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CMS study ranks infrastructure investment attractiveness worldwide

30/11/2017

The Netherlands is the world’s most attractive destination for infrastructure investment, according to the CMS Infrastructure Index: A New Direction, which ranks 40 jurisdictions in order of infrastructure investment attractiveness according to six key criteria.

The Netherlands claimed top spot overall, despite a prolonged period with no government at all, after seeing the highest GDP growth since 2007, expected to reach 3.3% in 2017. The country’s success was in part down to its transparent and efficient procurement process, and its healthy multi-billion euro pipeline in road and water Public-Private-Partnerships (PPPs). Other countries in the top five included Canada, Germany, UK and Australia.

Infrastructure Index image

CMS partner and head of the Dutch Energy Group, Cecilia van der Weijden, commented, "While the Dutch infrastructure market is traditionally active, with the Netherlands having the highest quality ports, airports and roads, we now also see a strong increase in large renewable energy projects, notably annual tenders for the development of offshore wind parks. With the new coalition agreement presenting an ambitious energy policy and announcing a further increase in offshore wind capacity for the period up to 2030, it seems like this is just the beginning."

CMS partner and Co-head of Infrastructure & Project Finance in the UK, Kristy Duane, commented, “From China’s Belt and Road to the UK’s Brexit bump in the road, politics and policy remain central to shaping infrastructure investment flows globally. If governments are to attract the apparent wave of private capital available, they should look to countries like the Netherlands and Canada for inspiration where transparency and a clear strategic vision for infrastructure shapes the agenda."

"The CMS Infrastructure Index charts interesting shifts in the attractiveness of 40 countries across the globe and also highlights changes occurring in the infrastructure asset class bringing a new wave of innovation to a market long dependent on standardised PPPs for much of its deal flow. The quest for deals has already prompted the industry to explore less mature sectors such as energy storage, broadband, smart meters, as well as student accommodation and rolling stock. It is fascinating to see which countries are leading the way.”

Europe bounces back
European countries have bounced back after a period of stagnation. Quantitative easing, the Juncker Plan and EIB support have all contributed to accelerated levels of EU infrastructure spending in recent years, and with economies such as Czech Republic and Romania experiencing significant expansion, there is room for optimism for future investment.

Europe as a whole has experienced an upsurge in infrastructure investment, as many politicians have been willing to use infrastructure investment as an economic stimulant. As well as the Netherlands and the UK, Germany, Norway and France ranked highly in the study, particularly for innovation. In Germany, all dominant parties have placed their support behind PPPs, and it is expected that deal flow, particularly in large-scale transport PPPs, will stay the course.

UK not fulfilling potential
Maybe unsurprisingly, the UK struggled to hold on to the top spot it gained in a study conducted by law firm Nabarro in 2015. The impact of Brexit and general political instability is already starting to have an impact on infrastructure investments, as investors struggle with a lack of certainty in the country. Those operating across the sector are clearly looking for commitment and long-term policy from government to allay fears. The report highlights in particular the lack of consensus over infrastructure megaprojects such as a third Heathrow runway and HS2.

Canada rules the Americas
In the Americas, Canada leads the way whilst a lack of detail on Trump’s proposed USD 1trillion US infrastructure project leaves the US lagging behind in 7th position. Notably, the Canadian government is to launch the Canadian Infrastructure Bank in 2017, providing a boost to the already reliable infrastructure market.

From oil to renewables
In other regions, MENA has succeeded in looking at alternatives to combat ongoing low oil prices. UAE and Saudi Arabia have shown a keen interest in renewables. UAE have already played a pioneering role in exploiting their high levels of solar irradiation, while Saudi Arabia’s recent commitment to clean energy is hailed as a game changer for the regional pipeline.

Shifting hegemony
Elsewhere, the 2013 China Belt and Road initiative is delivering an investment boom in Asia. Given the longevity of this project, changes in the balance of infrastructure investment in the region are likely to be profound.

Traditional versus alternative investment
The report also highlights potential new emerging asset classes including 4G, charging stations, car parks and the likely impact technology, which is already revolutionising infrastructure. One example is the rise of smart roads and smart cities, thanks to the interaction of road sensors, fibre optic networks, interconnected self-driving vehicles and inductive charging roads, laying the foundations for a new generation of self-charging and self-driving electric vehicles. Cities like Dubai and Singapore are already making strides to lead the next wave of digital innovation.

CMS commissioned the Index, in conjunction with Inspiratia, to evaluate past trends and to serve as an indicator as to which jurisdictions would be most attractive for future investment and activity.

The index is based on six main indicators:

  • Economic status, which takes into account trade as a percentage of GDP, credit rating and interest rates, comprising 30% of the overall score.
  • Sustainability and innovation, taking into account environmental performance, innovation and quality and consolidation of infrastructure, comprising 12.5% of the overall score.
  • Tax environment, taking into account corporate tax rate, resource drain and tax complexity, comprising 5% of the overall score.
  • Political stability, taking into account the effectiveness of governance and rule of law, and regulatory stability, comprising 22.5% of the overall score.
  • Ease of doing business, which takes into account transparency and doing business, comprising 10% of the overall score.
  • Private participation, which takes into account government support, gross fixed capital formation and private investment, comprising 20% of the overall score.
Infrastructure Index

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Picture of Cecilia Weijden
Cecilia van der Weijden
Partner
Amsterdam