The UK is facing a battle to secure finance on the promise of being a ‘low-risk’ nation against developing countries such as Indonesia and Malaysia and their offer of super returns, after breaking research by leading global natural asset consultancy firm, Arcadis provided fresh evidence of the direct need for new UK infrastructure investment
The new Arcadis Global Built Asset Performance Index has provided Centre for Economics and Business Research data which shows that the UK’s return on built assets as a proportion of GDP was 29 per cent in 2013, and is expected to remain the same in 2014.
The index has the UK ranked 26th out of 30 seeded nations, ahead of only Russia, Qatar, Chile and Saudi Arabia.
Whilst emerging economies have generally secured a much higher percentage return (e.g China at 53 per cent and UAE at 44 per cent), the UK was still placed significantly further down the list that its northern European neighbours, including France and Germany at 36 per cent and 33 per cent respectively.
In the category of built asset wealth per capita, the UK comes somewhere in between developing nations and economic powerhouses including the G8.
Simon Rawlinson, head of strategic research at EC Harris, told cnplus: The super returns investors are likely to be lower in the UK than in Indonesia or Malaysia. The question is, is the difference in risk profile in those two countries sufficient to favour investing in lower return locations in the UK as returns get tighter.”
“That’s a challenge for the UK. It needs to get a whole lot of things right around making delivery more efficient, having everything right-sized and delivered at the least possible cost so the projects can be made viable. It needs to reduce cost of delivery and increase certainty to attract investment.”
Rawlinson said that the data provided further evidence to say that “the UK is a really strong market in terms of the need for further investment”.
He goes on to explain that the comparisons between infrastructure and housing markets were very strong, with the massive need for housing challenged by houses being either unaffordable or the correct funding models not being in place to ensure housebuilding on a sufficient scale.
Mr Rawlinson says that the UK’s return of 29 per cent on built assets as a proportion of the nations GDP could have been influenced by the switch from a manufacture driven economy, to a service driven one, and being “slightly less capitalised in the nature of some of our infrastructure and quality of infrastructure”.
“It is quite possible that in Europe after the Eurozone was formed, their lending was subsidized by the covenant of Germany and nations spent too much on infrastructure and now have too much. So there’s a real distributional choice issue involved in planning infrastructure – which is why the debate around the Armitt Review is really interesting.
Regenal Green from Emerald Knight explains: “A lot of focus has been around having a group of experts who had no accountability in their decisions, but I think what has been talked about is about effective planning and prioritisation of the right kind of assets, making sure you’re not wasting it on the wrong kind of thing.”