Why Infrastructure?

Australia’s infrastructure investment landscape is characterised by a growing demand for modernisation and expansion.

Infrastructure usually holds a strong position in the market.. This is because it often takes a lot of money to build these assets, making it hard for new competitors to enter. Since finding alternatives can be challenging, infrastructure faces less competition than most assets, which can lead to more stable cashflow and growth.

The products or services provided by infrastructure are typically essential, so their demand is steady and less affected by price changes compared to non-essential products or services.

Income from infrastructure usually comes from:

Financing the initial overlay
Offering delivery of the services for the initial overlay
Returns on assets set by utility regulators (e.g., water, electricity, gas).
Long-term contracts (e.g., oil and gas pipelines).
Fees from users

Infrastructure assets also have long lifespans. The contracts or concessions governing these assets aim to provide the owner with consistent and stable cash flows, which may be adjusted for inflation over time.

Why Australia?

Governments in Australia, whether local, state, or federal, confront a formidable task of funding and executing the infrastructure necessary to support ongoing economic and social expansion. Australia also faces swift population growth, expected to surpass 40 million by 2059^[1] , an aging population, and the need to seamlessly deliver existing critical services. These factors will lead to escalating capacity limitations in public transportation, road networks, freight systems, and essential utilities.

The Australian infrastructure delivery apparatus (private and public) must make the relevant investments in transportation, utilities, and social infrastructure to address the surging demands^[2].

A few uniquely Australian attributes for the built environment:

More than 86% of Australia’s population resides in cities and towns, with over 50% concentrated in Sydney, Melbourne, and Brisbane.
Infrastructure industries contribute to over 20% of Australia’s GDP.
By 2030, road freight is expected to experience a 25% increase, while rail freight is projected to grow by 8%.
Approximately 182,000 individuals are employed in Australia’s major public infrastructure projects, with an additional 1.2 million working in related sectors.
Since 1991-92, the construction sector has witnessed an average annual growth rate of 3.9%.

Between July 1, 2021, and June 30, 2022, 37 NSW Major Infrastructure projects collectively hold a capital value surpassing $30.9 billion ^[3] ^w

Given the dynamics of the current environment, there is opportunity for stakeholders in Australia’s infrastructure sector to embark on innovative endeavors, in both financing and product delivery.

Show me the opportunity

For the first time in the history^[4], a greater number of participants are now involved in investments related to social infrastructure and renewable energy, surpassing investments in road infrastructure. These are subsequently followed by energy transmission and distribution, passenger rail, and water infrastructure.

The growing emphasis on social infrastructure by investors in the past two years aligns with substantial government funding commitments from state governments, particularly in healthcare. Noteworthy commitments includethe NSW Government earmarking $11.9 billion for capital expenditure on hospitals and health facilities over a four-year period. Similarly, the Queensland Government unveiled a six-year, $9.8 billion Queensland Health Capacity Expansion Program, while the Victorian Government allocated $2.9 billion over four years for the construction and renovation of health infrastructure.Victoria adopted a privately financed approach for delivery.

In the current socio-economic climate, governments cannot escalate borrowings while preserving their AAA credit ratings.Therefore the private sector is the provider of choice.

The pivotal query confronting both governments and the private sector is whether to expedite the capital outlay process. Steps to address this challenge include establishing the prerequisites for capital investment, discerning the essential factors contributing to its success, and securing commitments from governments to enact policy adjustments, while mitigating risk.

Delivery Development and Deployment

The growing complexity of projects, amplifyingchallenges like cost overruns and delays, underscores the necessity for a more innovative approach during the project’s delivery phase. Unreservedly, this is the single biggest uncertainty facing project financing.

Traditionally, there is a lack of an integrated viewpoint, and the objectives of every stakeholder is not considered, resulting in ill-advised choices that diminish project value. Traditional “siloing” methods tend to frustrate project owners as they yield only marginal improvements and are time-consuming.

Projects can be plagued by misaligned incentives, while regulations can impede design innovation. Progressive pathways include a more integrated approach, that implements a well-defined framework for project financiers and delivery partners.

Australia’s well-established market maintains investor trust.. Nonetheless, investors encounter a variety of obstacles, notably supply chain limitations and economic uncertainty, attributed to mounting inflation and increased borrowing costs. An expanding availability of private capital is eager for investment opportunities, and as superannuation funds continue to grow, smaller opportunities will be overlooked.

Robust policy leadership that bolsters Australia’s economic and social standing, a renewed dedication to fundamental market principles encompassing competition and minimal intervention, and harnessing private capital to facilitate investment, will all further Australia’s reputation as a compelling hub for infrastructure investment – regardless of scale or size.

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