The European market got a big boost as news came of a potential inflow of investments into the continent’s infrastructure. According to a report by Linklaters LLP, global institutional investors are ready to inject $1 trillion ((£600 billion) into the economy over the next ten years. The projected impact on GDP is forecast to be as much as 1.4% per year, which would cause the economy to recover much quicker than previously estimated. Investors are keen on the European market is it will provide medium to high stable returns in the long-term. Though similar investments in less developed markets will yield higher returns in the short-term at least, the reliability of the European markets is what investors are banking on.
Global Investors Happy to bear the load
European governments have been seeking to attract foreign investors to put a new lease of life into their recovering economy as home-based investors were stifled after the crisis. Investments from within shrunk drastically, with M&A deals falling by more than 80% since 2006. This fall came mostly from the South of Europe, as Spanish firms in particular stopped investing. European investors in infrastructure are responsible for just over fifty per cent of current investments. Austerity measures also kept governments from borrowing to fund growth, so Public-Private Partnerships (PPP) were opened to both local and foreign investors. However a lot of these plans were not able to proceed as things quickly worsened, opening the way for increased acquisitions of key industries. Investments from the US also seemed to dry up overnight. Canadian pension funds however and Asian businesses are now replacing the old investors and are looking to expand their activities in the years to come. European firms at the moment don’t have enough money to compete with foreign investors, especially the cash-rich Far East and Middle East.
China stepped in as was expected, in a big way. Chinese infrastructure acquisitions since 2006 have surpassed US$23 Billion. They have mainly targeted the energy market, but are also keen on construction and transportation projects. Though power generation is a major need for the Asian giant, their need to satisfy a growing populace is constantly pushing their foreign activities to other key sectors. Canada is not far behind, having spent US$13 billion in the past three years. The purchase of London Heathrow by FGP TopCo Limited (a consortium of Spanish, Canadian and Singaporean investors) is just one of many such deals being undertaken by Canadian entities.
Airports and energy generation in particular are in high demand. Despite the difficult economic times, air travel is still on the rise, with Boeing projecting air traffic to grow by 3.5 per cent per year in Europe alone. Heathrow airport wasn’t the first airport in Britain to be sold to non-British companies, though it is the largest. The prices of airports however and other assets have gone up considerably, as demand has heightened. Competition is rife as many investors are forced to chase the same few available brownfield projects, causing discomfort amongst buyers, which governments are frantically trying to solve. Infrastructural investment only recently became a viable field and it is set to remain that way for the foreseeable future.
Paving the way for Socio-Economic Transformation
As governments continue with their austerity measures, it is up to these institutional investors to provide the push the region so desperately needs. The steps taken by a lot of these countries however have been met with much public scrutiny and in some instances, revolt. Foreign investments in the energy and utility sectors have led to public outrage in the United Kingdom, France and Germany. Although citizens feel such vital industries should belong in the hands of the government, austerity measures will not permit it for the time being. Though some countries have managed to reverse certain privatisation deals, lack of government funding may impede the growth of those industries. Foreign investors in these countries are opting rather to acquire local corporations or at the very least merge operations. If these governments decide to expand PPPs to foreign investors, this would be sure to attract more than a few suitors.
Investors unwilling to be entangled in political and regulatory discomfort have shifted their focus to more accepting nations, particularly in Southern Europe. Cash-strapped Spain, Greece and Portugal have been quick to sell their companies to interested parties in order to reduce their debts. Eastern European countries are also in search of foreign investors, and for the moment are more welcoming than the larger economies.
What should also be of interest to the continent is the type of investments. International investors are looking into Greenfield investments too. In the transportation industry for example, the demand for smaller airports in smaller cities has been on the rise, as Low Cost Airlines continue to grow in popularity. High speed rail is also an attractive investment option, as a means to swing market share back towards train operators. New airports and stations not only mean new jobs and increased revenue, but more pressure on existing resources. Investments into Renewable Energy are needed and governments are making a concerted effort to bring them in.
No Time to Waste
There is a lot of money ready to be invested, but the opportunities are not sufficient. European leaders need to act fast to make sure they retain as much of the expected $1 trillion as possible. Though investing in Europe is still a major attraction, this appeal will last only as long as less developed regions remain less developed. The growing concern is that there are few infrastructural investment opportunities in Europe and the rising costs of these few projects will discourage investors. If European lawmakers are unable to cater for foreign investors, this glimmer of hope will be lost.
One key observation is that the forecasted investments don’t include local investments. Though investments into infrastructure from within Europe may not match this figure, it will be more than enough to get the desired results. For the moment, Europe has every reason to rejoice, as the road to recovery is lit with foreign investment.