percentage of this cash, just 1.6%, is invested in global infrastructure.
If government is to attract private investment, it needs to turn visions for new infrastructure into action. Indeed, there are a number of things that can be done to bridge the UK’s infrastructure investment gap and help secure finance for new projects.
Firstly, the UK must vigorously promote its infrastructure as a great investment opportunity to private financiers. Private investors are not necessarily infrastructure experts, so vocal government endorsement of infrastructure as a sector full of investment opportunities is vital. Of course, private sources of capital come in many forms. From banks to funds, pension providers to individual businesses, each will have a different risk appetite and investment timeline. Matching potential investors with the most suitable infrastructure project, and crucially the right stage of a potential programme, will be key.
A common criticism of infrastructure investment is that it is risky and unpredictable. Collecting and making readily available accurate, up-to-date data on the financial performance and costs of UK infrastructure assets gives private investors the ability to predict and project long-term revenue streams. Taking a pragmatic, data-and-results-led approach to offering investment opportunities to the private sector enables engagement at the design stage, which gives investors the opportunity to have early input into a project and allows both parties to share data.
Equally important is the need to create innovative financing structures and institutions. The need for new ways to mobilise private capital is even more pressing as Britain prepares to leave the European Union. The EU’s European Investment Bank has worked for decades to bring private capital into infrastructure projects – but the UK’s membership of the bank could end post-Brexit. Despite the complications of doing so, a dedicated UKI infrastructure finance institution needs to be created if this happens.
But the private sector is also well placed to innovate and leverage lessons from elsewhere. The proposed Heathrow Southern Rail link, for example, is an opportunity identified by the private sector that will be privately financed, including investment in part from AECOM.
Political bias is an issue that has stunted the growth of the sector for decades. Moving big projects outside the political cycle is essential for attracting private investment. If the private investment community is being asked to make long-term, multi-billion-pound investments, the government needs to offer long-term guarantees and protection to these investors in return.
But industry also has a key role to play in making UK infrastructure an attractive investment opportunity. All of us involved in infrastructure delivery can do more to promote the positives of new and improved infrastructure as a path to economic growth and a better standard of living for large numbers of people. Gaining public support for infrastructure investment is essential to getting projects off the ground, particularly in the UK, where schemes are frequently blocked by local opposition.
While there’s plenty of private money seeking investment opportunities, the infrastructure sector will need to step up to make projects more attractive, help build project certainty and promote the benefits of new networks and services to the public.
David Barwell is chief executive, UK & Ireland for AECOM.