As more developed economies appear to have reached the limit of desired monetary policy (rate cuts and quantitative easing), it is likely the focus will change to fiscal policy. President-elect Trump has committed to significant infrastructure spending, and is likely to enjoy bipartisan support from Congress with his plans. Unshackled by a loosening of austerity policy, the UK’s Chancellor of the Exchequer, Philip Hammond, is likely to take advantage of low borrowing costs and announce spending programmes in the coming months.

The UK Government has committed to invest over £100bn (via a mix of public and private investment) by 2020. However, this is dwarfed by global needs, as Citigroup estimates that global infrastructure spending could be as much as $58.6 trillion over the next 15 years - 60% of which will be required to meet emerging market needs. Circa 1.5 billion people around the world have no access to electricity. One billion are without safe drinking water and over 2.5 billion are without access to basic sanitisation.



The UN suggests there will be an increase in the global population of 1.5 billion people over the next 20 years, largely within emerging markets, so there is an even more pressing need to start addressing the situation now.

Infrastructure can be split into four broad areas:

  • Transportation: Rail, road, air, airports, maritime and ports
  • Telecommunications: Fixed line networks, broadband networks, mobile networks and satellite networks
  • Energy: Including electricity generation, transmission, distribution, storage; oil and gas, upstream activities, refining, conversion, transportation; and distribution and storage, as well as coal mines, nuclear facilities, renewable assets, etc.
  • Water and sanitisation: Assets such as water treatment facilities and distribution networks, waste water collection and treatment, sanitisation, irrigation, and potentially broader waste collection and treatment.

The above sectors cover ‘hard’ infrastructure, but there are also further social areas, such as schools, hospitals, care homes and social housing.



If done well, infrastructure spending can help boost demand in the near term, but more importantly, the improvements help to meet longer-term needs. The International Monetary Fund (IMF) suggests that for advanced economies, an increase in the GDP value of public investment spending by just a percentage point has the potential to raise output by 0.4 percent in the same year, and by 1.5 percent four years later. The impact is greater when growth is weak.

An example might be the New Suez Canal which has added a new 35km-long second shipping lane and expansion of a 37km-long section in the existing canal. The enlarged capacity now allows ships to sail in both directions at the same time over much of the canal’s length. Ship waiting time has been reduced from 11 hours to around three hours and increased the canal’s capacity from 49 to 97 ships a day. The $8bn project took one year to complete and involved 400 private companies and 25,000 workers.

Not all projects might meet both short- and longer-term needs of the broader community. The Three Gorges Dam in China is the world’s largest hydro project, however longer-term benefits are harder to assess by the physical impact it had on the region - it displaced more than 1.2m people and, due to its reservoir length of over 500km, 13 cities, 140 towns and 1,350 villages were flooded. The overall project was plagued by corruption, spiralling costs and environmental impacts.

In the UK, we are familiar with the endless battle over increased runway capacity around London, which in itself leads to long, expensive delays.The latest decision for Heathrow has prompted the resignation of a high profile MP and further protests and delays seem likely. The UK Government is also likely to take time weighing the long-term economic benefits and the opportunity and social costs of HS2.




The big conundrum is that emerging market countries are least likely to be able to afford the fiscal expansion required to fund these projects. The private sector may be able to provide some novel solutions in some areas – something Vodafone, with its significant emerging market presence, has latched on to, as connection and communication is vital to allow economies to develop at a reasonable cost. Vodafone has recently signed a deal with Inmarsat. It is believed to be the first of its kind, where a mobile phone network has signed up to use Inmarsat’s global satellite broadband network in order to provide connectivity to harder to reach parts of the world.



Infrastructure tends to offer long-term stable cash flow and income streams, usually with inflation protection built into contracts. This type of long-term return profile is particularly attractive to pension funds and insurers, particularly after many years of low interest rates. This means that these sectors have the potential to fund some of this spend, which has previously been covered by government bodies.

There are a number of ways we consider investment in infrastructure on behalf of our clients: direct equity investing in companies likely to be awarded contracts or supplying materials, or through funds that specialise in infrastructure investment. Some funds may not be immediate beneficiaries of this new spend, as many shy away from primary building risk, although they would benefit from the opportunity to buy or manage new projects once complete. These assets can also provide diversification benefits to portfolios.

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