Key drivers

Key drivers and market issues

Aging infrastructure - A dearth of investment in recent years has resulted in the aging of US infrastructure. For example, more than 60% of the interstate highway bridges currently in use in the US were built during the 1950s and 1960s - and in 2004, 27% of urban bridges and 16% of rural bridges in the interstate system were classified as deficient¹. Further, according to the American Society of Civil Engineers, leaky pipes lose an estimated seven billion gallons of clean drinking water every day. And aging sewage systems send billions of gallons of untreated wastewater cascading into the nation's waterways each year. Overall, investments are long overdue in rail, roads, water management, electricity grids, ports, prisons and more.

¹ Eurasia Group's GlobalTrend3 Infrastructure 1Q09

Funding gaps - The American Recovery and Reinvestment Act is injecting $787 billion into the economy, of which the Brookings Institution estimates $152 billion is going to infrastructure. And over $180 billion in private investment is targeted toward infrastructure projects, according to a report by a consortium of banks and law firms.² Despite this, a substantial gap remains between the actual and required spending needed to address urgent projects. According to estimates by the Society of Civil Engineers, a $2.2 trillion investment over five years is required to attain good condition.

² Benefits of Private Investment in Infrastructure, Kearsarge Global Advisors et al., 2009

Constrained infrastructure - Sustained economic growth and rapid urbanization has put a significant strain on infrastructure, creating unwanted impacts such as pollution problems, traffic jams, and power shortages.

Private sector investment - In addition to public investment in infrastructure, private companies are likely to invest billions after years of deferring large-scale capital asset commitments. Examples include utilities investing in new generation capacity (including nuclear), clean energy and advanced metering programs; energy companies upgrading refineries, pipelines and processing plants; consumer products, industrial products and pharmaceuticals creating newer, more cost effective products; and producers building greener manufacturing facilities to reduce energy usage and enhance efficiency.

In addition, significant growth in infrastructure funds (estimated more than $90 billion globally) remain one of the hottest segments in Private Equity. The relatively stable cash flows generated by infrastructure assets are considered to be more resilient to fluctuating market conditions, thus providing an opportunity for Private Equity firms.


What's ahead: A pause now - followed by sustained long-term investment

Infrastructure investment is expected to stall in the short term, as companies struggle to secure financing and as governments face planning and implementation delays. In the medium to long term, infrastructure investment should increase beyond levels achieved in the past, as government seeks to stimulate the economy, credit markets loosen, and investor participation in infrastructure funding unlocks new sources of private financing.

In the meantime, government will continue to promote infrastructure investment as there is a real and an acknowledged need for additional infrastructure investment in the US. As public sector funding tapers off, Public Private Partnership (PPP) projects are anticipated to play a more central role with critical support at the local, state, and federal levels.

For more information, contact Peter D Raymond.

Contact us

Peter D Raymond
Global Advisory Leader, Capital Projects & Infrastructure
Tel: +1 (703) 918 1580