Economic crisis to spur privatisation boom

Europe is in need of private capital, while China and India, despite slowing growth, remain strong infrastructure markets, according to a report authored by AMP Capital.

Expect compulsory privatisation amid a “deteriorated” global economic outlook as well as mounting debt in the Eurozone, market research released yesterday claimed.

A 17-page white paper from AMP Capital, the Sydney-based fund manager which has a long track record of infrastructure investing, concluded Western Europe, but also China and India, held high potential for private investment in public infrastructure, albeit for different reasons.

The report, titled Global Medium-term Outlook for Infrastructure Investment, also anticipated “rapid evolution of non-traditional quasi-equity” and new debt products in Europe, because of tightening credit, which could prove attractive to traditional equity investors.

The paper went on to say that private investment in North America and Australia would be “evaluated opportunistically”. The report noted concern about sustained growth in China as well as India, despite their seeming stalwart infrastructure markets.

But to AMP Capital, the emerging world and Western Europe could offer tremendous promise. Citing data from Merrill Lynch, the report highlighted that the emerging space will require $6 trillion of infrastructure spending through 2015.

In Europe, given the prospect of recession in many of its countries, small economies like Poland are likely to fare better than larger ones, but the report was bullish on the European Commission’s proposal to create a €50 billion fund to develop infrastructure across the continent, with 20 percent of that capital earmarked for public-private partnership funding. 

“Despite the general gloom, investment in infrastructure should remain relatively strong, driven by the increased reliance on PPP financing,” the paper read.

In America, where it is “doubtful that a similar stimulus package [like the current plan winding down] can be mounted in the medium term,” private investment will be driven mostly by the energy sector.

On the whole, the report was positive on infrastructure investing, commenting that “infrastructure is in better shape to face an uncertain future,” as an asset class.

“Infrastructure investment has traditionally been considered as a defensive strategy, the report explained. “In the current environment where we expect government to be forced to consider privatisations in order to reduce debt, attractive opportunities for private investment in this sector should emerge.”