Infrastructure and economics
Infrastructure debt is a complex investment category reserved for highly sophisticated institutional investors who can gauge jurisdiction-specific risk parameters, assess a project’s long-term viability, understand transaction risks, conduct due diligence, negotiate (multi)creditors’ agreements, make timely decisions on consents and waivers, and analyze loan performance over time.
[11] On November 29, 2011, the British government unveiled an unprecedented plan to encourage large-scale pension investments in new roads, hospitals, airports, etc.
These large institutional investors need to protect the long-term value of their investments from inflationary debasement of currency and market fluctuations, and provide recurrent cash flows to pay for retiree benefits in the short-medium term: from that perspective, think-tanks such as the World Pensions Council (WPC) have argued that infrastructure is an ideal asset class that provides tangible advantages such as long duration (facilitating cash flow matching with long-term liabilities), protection against inflation and statistical diversification (low correlation with ‘traditional’ listed assets such as equity and fixed income investments), thus reducing overall portfolio volatility.
[15] The notion of supranational and public co-investment in infrastructure projects jointly with private institutional asset owners has gained traction amongst IMF, World Bank and European Commission policy makers in recent years notably in the last months of 2014/early 2015: Annual Meetings of the International Monetary Fund and the World Bank Group (October 2014) and adoption of the €315 bn European Commission Investment Plan for Europe (December 2014).
[16] Some experts have warned against the risk of "infrastructure nationalism", insisting that steady investment flows from foreign pension and sovereign funds were key for the long-term success of the asset class- notably in large European jurisdictions such as France and the UK [17] An interesting comparison between privatisation versus government-sponsored public works involves high-speed rail (HSR) projects in East Asia.
Preliminary studies may also be performed and may include steps such as: Investment in infrastructure is part of the capital accumulation required for economic development and may affect socioeconomic measures of welfare.
Generally, infrastructure plays a critical role in expanding national production capacity, which leads to increase in a country's wealth.
The American Society of Civil Engineers cite the many transformative projects that have shaped the growth of the United States including the Transcontinental Railroad that connected major cities from the Atlantic to Pacific coast; the Panama Canal that revolutionised shipment in connected the two oceans in the Western hemisphere; the Interstate Highway System that spawned the mobility of the masses; and still others that include the Hoover Dam, Trans-Alaskan pipeline, and many bridges (the Golden Gate, Brooklyn, and San Francisco–Oakland Bay Bridge).
European and Asian development economists have also argued that the existence of modern rail infrastructure is a significant indicator of a country’s economic advancement: this perspective is illustrated notably through the Basic Rail Transportation Infrastructure Index (known as BRTI Index) [25] During the Great Depression of the 1930s, many governments undertook public works projects in order to create jobs and stimulate the economy.
The economist John Maynard Keynes provided a theoretical justification for this policy in The General Theory of Employment, Interest and Money,[26] published in 1936.
[27] Offshore wind power in England and Denmark may cause issues to local ecosystems but are incubators to clean energy technology for the surrounding regions.
High-speed rail may cause noise and wide swathes of rights-of-way through countrysides and urban communities but have helped China, Spain, France, Germany, Japan, and other nations deal with concurrent issues of economic competitiveness, climate change, energy use, and built environment sustainability.
