Asia-Pacific to be a dominant driver in global infrastructure investment

Asia-Pacific to be a dominant driver in global infrastructure investment

The Port of  Melbourne.

Australia, Singapore and China are driving momentum and interest for infrastructure investment in the Asia-Pacific, according to the CMS Infrastructure Index: A New Direction. Four of the top 20 spots for investment attractiveness were secured by Asia-Pacific countries, with robust economic growth across the region, ambitious renewables plans, and the world’s largest infrastructure project – China’s Belt & Road – set to reshape the continent’s landscape over the next decade.

Globally the Netherlands claimed top spot overall, despite a prolonged period with no government at all, after seeing the highest GDP growth since 2007, expected to reach 3.3% in 2017. The country’s success was in part down to its transparent and efficient procurement process, and its healthy multi-billion euro pipeline in road and water Public-Private-Partnerships (PPP). Other countries in the top five included Canada, Germany, UK and Australia

Shifting hegemony

China’s Belt and Road initiative continues to deliver on the promised infrastructure boom in Asia. Given the longevity of this project, changes in the balance of infrastructure investment in the region are likely to be profound. Though ranked at 20th position in the index, China is primed to become a global engine of investment, with close to a trillion dollars expected to flow through the initiative by its completion, while highly ranked countries such as Australia and Singapore continue to benefit from stable and prosperous economies. Australia’s federal target of 33,000GWh generated from renewable sources by 2020 has led to vast investment in solar and wind projects, and Singapore’s multi-billion-dollar development of Changi Airport’s Terminal 5 and the Tuas shipping megaport will solidify its position as a premier transport and trade hub globally. Further afield, opportunities in the likes of Malaysia and India are plenty – with renewable energy set to play a central role in future projects.

Adrian Wong, partner at CMS Singapore said: “The Asia-Pacific region is home to some of the world’s fastest growing economies and most ambitious infrastructure projects, and the spread of four countries within the index top 20 reflects an ever developing opportunity for investment. While key success factors like government stability and political certainty cannot be ignored, the potential impact of the Belt and Road Initiative alone promises to stimulate economic growth through the continent and far beyond.”

Partner at CMS Hong Kong Dr Nicolas Wiegand said: “The risks of adverse government interference that are typically associated with investing in the Belt & Road jurisdictions are mitigated through an extensive and ever-expanding network of Asia’s investment treaties and free trade agreements with integrated investment chapters. In addition to investment treaties, political risk insurance industry in the Asia-Pacific region has developed sophisticated insurance policies for insuring foreign investment in volatile Asian jurisdictions. As with previous years, investor-state arbitration remains an efficient tool to protect foreign investments in Asia, with Chinese companies becoming increasingly frequent users of investor-State dispute settlement mechanism.”

Europe bounces back

European countries have bounced back after a period of stagnation. Quantitative easing, the Juncker Plan and EIB support have all contributed to accelerated levels of EU infrastructure spending in recent years, and with economies such as Czech Republic and Romania experiencing significant expansion, there is room for optimism for future investment.

Europe as a whole has experienced an upsurge in infrastructure investment, as many politicians have been willing to use infrastructure investment as an economic stimulant. As well as the Netherlands and the UK, Germany, Norway and France ranked highly in the study, particularly for innovation. In Germany, all dominant parties have placed their support behind PPPs, and it is expected that deal flow, particularly in large-scale transport PPPs, will stay the course.

UK not fulfilling potential

Maybe unsurprisingly, the UK struggled to hold on to the top spot it gained in a study conducted by law firm Nabarro in 2015. The impact of Brexit and general political instability is already starting to have an impact on infrastructure investments, as investors struggle with a lack of certainty in the country. Those operating across the sector are clearly looking for commitment and long-term policy from government to allay fears. The report highlights in particular the lack of consensus over infrastructure megaprojects such as a third Heathrow runway and HS2.

Canada rules the Americas

In the Americas, Canada leads the way whilst a lack of detail on Trump’s proposed USD 1 trillion US infrastructure project leaves the US lagging behind in 7th position. Notably, the Canadian government is to launch the Canadian Infrastructure Bank in 2017, providing a boost to the already reliable infrastructure market.

From oil to renewables

In other regions, MENA has succeeded in looking at alternatives to combat ongoing low oil prices. UAE and Saudi Arabia have shown a keen interest in renewables. UAE have already played a pioneering role in exploiting their high levels of solar irradiation, while Saudi Arabia’s recent commitment to clean energy is hailed as a game changer for the regional pipeline.

Traditional versus alternative investment

The report also highlights potential new emerging asset classes including 4G, charging stations, car parks and the likely impact technology, which is already revolutionising infrastructure. One example is the rise of smart roads and smart cities, thanks to the interaction of road sensors, fibre optic networks, interconnected self-driving vehicles and inductive charging roads, laying the foundations for a new generation of self-charging and self-driving electric vehicles. Cities like Dubai and Singapore are already making strides to lead the next wave of digital innovation.

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