“Political agendas and social expectations are changing. Global, regional and national institutions are weakening. Power is shifting and technology is increasingly important,” says De Buys Scott, director, deal advisory head of infrastructure and financing at KPMG in South Africa.
Over the coming year, the reports’ authors expect to see more responsible governments that will look for new ways to improve alignment and drive integrated planning across these three sectors. In some cases, this will require the establishment of new structures that encourage shared investment and planning across different government departments. In other cases, it may be driven by focused leadership and strong policy direction.
This shift towards populist agendas, underpinned by infrastructure, will likely lead to three key ‘sub’ trends. The first trend is that infrastructure budgets should increase. The second sub-trend is one of protectionism which prioritises domestic players over international experience. The third sub-trend will be a shift in infrastructure priorities, not only towards more popular assets and ‘people-first’ projects, but also towards new technologies and models that speed up infrastructure delivery.
In 2017, KPMG expects governments to take a more ‘bottom-up’ approach to infrastructure planning and development, taking the time to understand the changing demands of both current users and future generations to help shape their infrastructure agendas. The report also suggests that governments take advantage of these changes to solve some of their larger infrastructure challenges by incentivising the public.
Over the coming year, investors (public and private) are expected to make serious efforts to measure and communicate the real impact of their investments. In some cases, this will lead to difficult choices as plan managers and their beneficiaries gain greater awareness of their social and environmental footprint. It will also likely lead to growing competition for projects that are able to demonstrate these benefits.
This year, it is expected that infrastructure owners and operators will begin to focus on developing robust technology plans, balancing the need for competitive advantage against the desire to achieve quick returns on their investments. A select number of governments will move from being technology followers to technology leaders and using the advantage to better relate to their citizens and increase the efficiency of their infrastructure.
In the developing world, the challenge continues to revolve around the need for basic infrastructure to improve capacity. In the mature markets, it is anticipated that infrastructure owners will focus on making smaller investments that, in turn, unlock improved performance, capacity, reliability and service delivery. Also, it is the expectation that governments – particularly at the city level – start to think about how they might incentivise behaviours that help better manage peak demand in various sectors.
A more strategic solution is required to fund infrastructure and KPMG believes that 2017 will bring renewed focus on asset ‘recycling’. To be successful with any alternative funding solution, governments will need to be clear with their populations about how the proceeds will be used.
Governments will need to think more about the broad benefits that infrastructure delivers rather than focusing purely on closing a financial deal. They need to recognise the need to take on more risk at the early stages of their infrastructure programme knowing that – as they mature – they will be able to pass these risks back to investors or sell out completely. And that they have a role to play in establishing markets, recognising the additional risk they take on will be far outweighed by the benefits that new infrastructure brings, particularly in emerging economies.
Over the coming year, the lines between different types of investors start to blur as the search for yield continues. Some infrastructure teams will make the transition successfully by building up skills and becoming more sophisticated while entering new markets or bringing new projects into scope. The risk, however, is that some may move too quickly and, in doing so, take on risks that they do not fully understand with unexpected results.
This year, the report also suggests that infrastructure players will pick up steam in expanding their global capabilities and transcending national borders. But also, the report’s authors suggest there will be forces acting against globalisation: rising protectionism and nationalist agendas; shifting social preferences; increasing focus on ‘localisation’; disruptive trade negotiations and other uncertainties that may dampen enthusiasm for globalisation.
