Private investors are increasingly turning to Europe’s emerging markets in search of infrastructure investments as governments open their doors to public-private partnerships.
A report by accounting firm Ernst and Young found that the 12 newest members of the European Union were attracting rising levels of capital, with investment commitments reaching €24 billion ($38 billion) in 2005 alone.
Private equity funds, infrastructure funds, construction companies and other investors are all finding increasing opportunities in those growing economies, the report added. One senior investment bank executive noted as much as €500 billion could be needed for Central and Eastern European infrastructure in coming years.
However James Neal, head of Ernst and Young’s infrastructure advisory group, said mature European markets also require private investments –an estimated €550 billion is needed just to create the European Union’s vision of an EU-wide road, rail and inland waterway network.
He said governments must promote greater cross-border competition to attract foreign investment and ensure their bidding processes are efficient, consistent and fair, with plenty of deal flow.
“Foreign investors don’t want to go through the often considerable expense of preparing and submitting bids on just one or two projects. They would rather know that there is a programme,” Neal said.
In countries like the UK, France and Spain, there is a history of public-private partnerships (PPP) however some governments are lagging behind others, the report said.
It noted that German legislators, for example, have not viewed PPPs as a financial solution, while many new EU accession countries’ administrations have embraced them. In 2003, for example, Hungary created an intergovernmental committee to promote and facilitate the partnerships, while Poland in 2005 created a special PPP government unit.
Neal said liquidity problems created by credit market dislocation are not presenting major issues for the asset class. Neal added: “In providing financing, however, [investors] are paying close attention to the quality of the underlying assets – there has been a movement to quality.”
Among the leading infrastructure and transportation developers in 2006 were Macquarie Infrastructure Group, ACS Dragados, Ferrovial/Cintra and FCC, according to the report.