The Need for Smart Resilient Cities
Our vision of smart cities developments is driven by a number of accepted global megatrends. A wide range of issues is affecting both developed and developing countries and each of these challenges will have a significant bearing on the demand for, and the shape of, many smart cities solutions.The World Economic Forum estimates that the current gap between annual global demand for infrastructure of US$3.7 trillion and actual investment is US$1 trillion per annum. This figure equates to over 3.5 per cent. of global GDP. Global demand for infrastructure is driven by the need to invest in infrastructure in order to boost economic growth, replace the failing infrastructure built since, or even before, 1945 and balance the challenges of globalization and environmental concerns. Many countries, including emerging and advanced economies, have paid insufficient attention to maintaining and expanding their infrastructure asset base, creating economic inefficiencies and allowing critical systems to fail or become inefficient.
The scale of the opportunities in infrastructure investment over the coming years can be demonstrated by the following:
- One third of all infrastructure assets under management in Europe are expected to be disposed of in the next 5 years, with sales to infrastructure funds the most likely exit route;
- Canada has designated CAD$120 billion for investment in infrastructure over the period 2016 to 2026; and
- The United States is expected to embrace private finance on a significant scale by adopting PPP-based payment structures to finance the construction of replacement and new infrastructure. The Infrastructure Plan published by the White House has identified an immediate need for US$1 trillion of investment, with the American Society of Civil Engineers estimating a requirement for spend on infrastructure required by 2025 of US $4.6 trillion.
Global Megatrends- 2050 population forecast of +9 billion people;
- Rising living standards in developing countries;
- Existing water stress in both developed and developing markets;
- Poorly maintained infrastructure;
- Lack of State funds and leadership;
- Increasing reliance on information systems technologies
- Climate change and variability.
Business as Usual is Not an OptionToo big a challenge for political solutions;
• Business leadership is required and will build momentum; and
• Time for innovative out-of-the-box thinking to build compelling business cases for investment and adoption of innovative and intelligent real-time solutions.
Emerging corporate awareness- Sustainability trends;
- Balance sheet disciplines;
- Competitive tensions; and
- Social license to operate.
Outlook by Geography
The geographical sectors considered as the most relevant in the context of the Company’s investment policy are: the United States, Europe, and China's "Belt & Road" focus
Europethe Investment Plan for Europe aims to stimulate financing for investment, with the support of the European Investment Bank (the ‘‘EIB’’) and the European Investment Fund (the ‘‘EIF’’) – together, the EIB Group. This strategy is part of the ‘virtuous triangle’ of structural reforms, responsible fiscal policies and investment.
The European Fund for Strategic Investments (the ‘‘EFSI’’), implemented and co-sponsored by the EIB Group, is reported to be on track to deliver the objective of mobilizing at least Euros 315 billion in additional investments in the real economy by the middle of 2018.
By May 2016, the EFSI reported that it had supported (in sectors relevant to the Company):
- Social infrastructure projects totaling Euros 818 million – expected to trigger Euros 1.6 billion enterprise value;
- Environmental and resource efficiency projects totaling Euros1.3 billion – expected to trigger Euros 3.8 billion enterprise value;
- Transport projects totaling Euros 2.0 billion – expected to trigger Euros 5.7 billion enterprise value; and
- Energy projects totaling Euros 4.0 billion – expected to trigger Euros 27.3 billion enterprise value
United States- The market in the United States exemplifies the deficit in infrastructure spending that exists across much of the OECD: despite the political attention given to infrastructure investment at federal level. The country is still far from addressing its infrastructure deficit.
- The adoption of the PPP model by procurement agencies in the United States has been slow and orientated towards demand-based assets such as toll roads. - While further progress on the development of the Trump administration’s infrastructure plan is awaited, the early indications are that there will be a significant increase in the opportunity for PPP and for what is termed ‘‘asset recycling’’ (expected to be the transfer of municipal, state or federal assets to the private sector under a concession in return for a capital payment or an ongoing revenue stream), both of which provide addressable opportunities for the Fund. With the limitation on government finances, either at state or federal level with the US Congress, it is likely that the United States will increasingly turn to outsourcing asset delivery and to PPP investments structures.
ChinaChina’s Belt & Road initiative is a development strategy and framework that focuses on connectivity and cooperation amongst countries, primarily between the People’s Republic of China (PRC) and the rest of Eurasia, but also reaching into Oceania and Africa. It is also referred to as The New Silk Road or One Belt, One Road (OBOR).
'One belt, one road' is a development strategy and framework, proposed by the highest levels of PRC Government that focuses on connectivity and cooperation among countries along two main routes, the land-based 'Silk road economic belt' and oceangoing 'Maritime silk road' which run through the continents of Asia, Europe and Africa, connecting vibrant East Asian economies at one end and developed Western European economies at the other, while encompassing more than 65 countries along the route.