KPMG’s global infrastructure practice examines “ten emerging trends” in the project sector
In the global realm of infrastructure, expect even more aggressive competition for the most bankable projects as new capital sources and new funding approaches vie for a piece of the action. Governments will continue to push to unclog their project pipelines. Meanwhile, infrastructure investors will face increasing uncertainty in assessing and pricing risks.
These are just a few of the trends identified by KPMG’s Global Infrastructure Practice in a new study released this month.
‘”No normal’ will probably be the ‘new normal’ for the foreseeable future,” the study wrote, concluding: “The [infrastructure] industry is now standing on the cusp of greater change. ”In presenting what it termed “ten emerging trends in 2016,” KPMG predicted “growing momentum for the infrastructure sector.” However, the study identified both reasons for optimism and apprehension.
Infrastructure-related technology is expected to skyrocket. Yet, chief among the concerns is the growing threat of physical attacks, natural disasters and cyber-attacks on infrastructure, a danger amplified by “the growing interconnectedness of systems.” KPMG asserts few infrastructure executives understand the risks, especially when it comes to cyber security.
“Expect security to start taking up a large portion of infrastructure budgets,” the study said.
On the other side of the equation, KPMG believes governments will become less fixated on minimizing project risk, which is often translated into “contractual perfection,” but which usually results in “making projects more complicated, less attractive to investors and slower to market.” Instead, KPMG sees governments “start to become more active in influencing and catalyzing their infrastructure markets.” That should accelerate investment.
Investment trends aren’t themselves necessarily uniform. KPMG notes that increased capital already has pushed down yields and raised equity multiples on lower risk infrastructure investments, especially in the more mature markets. That has caused some investors to widen their horizons, although “competition for ‘investable’ infrastructure projects has reached fever-pitch” throughout the globe. The study noted that “the center of gravity in the global infrastructure market is fundamentally shifting towards the East,” with Chinese and Indian companies becoming bigger and more sophisticated competitors in developing infrastructure.
While the study cautions that private capital will continue to be attracted only “to markets that create a predictable and stable investment environment,” KPMG envisions a kind of golden age in which abundant capital can match up with infrastructure projects that can “drive economic growth in the developing world and shore up retirement savings in the mature markets.”
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