Risky business or guaranteed returns?
How can contractors reduce risk to improve infrastructure investment?
Key to the success of any infrastructure project is a strong supply chain, and the world’s leading concessionaires and contractors have long understood that by getting this right, risk is low and investors more forthcoming.
Why then, if the infrastructure market is truly global, and there is appetite to invest, are there so many infrastructure projects continually delayed through lack of investment? The main challenge seems to lie in structuring projects to be “bankable,” and therefore this is off-putting for potential investors, and subsequently slows projects for contractors.
Generating long-term income through the range of PPP structures (which requires a significant early capital investment from contracting teams) is a highly attractive proposition for firms. It is therefore not surprising that contractors today are using a number of strategies to enter into emerging high potential markets, deemed to have a big future in PPP/PFI/Design, Build, Finance, Operate and Maintain projects (DBFOM) and major project investment.
A decade ago this meant European contractors were investing in Canada, which has historically been an international leader in PPP arrangements and offered high returns to investors. This experience is now being transferred to the US, Latin America, Eastern Europe, Australia and the Middle East.
By taking positions on smaller contracts, or by buying up local contractors, leading construction giants are familiarizing themselves with key growth markets and at the same time securing local supply chains, and understanding how local legislation and procurement policies of major clients work.
Whatever the market, world scale concessionaires and contractors are carefully weighing up the risks and the opportunities before investing in new territories and bringing in their investors. For countries with huge infrastructure backlogs this is a very welcome development, but to succeed these markets must work on strengthening their institutional readiness and ensure that government agencies are prepared to place the risk with the parties most able to manage it.
The Third Arcadis Global Infrastructure Investment Index (GIII) shows which markets are most attractive to both public and private investors, and the analysis highlights why this is the case, revealing where core opportunities lie. It also explores the issues affecting each region in both the short and long term, and the conclusions support investors, contractors and project sponsors alike in ensuring that the investment gap is bridged successfully.
For more information and to download the report, click here.
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