Mega transport projects, globalization and private -finance
Introduction
The arguments posed above are primarily based when ABM driven
globalization was unchallenged and championed on many fronts
internationally and in many influential quarters in academia, politics, industry
and in the world of global finance. They were presented prior to the global
banking crisis and its dramatic effect on the restructuring of the world’s
financial landscape taking place at the time of writing this paper which saw the
decimation of the capital reserves of most major international banks and
investment houses
The discussion which follows foresees uncharted waters ahead for major
transport infrastructure investments as global capital markets become
increasingly severely constrained and yet new public sector infrastructure
investment programmes are launched world wide by the major economies of
the world.
The discussion here begins with the period when the private sector was seen
by many national governments and international development agencies alike
to be better placed to take on the risks and uncertainties that major
infrastructure investments posed. Fears of an infrastructure collapse was at
the time so widespread and the need for investment seen to be so great that
the public sector appeared in (too) many cases prepared to handover the
baton of strategic infrastructure decision-making to global players on the
grounds that they had the required funding, expertise and overview that the
public sector lacked; a greatly misplaced premise as hindsight now teaches
us
While fears of the beginnings of the global credit crunch and infrastructure
investment bubble were voiced by a few prior to their materialisation, the
momentum of consumer-driven globalization, fuelled both by visions of global
hypermobility and diluted regulatory practices, was such
that the global infrastructure investment world seemed to have nothing but an
extraordinary promising future ahead between 1996 and 2006. Infrastructure
investments (especially MTPs) had the added marketing advantage of
representing major landmark projects often seen to symbolise the economic
virility of national/city economies thereby seen as priority projects by many
politicians eager to impress global investors.
Estimates in 2006 indicate that the annual value of infrastructure deals worldwide increased to US$ 145 billion, representing a 180 per cent increase on
2000, when, at the height of the mergers and acquisitions boom the total
value was only $52bn (Thompson Financial, 2006). This high level of
investment activity was maintained until the impacts of the ‘credit crunch’
began to take effect in 2008, and the call for new regulative frameworks for
international banking and investment practices reached the crescendo it has
today. In the UK, these changed circumstances led to financial sponsors
attempting four infrastructure deals together worth just $121m (£61m) during the first quarter of 2008, compared to four with a combined value of only
$11.3bn in the fourth quarter 2007 (The Telegraph, 2008).
It is important to understand how the above described earlier bonanza of
global infrastructure investment developed. The following explanation is
offered by Bell (2007):
• Firstly, by the 1990s a historic underinvestment in the infrastructure sector
globally had developed, especially in transport. This in part can be
attributed to past constraints on global capital availability which
considerably improved in the 1990s, up until mid 2008, during which time
there was more money available to invest than viable projects to invest in
(Fraher and Kennedy, 2006).
• Secondly, a common belief spread internationally (very much promoted by
the IMF and World Bank) that the private sector was better placed to
extract higher investment and operational delivery returns in infrastructure
than the public sector.
• Thirdly, infrastructure came to be seen as havens for long term investment
for global investors who were at the time looking for long term, stable and
inflation-proof returns.
• Fourthly, the financial markets became awash with new and more
innovative financing models that made such investments appear attractive.
The jury is out, incidentally, on the extent that these models contributed to
the current malaise of toxic loans.
• Finally, the increased forces and acceptance of globalisation attracted
many more investment entrants into the market than had ever been seen
before.
The global infrastructure investment area grew so rapidly between 1996 and
2006, spawning such handsome rates of return, that a representative of the
Standard & Poor Infrastructure Group at the Infrastructure Asset Finance &
Investment Summit held in London in 2007 expressed concern that the sector
was becoming overheated. This party was especially alarmed by the fact that
the amount of equity in such projects was diminishing to such dangerous
levels that he foresaw a bubble about to burst (Wilkens, 2007).
Others expressed different but potentially equally significant reservations
regarding the then dramatic growth in infrastructure investment (including
MTP investments). These include a claim by Paine (2007) that the public
sector world-wide had been selling-off infrastructure assets at levels that were
far too low: first on account that longer term benefits had not been correctly
assessed prior to their sale; and second, in light of the fact that the scarcity of
such infrastructure assets had been largely ignored in these assessments
Further concerns have been voiced regarding MTPs financed by Private
Finance Initiatives (PFIs). Often masquerading as Private Public Partnerships
(PPPs), where the “partnership” component is more bound-up in rhetoric than
reality and where the value for money of this type of project has been
increasingly questioned (see The Guardian, 2005b), not least because they
often contribute to the mushrooming of public debt in a non-transparent way
as the loans they incur typically do not feature in the public accounts as debts. By way of illustration, UK Government debt as of 2007 attributable to PFIs
was in the region of £91 billion (HM Treasury, 2007). This is approximately
six per cent of the country’s GDP (£1.42 trillion).1
With the onset of the
construction of projects related to the 2012 Olympic Games, this is set to
spiral.