Factors such as increased business risk and lower ease in doing business contribute to Australia's decline
Australia has dropped two places on an international index that measures infrastructure attractiveness of various markets across the globe.
The Global Infrastructure Investment Index (GIII), by design and consultancy firm for natural and built assets Arcadis, is based on a two-year analysis of different markets and regions.
The GIII attributes Australia’s fall from 9th to 11th position to lower scores on factors such as business risk and ease of doing business.
The good news, the index states, is that new opportunities are still attracting leading investors.
Arcadis’ global director of infrastructure Rob Mooren says while there is an increased global urgency for new and improved sustainable development, infrastructure projects are continually delayed owing to lack of investment.
“In this environment, there is growing global awareness that private investment in infrastructure can deliver much needed projects more cost effectively, and crucially quicker, than government sponsored schemes,”Mooren says.
“In addition, tighter government spending in core markets means that project sponsors are increasingly turning to private finance to bridge the investment gap.
“Contractors and operators alike are looking for new market frontiers, with investors searching further afield for assets to invest in.
“However structuring the deals to be “bankable” remains a challenge for many organizations.”
Arcadis’ director of built asset consultancy Gareth Robbins says the dip in ranking is a “serious issue” for Australia because as public infrastructure funding shrinks, the country will become reliant on private investment, which means projects will have to be made more appealing to potential and existing investors.
“In many states we are seeing infrastructure projects treated as political handballs and often not completed, which is reducing investor confidence in a government’s ability to see a project through and deliver a ‘bankable’ investment,” Robbins says.
“Coupled with the economic turbulence of the last two years it’s not a surprise to see Australia fall two positions in terms of investment attractiveness.
“However, Australia has a tried and tested history of private investment which has contributed our 11th position in the ranking.
“We have bright spots, for example New South Wales which is outperforming the rest of the nation, and we are seeing continued investment appetite out of Asia, Canada and the Middle East.”
The GIII states that factors such as stability in a political system, safe business environments and strong growth potential made Canada, Qatar and Singapore three of the most attractive markets for infrastructure investment, with Singapore still ranked first on the international scale.
However, it highlights that short-term factors such as currency devaluations, commodity prices and security issues can also affect investment.
“The belief that devaluation has reached its bottom and commodity prices are beginning to recover makes it a good time for investment in infrastructure,” Robbins says.
“Leading cities such as Sydney and Melbourne are setting out their infrastructure investment priorities and privatising assets to finance new investment.
“For investors, the local market is presenting opportunities through asset recycling initiatives, and is still offering solid long-term infrastructure investments.
“The key is working with the right local partners who have the depth of knowledge and can advise on potential of an asset.”
The World Economic Forum estimates that the global investment funding gap stands at US$1trillion per year against an annual global investment demand of $3.7tr.
The report suggests that countries like the United States, United Kingdom and Germany were more likely to bridge the funding gap for new infrastructure development, as they have a higher potential to attract private sector finance.