Sluggish economic recovery and high levels of government debt have slowed the rate of infrastructure investment in most European countries according to Infrastructure 2013 a joint report from the Urban Land Institute (ULI) and Ernst & Young. Many European governments are making significant reductions in public spending and infrastructure budgets are often being targeted for cuts resulting in the scaling back, postponement or cancellation of key projects.
The European Union is continuing to fund infrastructure projects which improve connections between member states including freight-rail, high-speed passenger rail, motorway, canal, and port terminal projects. However, the report cautions that it may become increasingly difficult to deliver upfront financing to meet the €1.5 trillion investment goals set before 2020.
Many interviewees in this year’s report viewed Public Private Partnership (PPP) deals as critical to delivering infrastructure projects but called for more innovative models that would deliver faster funding to a wider number of regions. However, as a barometer of current activity, some interviewees estimated that the size of the European market for PPP deals had shrunk by 50% since the economic downturn.
“Funding is the single biggest issue facing Europe’s infrastructure markets,” comments Joe Montgomery, Chief Executive of the Urban Land Institute in Europe. “Private capital is essential to delivering new projects as well as enabling improvements and maintenance to existing infrastructure. Notwithstanding the positive role that the European Investment Bank is playing on infrastructure financing, many countries across Europe have had to reduce or delay infrastructure investment. Indeed, even countries such as the UK which is trying to use infrastructure investment as an economic stimulus are finding it hard to put the right funding and guarantees in place to enable delivery.”
Howard Roth, Ernst & Young’s Global Real Estate Leader, added, “The rate of urbanization worldwide is putting increased pressure on the need for additional investment in infrastructure. Who's going to pay for it remains a global issue. There's plenty of global capital looking for a home, without regard to borders. Additionally, global investors appear to be warming up to infrastructure as an asset class. That spells opportunity for governments, who simply don't have the required funding, to tap into these nontraditional sources.”
Malcolm Bairstow, Ernst & Young’s Global Infrastructure Advisory Leader, stated, “There is clearly an opportunity for governments and the private sector to come together in more innovative and effective ways to finance, build and maintain existing infrastructure. Infrastructure is the foundation which enables any city, community or successful real estate project to thrive and flourish. We must find better ways to make this happen.”
Source: Ernst & Young