According to the CBI 2014 Infrastructure survey, 96% of UK businesses believe that political uncertainty is a barrier to infrastructure investment and 93% assert that political rhetoric undermines investor confidence.
It is certainly easy to blame politicians for the current slow pace of infrastructure investment, particularly when the capital is available and investors are willing. Indeed, a recent study by Arcadis placed the UK in the top ten countries in the world for infrastructure investment. This ranking was boosted by the recent EDF deal for Hinckley C amongst others so perhaps the real picture is not as bleak previously feared.
The fact is that investors are more enthusiastic about some projects than others. They increasingly prefer renewable energy deals when compared to projects such as toll roads, where forecasts for traffic volumes may not materialise thereby increasing risk. Consequently, there is a potential mismatch between what governments want to build and what investors would like to fund. The lack of understanding of each other’s objectives between investment institutions and Governments has been cited in a recent OECD report as the key reason why pension funds and sovereign wealth funds have not invested as much as expected in transport infrastructure in the EU.
Whilst we consider these important questions, investors across the world continue to build pots of billions of euros as they search for projects to invest in. The longer the inertia continues the more competition will increase between institutions and pension funds. These delays reduce the size of the potential returns they are seeking which, in turn increases frustration.
Politicians certainly do themselves no favours by making announcements that have already been made before (as this Government has been particularly guilty of), or making spending commitments containing very little new money. The lack of visibility of future projects and in particular, the lack of detail around the specific costs, timescales, financing and nature of Government guarantees make politicians easy targets to blame.