Market is ripe for infrastructure investment in U.S., ARCADIS report finds

Amsterdam, The Netherlands — The U.S. is now one of the top 10 most attractive markets in the world for investment in infrastructure, according to a new report from ARCADIS. As the country continues the debate on how to fund much-needed infrastructure, the information in this report draws out key points for new partnering opportunities between public and private investment. Already, some high-profile projects are demonstrating how these alliances can benefit both investors and economic growth and prosperity.

The findings come from the second ARCADIS Global Infrastructure Investment Index, which ranks 41 countries by their attractiveness to investment in infrastructure. To gauge their appeal, the study looked at several criteria, including the ease of doing business in each market, tax rates, GDP per capita, government policy, the quality of the existing infrastructure and the availability of debt finance. Combining all of these factors provided a strong overview of the risk profile for each market and how attractive each one is likely to be to potential investors.

Rising three places from its ranking in 2012, the U.S. has made it into the top 10 for the first time. Improvements across all business indicators and an improved financial environment have increased the appeal of U.S. projects, but one of the major factors is the huge, unmet need to rebuild or maintain aging infrastructure like public transportation, roads and water systems. Additionally, planners are rethinking how to make cities and communities more resilient to flooding, drought and other challenges.

The report cites estimates from the American Society of Civil Engineers (ASCE), pointing to the need to rehabilitate $3.6 trillion in assets by 2020 against a budget forecast of $2 trillion. To bridge that $1.6 trillion gap, government leaders are looking at alternative and private investment models.

Connecting private and public investment streams essential

According to Manju Chandrasekhar of ARCADIS, "Good infrastructure is critical for the competitiveness and long-term economic development of a country, but many governments are struggling to finance major infrastructure projects. The current debate in the U.S. demonstrates the tension between the need for infrastructure and recognition of the unsustainable nature of models that solely rely on the burden being borne by taxpayers. This same dynamic has led more governments to seek out private finance for infrastructure, as they work to ensure their countries are globally competitive, while meeting their social and economic objectives domestically."

Chandrasekhar continues, "While it is positive that the U.S. has become more attractive to infrastructure investors over the last two years, we cannot afford to stand still. Public funding for infrastructure has remained slow, so we need to work with both the public sector and investors to help build the business cases to advance major developments in the U.S. We risk experiencing a stasis in infrastructure investment and economic growth if we cannot demonstrate reasons for investor confidence."

High profile investments aiding replacement of aging infrastructure

While public private partnerships (P3s) and investment is not the norm in the U.S., given the enormous need for infrastructure improvement, planners have opened to P3s and other forms of alternative financing, with increasing ingenuity. On September 24, 2014, high-level representatives from financial institutions, government planning organizations and private developers met in New York City at a round table discussion titled, "Alternative Financing Structures & Risk Assessment for Climate Resilient Infrastructure." 

Opening the discussion, the Executive Director of The Port Authority of NY & NJ, Patrick Foye set the tone for the financial leaders. He noted that climate-related pressures have stimulated more projects to add resiliency to infrastructure and in turn, by taking a more holistic and portfolio-based approach, the Port Authority is tapping into alternative and private financing to advance these and other critical projects concurrently. ARCADIS cited a current plan for a multi-purpose levee to help defend the lower east side of Manhattan from future storm surges and weather events. This plan calls for a private, multi-use development, which will simultaneously raise the elevation of the waterfront, providing lower Manhattan another defense in the event of another hurricane like Sandy.

The group also looked at how the Goethals Bridge, linking Staten Island with New Jersey, is incorporating private financing and transferring some of the risk from the Port Authority of NY & NJ to a private consortium. A financial discussion reviewed best practices in the Netherlands combining incentives and risk distribution to make private investment more attractive.

Considering this discussion, Chandrasekhar also noted, "For funds with global mandates, emerging markets seem to be winning the race to attract a higher distribution of funds to projects. A key differential we have seen in markets outside the U.S. is that countries that have a clear integrated strategy which ties the infrastructure development plans to business and economic objectives tend to be nearer the top of our ranking. This gives long-term clarity to investors and is something the U.S., would do well to emulate, given the global nature of capital flows that now persist and the competitive implications thereof upon countries seeking to attract investment."

Download the full ARCADIS Global Infrastructure Investment Index report at www.arcadis.com/Content/ArcadisGlobal/Docs/publications/Research/Arcadis_global_Infrastructure_Investment_Index_2014.pdf.