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Infrastructure funds as major players in the new economy

04 May 2021

The Keynesian revival post Covid-19 is boosting infrastructure funds as major players in the new economy leading the third...

Newsletter - May 2021

The Keynesian revival post Covid-19
is boosting infrastructure funds
as major players in the new economy
leading the third phase of economic transformation

In 2021, infrastructure investments have become an essential part of rescue packages in large economies: Together public and private expenditures will reach $3tn in 2021 – of which $700b will be private[1]. The focus of these investments as well as the economic models and the return patterns, will, however, be completely different.

  • Historically, during the late nineteenth and full twentieth century, Infra-Funds played a key role in building up primary infrastructures and facilitating economic and social development to fulfill basic needs leading to the eradication of poverty (some countries still -partially- are in this phase, such as India and many other African countries).
  • In the second phase, in the 1980’s, they have been major facilitators of globalization through the financing of highways, airports, harbors, telecom, and data infrastructure
  • In the third phase, since the beginning of this century and accelerated by the pandemic crisis, infra funds have become key promoters of the ecological and digital transition, initiating investments in zero carbon assets, renewable energy , recycling and circular economy, smart cities, new forms of productivity and new ways of working and collaborating.
  • During the last decade the Asia Pacific region attracted the highest level of private infrastructure investment ($34B in 2019), largely due to China, while Europe faced the largest decline. LATAM and MENA have also been fast-growing regions for private investment (CAGR > 10%). The US has lagged and is presently trying to catch up with Biden’s infrastructure initiative. Africa, however, is still entirely reliant on public funding, and has huge needs.
  • In the new context, however, it is expected that emerging countries (including China) will now leapfrog developed economies and invest directly in sustainable energy, local grids, ecological solutions and new business models as they did in the past in telecom with the surge of mobiles.
  • In the globalization age, transportation and centralized power had attracted the lion’s share of private investments (30% each on average), whereas social infrastructure declined from US$19 billion in 2010 to less than US$3 billion in 2019. But the pandemic has reshuffled the cards. It has given a new impetus to some sectors (healthcare, social) reversing trends and promoting a change in favour of more sustainable solutions
  • The covid-19 pandemic has also put global economies resilience and self-reliance to the test and questioned the globalization economic model based on constant optimization of working capital, excessive reliance on delocalization, short cycles, rock-bottom inventory, limited slack and no redundancy. Therefore, strong regional and local infrastructures and manufacturing facilities are today mandatory to avoid high dependency on other economies in the context of a revised supply chain.

 

At INUO Strategic Impact, we believe that, accelerated by the covid-19 crisis and the resulting buoyant market in a low cost of debt environment, the paradigm for investment will change rapidly:

  • Impact assessment is going to be a key component of calculating returns and allocating capital, which will soon include the evaluation of the cost of carbon .and the overall sustainability of the project.
    Risk assessment will not only be financial but incorporate other non-financial factors beyond ESG guidelines (considered as a minimum requirement)
  • Optimization of resources will accelerate and favor the circular economy and recycling but also the optimal efficiency of operations (like reducing water leakages in water distribution) using digital and technological tools such as IOTs, AI and robotics. The link between asset development and optimization and business services to draw returns on the assets will therefore be more relevant.
  • Social infrastructure investments, that require a long-term view, in a low interest environment, will become more attractive to the private sector, especially in health care and education and urban safety and modernization through smart cities buildup where infrastructure and private equity funds are now showing renewed interest.

These new market conditions call for enhanced capabilities to:

  • Identify new asset classes opportunities, assess new markets opportunities such as education and health care and clean energy
  • Understand and get involved in adjacent business models, from pure infrastructure assets development and financing to business services, with new partnership opportunities and direct investment in business services companies
  • Deliver assets optimization and efficiency, beyond ESG, implementing new reporting and KPI’s
  • Learn to be more intrusive and contributive in the enhancement of asset productivity (enhance governance, quality of staffing, operations, and financial engineering)
  • Redefine corporate interactions within public sector and territories, develop PPPs and be more proactive

INUO Strategic Impact has the tools and expertise to support your strategic goals and create sustainable EBITDA

Full Potential Impact: assessment of investment opportunities ( strategic, operational and ESG compliance due diligence) definition and implementation of a robust strategy beyond ESG criteria, including identification of immediate risks and vulnerabilities across the value chain, design of a new roadmap based on disruption scenario analysis, re-evaluation of the supply chain, definition of new business models such as circular economy ,alignment of companies KPIs with adequate strategic, ESG and efficiency matrix

100-360! Full Efficiency Impact: 100 days to diagnose and deliver sustainable EBITDA-positive operational results and bases for a digital transformation, enabling for a minimum 3 to 5-time ROI in 360 days. Support to longer implementation Plan

INUO Strategic Impact is part of Eurogroup Company, one of the leading transformation consulting firm for the private and public sector

[1] Private Infrastructure Investment: private sector’s share of the financial close value of infrastructure deals that involved private participation

Sources : World Bank, GIH, INUO analysis

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