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Private investment in infrastructure projects in primary markets is not increasing, but it weathered the pandemic shock.

Mobilising private capital is key to closing the infrastructure financing gap and has become even more critical as the COVID-19 pandemic has further limited the investment capacity of governments. For the past seven years, private investment in infrastructure has remained stagnant, and lower than it was 10 years ago. The USD156 billion invested in infrastructure projects by private investors in 2020 represents 0.2% of global GDP, far shy of the 5% of global GDP (combining public and private investment) some studies indicate is required to close the infrastructure gap. It also pales in comparison to the USD3.2 trillion in infrastructure stimulus announced by G20 governments, identified in our InfraTracker (GI Hub, 2021).

The resilience of private investment in infrastructure projects to pandemic shocks is however a positive sign. While several sectors of the economy were significantly affected by the pandemic, private investment in infrastructure projects was resilient overall in 2020 compared to 2019.

High-income countries attract around three-quarters of all private investment in infrastructure projects. (To put this in perspective, high-income countries represent around 60% of global GDP and have about 50% of total public and private investment in infrastructure.) And despite severe disruption due to the pandemic, those volumes did not decrease in 2020. In contrast, private investment in infrastructure in middle- and low-income countries represents only a quarter of the total global private investment in infrastructure, and it declined by 28% in 2020.

Globally, lockdowns and restrictions in 2020 negatively impacted investments in the transport and energy sectors, while investment in the social and telecommunications sectors increased significantly – driven by the response to the pandemic and rise in online activities.

Even in the midst of the pandemic, investors showed strong appetite for renewables, with this sector attracting almost 50% of total private investment in infrastructure in 2020, mostly in wind and solar projects. However, it is notable that in high-income countries, almost 55% of the private investment in infrastructure projects went to renewable energy generation in 2020, while in middle- and low-income countries, that percentage was only around 20%, compared to over 25% for non-eenewable energy generation. 

 

This report provides an overview of funding and financing instruments available to support infrastructure investment in cities and regions. Subnational governments have a critical role to deliver, operate and maintain infrastructure, and to invest to help drive the recovery from COVID-19. In recent years, many subnational governments have introduced innovations in the types of instruments used to access funding and financing. Highlighting examples from G20, OECD and non-OECD countries, this report presents a framework to differentiate funding and financing instruments, including by type of instrument, and their use, and outlines essential framework conditions that are needed to support subnational governments, The report was submitted to the G20 Infrastructure Working Group under the Italian Presidency and key findings were presented at the G20 High-level Conference on Local Infrastructure in Genoa, Italy on 27 September 2021.

Subnational governments – state, regional, and local – are major infrastructure investors, responsible for almost 60% of public investment in G20 countries. In many countries, they have primary responsibility for essential public infrastructure and service provision, including for water, waste, education, healthcare and transport. These governments are well placed to design and implement placebased policies that respond to local needs, match citizens’ preferences and help address global challenges at a local level.

Subnational government infrastructure investment needs to be future-proof to support an inclusive, sustainable and resilient COVID-19 recovery. The COVID-19 crisis, and subsequent social and economic crises, have revealed and exacerbated spatial disparities in infrastructure and services. The crisis has also accelerated awareness of, and momentum on, the need to act on climate and demographic challenges and address digital divides. Current fiscal stimuli, much of which are being used to support infrastructure investment by subnational governments, need to align with long-term policy objectives and should avoid locking-in carbon-intensive infrastructure that will exist long into the future.

Unlocking private finance requires clear sources of funding and a whole-of-life view of infrastructure costs. While much attention has been paid to the importance of mobilising private finance (bonds, loans, etc.), this report calls for focus on securing both financing and funding (taxes, user charges, asset revenues, etc.) resources. Subnational governments need to have sufficient funding available for the entire lifecycle of infrastructure, including for construction, operations, maintenance and the repayment of finance. Identifying whole-of-life funding sources when making an investment can ensure infrastructure will be well operated and maintained, and, critically, it can improve access to finance.

To increase infrastructure investment, subnational governments can look to innovate in the type and use of funding and financing instruments. What is considered an innovation depends on national and local contexts, and current practices. Indeed, while some of the funding and financing innovations for subnational governments highlighted in this paper may be common-practice in some countries, they may be innovative, or not widely understood, in others. To foster greater awareness across subnational governments, this paper highlights six areas of innovation related to funding and five areas related to financing, drawing on examples from G20, OECD and non-OECD countries.

The paper also highlights two ‘investment approaches’ that subnational governments can adopt to undertake infrastructure investments. In this report, the ‘investment approach’ refers to the method by which an infrastructure investment is undertaken. The two approaches detailed in this report are the use of state-owned enterprises (SOEs) and public-private partnerships (PPPs) – a third approach, the use of traditional public procurement is not covered. The choice of investment approach is largely independent from the choice of funding and financing instruments. A traditional public procurement can be financed privately through a green bond, while a PPP can be supported by significant public funding.

Essential framework conditions need to be in place to unlock the use of funding and financing instruments and support subnational government infrastructure investment. As highlighted by the Recommendation of the OECD Council on Effective Public Investment Across Levels of Government, framework conditions need to be in place to support quality infrastructure investment at all levels of government. These conditions relate to (i) the fiscal space and financial capacity of subnational governments; (ii) the investment capacities within subnational governments, including having sufficient human resources with appropriate expertise; (iii) the coordination and cooperation mechanisms among and across levels of government, including inter-municipal cooperation mechanisms to ensure investment is undertaken at the right scale; and (iv) the regulatory and legal frameworks, which are required to use certain funding and financing mechanisms or investment approaches. As public investment is a shared responsibility across levels of government, policy actions need to be coordinated across levels of government to support quality infrastructure investment.

This paper demonstrates a continued need to focus on the specific challenges and opportunities relating to subnational government infrastructure investment. This report highlights that focusing on funding and financing innovations and the framework conditions for subnational governments can help to unlock infrastructure investment.

 

The global construction industry is about to embark on a sustained period of growth, driven by the needs of a growing world population and the transition to a more sustainable world. According to a recent report from Marsh and Oxford Economics, the global construction industry is forecast to grow 42% to $15trn by 2030. The construction industry is expected to be a major driver of economic growth in the coming decade, outperforming manufacturing and services.

The positive growth outlook is based on a number of factors. Rising populations in emerging markets, urbanization and a growing working age population are expected to drive the need for homebuilding, infrastructure

and workplace construction. The transition to a low carbon or net zero economy will require significant investment in alternative forms of energy, such as wind, solar and hydrogen, as well as power storage, transmission and supporting services. According to the International Energy Agency (IEA), pursuing net zero would create a market for wind turbines, solar panels, lithium-ion batteries, electrolyzers and fuel cells of well over $1trn a year by 2050, comparable in size to the current oil market.

The shift to electric transport will also require investment in new plants and battery manufacturing facilities, as well as charging infrastructure and power generation.

Ford alone has committed to an $11bn investment in new plants. Huge investment is also required to make buildings more sustainable and lower greenhouse gas emissions.

According to the International Finance Corporation (IFC), green building in emerging markets represents a $24.7trn investment opportunity by 2030.

Climate change adaption and mitigation will also give rise to opportunities for the construction sector. Rising sea levels and increased risk of flooding will require new coastal and flood defenses, as well as sewage and drainage systems. Commercial buildings and plants may need upgrading to protect assets from storms and floods, while ageing infrastructure will need to be upgraded to cope with more extreme weather events.

Covid-19 is also likely to give a boost to construction and engineering. The pandemic exposed shortcomings in public services like health and social care, which could translate to increased spending on hospitals. The pandemic also demonstrated the need for more resilient supply chains, which could stimulate construction as manufacturing plants and warehouses are brought closer to home. Digitalization, which accelerated during lockdowns, is also likely to fuel construction activity, requiring telecommunications infrastructure, data centers, logistics and e-retailing hubs. 

Infrastructure is forecast to be the fastest growth sector for construction with annual average growth of 5.1% globally during the period from 2020 to 2025, driven by unprecedented levels of government stimulus. The US has passed a $1.2trn infrastructure bill while the EU has agreed a €723bn Recovery and Resilience Facility.

However, given government borrowing during the pandemic, public sector and infrastructure investment is likely to see an increasing need for Public Private Partnerships (PPPs).

This boom in global construction will, however, present challenges for the construction and engineering sector, and their insurers. In the medium term, sudden surges in growth could put supply chains under additional pressure and exacerbate the existing shortage of skilled labor.

Longer-term, huge investments in green energy will mean larger values at risk, while the rapid adoption of unproven technology, building methods and materials will require close co-operation between underwriting, claims and risk engineering, as well between insurers and their clients.

 

The research looks in detail at the influence of infrastructure on climate action across energy, transport, water, solid waste, digital communications and buildings sectors. The findings highlight that infrastructure is responsible for 79 per cent of all greenhouse gas emissions, as well as 88 per cent of all adaptation costs and therefore the sector is centrally important to achieving the Paris Agreement and the Sustainable Development Goals.

The report calls on governments to treat infrastructure as a priority sector for climate action. It also calls for unified planning to tackle emissions from infrastructure.

The authors argue that in order to tackle climate change, governments need to radically rethink how infrastructure is planned, delivered and managed in order to make it suitable for a low-emission and resilient future.

The report also presents some of the key steps that practitioners can take to ensure infrastructure projects incorporate climate adaptation and mitigation measures, while still aiming for long term sustainability. Focusing on national examples, it highlights infrastructure projects that have contributed to the achievement of national climate and development targets.

 

Sommaire : 

- Construction industry performance per market 

- Introduction Global construction - performance at a glance 

- Belgium Robust demand, but margins remain under pressure 

- China Forced deleveraging has led to a shake-up in the property market 

- France Structural deficiencies cloud the outlook 

- Germany Residential construction remains the main driver of growth 

- Italy Very long payment duration remains an issue for the industry 

- Japan Increased credit risk for smaller builders serving certain segments 

- Mexico Only a modest rebound in 2021 and in 2022 

- The Netherlands Only a modest increase in insolvencies expected 

- Poland More insolvencies expected in the coming months 

- Spain Insolvencies have started to increase again 

- UAE Restricted access to bank loans remain a major issue 

- United Kingdom Robust demand rebound, but rising insolvencies expected 

- United States Good prospects, but lack of skilled labour is a structural issue.

 

Dans le cadre de ses services aux investissements en infrastructure rassemblés sous la plateforme CIARA, Carbone 4 présente le guide méthodologie pour l’évaluation des risques physiques des portefeuilles d’infrastructure. 

Ce qui distingue ce module de risque physique des méthodes concurrentes, est qu'il a été conçu spécifiquement pour les infrastructures : la mesure du risque est effectuée au niveau des actifs et non au niveau sectoriel. Chaque type d'actif a un profil de vulnérabilité spécifique basé sur l'expertise de Carbone 4.

La méthodologie couvre 42 pays de l'Union Européenne et des régions du bassin méditerranéen.

Près de 100 types d'actifs sont proposés par la méthodologie, dans l'énergie, l'industrie, l'agriculture et la sylviculture, la mobilité, l'eau, les bâtiments tertiaires, les déchets et les télécoms.

9 aléas climatiques sont considérés et projetés à l'horizon 2050 selon l'un des scénarios tendanciels du GIEC.

La méthode CIARA a été pensée pour permettre aux investisseurs en infrastructure et aux gestionnaires d'actifs d'élaborer une stratégie climat pour leurs portefeuilles. 

Elle fournit des mesures climatiques essentielles associées aux infrastructures : empreinte carbone, part verte, alignement sur une trajectoire 2°C et notation des risques liés au climat (risques physiques et de transition). CIARA permet aux investisseurs en infrastructures et aux gestionnaires d'actifs d'évaluer les principales mesures climatiques de la TCFD au niveau des actifs et des portefeuilles.

 

The construction industry has demonstrated remarkable resilience during the worst of the coronavirus pandemic and over a period of significant disruption to the global economy — the worst since the Great Depression some 80 years ago.

The near-term outlook for the global economy remains clouded by a surge in inflation and supply chain bottlenecks, and the Delta variant remains a threat. However, Oxford Economics forecasts in this newly published global forecast Future of Construction, the global construction industry is set to lead global economic recovery from the pandemic over the medium-term and is expected to grow faster than the manufacturing or service sectors.

The global construction market is expected to grow by US$4.5 trillion over the decade to 2020 to reach US$15.2 trillion. To better understand this and prepare for the future with our clients, Marsh and Guy Carpenter chose to partner with Oxford Economics on this project because of its deep industry expertise which, underpinned by advanced data-led analysis, provides genuinely valuable insights to those determining their future strategic direction within industry segments.

As this report makes clear, climate change and its risk and opportunities represent the construction industry’s biggest challenge. ESG and green financing will drive a greener recovery from the pandemic. This report also highlights that the emergence of a deconstruction industry that will reuse existing built assets and tools that will help in the disclosure of the carbon footprint for any new asset ahead of physical construction will become the new norm.

There are huge opportunities and risk factors for the construction industry from climate resilience driven by natural catastrophes.

The common themes that arise from this report – including key observations from construction firms operating in global markets – is changing risk and the opportunities shaping the Future of Construction.

It is therefore essential that the construction industry and insurance marketplace work closely together to ensure changing risk profiles are managed across stakeholders and that continued innovation will be a benefit to society.

 

Today’s construction industry is under more pressure than ever to deliver projects that are on time and on budget—all while dealing with record global labor shortages, supply chain issues, and other challenging external constraints. Factors like accelerated construction schedules mean critical decisions must be made quickly by the project leaders working in the field and in the office. The quality of these decisions often determines a project’s success or failure.

Technology adoption in our industry has rapidly accelerated in recent years and we’re on a journey to full-scale digital transformation. As a result, the volume of project data has grown exponentially—with construction leaders identifying that their own data has doubled in just the last three years.

A key factor that empowers these leaders to quickly make critical decisions in the field is access to accurate project data.

To better understand how our industry is managing these challenges, Autodesk partnered with FMI to survey over 3,900 industry leaders worldwide to understand their current data strategies. The findings show that many in the industry agree—operating without a formal strategy for collecting, managing, and using data poses a significant risk for many firms. These are themes I have heard myself during conversations with leaders in the construction industry.

 

Following the COVID-19 shock to economies and societies many countries are including renewed infrastructure investment as a stimulus measure. Such investments present an opportunity for governments to address short-term infrastructure challenges through maintenance spending while building resilient and sustainable infrastructure for the future.

Tackling the complex challenges and opportunities related to infrastructure resilience and maintenance requires a multidimensional approach, considering a range of factors and stakeholders at the local, regional, national and global level. This approach seeks to get the best out of the asset over its life cycle, across functions and tasks and the entire infrastructure system/network. As infrastructure is inevitably affected by environmental social and governance (ESG) risks, this approach can identify the trade-offs between objectives, and therefore enable more robust policy choices.

Drawing on examples and case studies, this report aims to provide a framework for the optimisation of existing infrastructure assets and the building of new resilient infrastructure, including new strategies capable of ensuring quality and performance over the asset life-cycle.

The COVID-19 crisis has demonstrated the importance of infrastructure for supply chain resilience, logistics and delivery of essential goods and services. It has underlined the need for countries to make their infrastructure more resilient to future disasters and pandemics, ensuring the continued operations of critical networks such as utilities, transport and telecommunications. An assessment of critical infrastructure essential for the functioning of economies and societies can bolster infrastructure resilience plans, along with assessing interconnection of infrastructure systems and their contribution to resilient communities and economies.

Beyond ensuring operational resilience, economic stimulus spending, whether directed to investments in new infrastructure or to the upgrading of existing stock, should target sustainability and resilience objectives related to the Paris Agreement, the Sustainable Development Goals, and the Sendai Framework, while meeting the G20 Principles for Quality Infrastructure. Given the volume of existing infrastructure assets, maintenance should be an urgent priority for many OECD and G20 countries.

Green infrastructure development ensures that infrastructure itself does not undermine environmental sustainability goals, whilst protecting infrastructure assets and services against environmental impacts and climate change. Climate change adaptation, through for example nature-based solutions, can help countries develop infrastructure that is resilient to the risks of rising seas or climate extreme events such as storms or floods or extreme temperatures.

New technologies can help reduce maintenance costs whilst improving operational efficiency and offers alternatives to traditional infrastructure design, construction and maintenance. Technology development has been pivotal in responding to the COVID-19 crisis enabling infrastructure to become more resilient to future disasters and pandemics. It has allowed continued operations of critical networks such as utilities, transport and telecommunications despite the large-scale disruptions and rapidly changing needs caused by the crisis.

 

The past 18 months have seen some welcome changes in approach to major projects. There’s been an imperative step change in the use of remote and collaborative technology, in order to keep projects running despite fewer people on site.

We’ve also witnessed a renewed spirit of collaboration, as owners acknowledged the truly unique nature of the pandemic and lockdowns and accepted their share of the associated risks and costs.

Having come through this difficult period relatively unscathed, there’s a sense that contractors may finally be turning their backs on projects with unmanageable risks that could jeopardize their entire business.

 

Now as the post-pandemic recovery gets underway, world leaders are calling for the coming years to be more than just a period of growth – but of renewal and positive change too.

G7 leaders meeting in the UK in June launched ‘Build Back Better World’, a global partnership to improve infrastructure in low- and middle-income countries. Meanwhile, governments around the globe have called on the construction sector to step up and serve as an engine of wider economic growth.

Our 2021 International construction market survey takes stock of how the industry is responding, the challenges it faces – and the rewards on offer.

We’ll examine how the strains imposed by diverging growth rates and intense competition for resources are placing speed bumps in the path of accelerating capital investment. Our regional teams of experts have compiled detailed construction cost and sentiment data from 90 markets around the world, to build up an unmatched picture of how the global supply chain is handling the surge in capital spending.

We pinpoint where these two forces – rapidly rising demand and constrained supply – are colliding to drive up input costs and schedule risk.

As the world’s eyes turn to Tokyo for the delayed Olympic Games, our data reveals that the Japanese capital is the world’s most expensive market to build in. 

But the challenging macroeconomic backdrop is only half the story. These are times of change and complexity for large organisations managing diverse capital programmes.

Both public and private sector clients are juggling multiple, competing goals and priorities. From accommodating hybrid working patterns, to embedding social value into their operations and taking concrete steps towards Net Zero, in the new world success is no longer judged by the traditional mantra of ‘better faster, cheaper’.

That’s why this edition of our survey also considers how those responsible for capital assets can tackle overlapping challenges simultaneously - translating enterprise strategy into a programmatic approach which is proven to deliver better outcomes.

Then, as now, governments ignited growth with huge stimulus packages, and private sector investment across the built environment followed, ushering in dramatic, lasting economic and social change.

The post-COVID recovery has the potential to be just as transformative, and the global construction industry should seize this opportunity to deliver more than just growth.

 

Despite the massive impact of the COVID-19 pandemic, the global construction industry was disrupted less than other industries during 2020. However, the pandemic has affected the growth outlook for the coming years, as the higher indebtedness caused by the increase in public spending required to mitigate the COVID-19 crisis may jeopardize the sustainability of public finances in some countries and, consequently, infrastructure investment possibilities. However, the current crisis should only have a limited effect on the long-term megatrends that will drive growth for the coming years: population growth and urbanization, climate change and decarbonization of the economy and technology and digital transformation. The impact of the COVID-19 crisis on public finance will likely cause public-private cooperation to become a key option to ensure infrastructure investment.

The Global Powers of Construction 2020 (GPoC) report ranks the top 100 global construction companies based on sales, and the top 30 companies based on market capitalization. Like previous years, the report analyzes the current macroeconomic outlook of the construction sector and forecasts its growth across major markets. It analyzes the key financial indicators of the leading players—performance in terms of revenue, market capitalization, international presence, diversification, profitability, indebtedness, and other financial ratios. This year’s report also includes a section analyzing a number of trends that have been shaping construction over the last few years or are expected to have a great impact in the near future, taking into account the new post-pandemic priorities.

Points clés : 

- The total revenue obtained by the GPoC companies in 2020 amounted to US$ 1,511 trillion, 3.7% higher than in 2019.

- Chinese companies continue to dominate the top 100 ranking by revenues, with 6 companies in the top 10 in terms of sales. However, there is only one Chinese company in the Top 10 ranking by market capitalization and two Chinese companies in the top 10 ranking by international sales.

- In 2020 the GPoC obtained about 17% of total revenue outside their respective domestic markets, down from 19% of international sales in 2019.

- The financial performance of the top 30 GPOC in 2020 was uneven, since the COVID-19 crisis didn’t affect all sectors and countries in which these companies operate to the same extent.