Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

International investment could ease global infrastructure woes, researchers say

16.06.2006
The magnitude 6.3 earthquake that struck Indonesia on May 27 killed at least 6,200 people and destroyed an estimated 130,000 homes. In contrast, the magnitude 6.9 Loma Prieta earthquake that hit the San Francisco Bay Area in 1989 was several times the strength of the Indonesian temblor but killed just 63 people. In California, sturdy homes, bridges and roads saved lives.

Natural disasters can take a tremendous toll on life when infrastructure fails, particularly in developing countries. Ryan Orr, executive director of the Collaboratory for Research on Global Projects (CRGP) at Stanford University, says that private investors could be a solution to global infrastructure woes. "If we can mobilize more private finance, we could potentially help to solve these problems both at home and abroad," Orr said. "But the investors need to be confident that they will be repaid and earn a fair return."

At a recent roundtable meeting at Stanford, CRGP members discussed ways to improve the security of infrastructure investments and thus encourage private shareholders to put money into badly needed transportation, energy and water systems worldwide—even in the United States, where the problem of failing infrastructure was vividly demonstrated by Hurricane Katrina, which resulted in the deaths of more than 1,800 people and caused $75 billion in damage. Although construction began on the New Orleans levee system more than 40 years ago, inflexible plans and flagging funding left the system incomplete when the big hurricane hit, Orr said.

"The roundtable is seeking to create a more stable framework for infrastructure projects that will minimize risk," added Barry Metzger, a partner at the law firm Baker & McKenzie and co-moderator of the roundtable. In addition to Metzger and other senior legal advisers, the roundtable also has drawn on the expertise of business executives from companies and financial institutions—such as Bechtel Corp., the World Bank, the Asian Development Bank and Citigroup—and from Stanford researchers representing a wide range of disciplines, including engineering, sociology, business, law and political science.

As policymakers face tax cuts and dwindling funding, many are wondering where all the money will come from. Large investors, including commercial banks and pension funds, may be able to help—and earn some money in the process, according to the CRGP roundtable report. For example, Australia's Macquarie Bank has demonstrated that infrastructure can be profitable, earning an average return of 19 percent on its infrastructure investments over 11 years. Following Macquarie's lead, 10 large investment firms, including the Carlyle Group and Goldman Sachs, have announced new infrastructure funds of up to $1 billion in the past six months.

Minimizing risk

How does an investor earn money building a bridge? Typically, Orr said, the investor pays to build the bridge, and then owns and operates it for a set period of time—say, 30 years. During that time, the bank collects tolls to recover its investment and bring in a profit. This has proven to be a lucrative business for Macquarie Bank, he noted.

Historically, most investors have been wary of infrastructure ventures, especially in the developing world, because of the potentially large risks, Orr said. In the United States, citizen protests over high tolls or changes in political priorities could pull the rug out from under expensive projects. In the developing world, the risks are even greater, as war, famine, political unrest and corruption all threaten investments, Orr said. "When you invest in a foreign society, how can you tie the hands of that government and guarantee that they're not going to take what you've invested?"

With the fall of the Soviet Union in 1991, large private investors began pumping money into infrastructure throughout the world. "The Western business community really felt that it could fix a lot of the world—reduce poverty, reduce the economic ills in Asia and Africa—by mobilizing the private sector," Orr said. But in the wake of large economic crises at the end of the 1990s, many large projects became distressed or failed, and some governments, including those of Argentina and Indonesia, repossessed the infrastructure that foreign investors had helped to build.

According to Orr, recent international laws have made it possible for investors to hold foreign governments responsible for the assets they seize and to arbitrate disputes in a neutral court. But the trend toward privatization of infrastructure also has its critics, he said, noting that some opponents fear that profit-hungry investors could cut corners, potentially endangering citizens with poorly designed or poorly maintained roads, bridges and airports.

Encouraging investment

The participants at this year's CRGP roundtable meeting expressed hope that continued improvements to the system will encourage private investors to take a chance with infrastructure investments abroad, Orr said.

"We think that the evolution of large private infrastructure funds is a major development," Orr said. "But is it just another wave of euphoria that's going to come crashing down in eight to 10 years, or have we actually learned something?"

Infrastructure problems in the United States are not unique to New Orleans, he pointed out. Across the nation, the rehabilitation of failing and inadequate infrastructure is expected to cost $1.6 trillion over the next five years, according to the American Society of Civil Engineers.

In California, the backlog for infrastructure improvements may top $70 billion, with an estimated $17 billion needed for drinking water improvements over the next 20 years alone. Statewide, the debate about how to fund infrastructure is thickening. The government is already seeking private investment to repair failing transportation, schools and flood control. The state legislature recently placed a $38 billion infrastructure bond measure on the November ballot. Although bonds raise private money, the government manages the money and guarantees to repay it in a set period of time. Truly private investments could come from the state's pension funds. On April 3, state Treasurer Phil Angelides encouraged the public employees and state teachers retirement systems to invest $15 billion in state infrastructure, but neither pension fund has committed to the investment so far.

"The money belongs to the school teachers and public employees," Orr said. "Why not invest it back into the roads and the infrastructure that they all use every day? Why not have the pension funds both earning their returns and improving the lifestyle for all?"

Mark Shwartz | EurekAlert!
Further information:
http://www.stanford.edu

More articles from Business and Finance:

nachricht Mathematical confirmation: Rewiring financial networks reduces systemic risk
22.06.2017 | International Institute for Applied Systems Analysis (IIASA)

nachricht Frugal Innovations: when less is more
19.04.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Neutron star merger directly observed for the first time

University of Maryland researchers contribute to historic detection of gravitational waves and light created by event

On August 17, 2017, at 12:41:04 UTC, scientists made the first direct observation of a merger between two neutron stars--the dense, collapsed cores that remain...

Im Focus: Breaking: the first light from two neutron stars merging

Seven new papers describe the first-ever detection of light from a gravitational wave source. The event, caused by two neutron stars colliding and merging together, was dubbed GW170817 because it sent ripples through space-time that reached Earth on 2017 August 17. Around the world, hundreds of excited astronomers mobilized quickly and were able to observe the event using numerous telescopes, providing a wealth of new data.

Previous detections of gravitational waves have all involved the merger of two black holes, a feat that won the 2017 Nobel Prize in Physics earlier this month....

Im Focus: Smart sensors for efficient processes

Material defects in end products can quickly result in failures in many areas of industry, and have a massive impact on the safe use of their products. This is why, in the field of quality assurance, intelligent, nondestructive sensor systems play a key role. They allow testing components and parts in a rapid and cost-efficient manner without destroying the actual product or changing its surface. Experts from the Fraunhofer IZFP in Saarbrücken will be presenting two exhibits at the Blechexpo in Stuttgart from 7–10 November 2017 that allow fast, reliable, and automated characterization of materials and detection of defects (Hall 5, Booth 5306).

When quality testing uses time-consuming destructive test methods, it can result in enormous costs due to damaging or destroying the products. And given that...

Im Focus: Cold molecules on collision course

Using a new cooling technique MPQ scientists succeed at observing collisions in a dense beam of cold and slow dipolar molecules.

How do chemical reactions proceed at extremely low temperatures? The answer requires the investigation of molecular samples that are cold, dense, and slow at...

Im Focus: Shrinking the proton again!

Scientists from the Max Planck Institute of Quantum Optics, using high precision laser spectroscopy of atomic hydrogen, confirm the surprisingly small value of the proton radius determined from muonic hydrogen.

It was one of the breakthroughs of the year 2010: Laser spectroscopy of muonic hydrogen resulted in a value for the proton charge radius that was significantly...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

ASEAN Member States discuss the future role of renewable energy

17.10.2017 | Event News

World Health Summit 2017: International experts set the course for the future of Global Health

10.10.2017 | Event News

Climate Engineering Conference 2017 Opens in Berlin

10.10.2017 | Event News

 
Latest News

Electrode materials from the microwave oven

19.10.2017 | Materials Sciences

New material for digital memories of the future

19.10.2017 | Materials Sciences

Physics boosts artificial intelligence methods

19.10.2017 | Physics and Astronomy

VideoLinks
B2B-VideoLinks
More VideoLinks >>>