Actualités

 

Sommaire : 

- Introduction

- News from the Global Infrastructure Initiative

- Engineering the energy transition: An interview with Aleida Rios of BP

- Capturing the net-zero opportunity with portfolio synergies

- The innovation function: An interview with Shaun Kenny of Bechtel

- Infrastructure for a net-zero economy: Transformation ahead

- How big business is taking the lead on climate change.

 

Construction, however, has again proved itself extremely adaptable during the last year in responding to the difficult circumstances. We have seen sustained delivery of housing and infrastructure across most global markets, better use of data, and increasing investment in technological solutions such as modern methods of construction, all of which can improve efficiencies and aid the drive to net-zero.

This adaptability will prove vital as businesses ready themselves for the uncertain and inflationary environment ahead. This theme is central to our 2022 International Construction Costs Index, which highlights dramatic price fluctuations in many regions around the globe.

While there is healthy confidence in the future of the construction sector internationally, differing government COVID-19 strategies have resulted in varying paces of recovery. Meanwhile labor and skills shortages have caused supply and demand challenges in many areas, such as Europe.

These shortages have been felt across the supply chain, forcing businesses to tackle pressing and persistent problems such as low productivity, staff retention and project resilience.

Our five-point plan later in this report provides a pragmatic guide to dealing with the unique challenges of 2022.

Sustainability is equally high on the agenda. Construction and operation of built assets is responsible for 38% of global greenhouse gas emissions, according to the UN Environment and International Energy Agency’s 2019 Global Status Report. COP26 also emphasized the growing need to transition away from fossil fuels, as our recent 2021 Supercharging Net Zero report details.

In the face of ongoing material shortages, efficiency and productivity remain a must. In this respect, the need for efficient design is likely to drive further investment in innovative solutions, while a big push from many governments, both in terms of financial support and the implementation of legislation, has crystalized longterm sustainability commitments.

While on the surface the looming market conditions sound unfavorable, we believe these challenges more than ever present our industry with a great opportunity to drive forward innovation. In order to reduce our impact on the environment and our reliance on resources, we need to adopt a mentality of doing more with less.

This report will give you the insight you need to navigate the current and future challenges ahead. It will show how flexible, pragmatic decision-making can allow businesses to adapt to fluctuating and unpredictable conditions and put themselves in a market-leading position to take advantage of a period of growth.

 

This publication explains how countries can establish strong public–private partnerships (PPP) to help bridge deep funding gaps and build the climate-resilient infrastructure they need.

 

Points clés : 

- 40 public-private partnership transactions reached financial close for an aggregate value of €8.0 billion.

- In value terms, the market decreased by 13% compared to 2020.

- Despite expectations of a greater reduction in activity due to the impact of the COVID-19 pandemic, the number of projects decreased by just 7% compared to 2020.

- The most active markets were Italy in value terms and France in terms of the number of projects.

- 13 countries closed at least one public-private partnership project compared to 11 in 2020.

- Transport was the largest sector both in terms of value and number of projects.

- The rise in demand/revenue-based projects has continued with more than two-thirds of transactions taking this form.

 

The pandemic and associated disruption are prompting new thinking about infrastructure. Governments around the world are investing in infrastructure to deal with this new reality and to help jump-start the recovery. These infrastructure funds are coming at a time when several larger trends are changing the way we think about infrastructure: Economic stimulus for a postpandemic rebuild ; Focus on environmental sustainability ; Emphasis on greater social equity ; Technology.

 

Sommaire : 

- Introduction

- News from the Global Infrastructure Initiative

- Changing project delivery to meet net-zero targets

- Transforming capital projects to deliver net-zero emissions

- Building better capital projects through sustainability benchmarks

- Leveraging infrastructure investment to meet net-zero goals

- Upgrade the grid: Speed is of the essence in the energy transition

- Decarbonizing the built environment: Takeaways from COP26.

 

Evidence of public expenditure on infrastructure is extremely sparse. Little is known about the trends and patterns of infrastructure expenditure, and there is no real basis for assessing the adequacy and efficiency of infrastructure spending. Drawing on the World Bank’s novel BOOST database, this paper provides a first relatively disaggregated picture of infrastructure spending trends and patterns for a large sample of more than 70 developing countries covering 2010–18, drilling down into expenditure by sector for roads as well as electricity, and distinguishing operating from capital expenditure. Complementary sources of data are tapped to allow comparison between expenditure patterns on and off budget. The study finds that on-budget expenditure on infrastructure has been low both in absolute terms (1 percent of gross domestic product) and relative terms (5 percent of total public spending), as well as declining over time. Overall, infrastructure spending declined by about one-third over 2010–18 (with the road sector bearing the brunt of the decrease), and now lies well below estimates of the required levels, except in a handful of cases. There is evidence that low-income countries, despite lower spending envelopes, attach greater priority to public investment and infrastructure spending than their middle-income counterparts. Econometric analysis suggests that infrastructure spending in low- and middle-income countries has been historically procyclical, although to a lesser degree than total expenditure. In the transport sector, road funds are shown to play a substantial role in funding road maintenance, appearing to improve the adequacy of funding, while attenuating pronounced capital biases in road sector spending, but there is little evidence of efficiency improvements over time.

 

This will be a year of setbacks and recoveries — and recoveries and setbacks. We see 2022 as a year of opportunity as the world learns from the past and works to rebuild with more resilience, sustainability and equity. Yet it will also be a year of uncertainty as new challenges emerge and social expectations continue to shift as we learn to live in a world with (not after) COVID. And infrastructure leaders have an opportunity to fundamentally change our collective path on the climate, social, and governance agenda.

Like it or not, the infrastructure decisions we make this year will set the stage for how the world will evolve over the next century. If we get it right, we have an unprecedented opportunity to catapult humanity forward into a cleaner, more productive and more equitable future. But if we get it wrong — if we allow our differences to supersede our collective interest — we will bequeath our children a very bleak future indeed.

Making the right decisions on infrastructure will require four things — insight, agility, collaboration and bravery.

 

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.