According to the OECD, unless the UK hits its annual target of investing 3.5 per cent of GDP in infrastructure, our quality of life will suffer as the growing population will be deprived of the resources it needs to keep the economy growing, writes Sahel Majali,
As someone who has been involved in global infrastructure investment and development for nearly 30 years across energy, transport, telecommunications, education and water, this finding rings true to me: I have witnessed first-hand the critical role that world-class infrastructure plays in supporting the social and economic development of both established and emerging countries, while significantly improving the lives of people in local communities and big cities and towns.
When we look at infrastructure investment in the UK today, it’s hard not to be concerned about the future. Our squeeze on infrastructure spending has come at the worst possible time. Compared with 2010, annual public sector infrastructure investment in the UK has dropped by £10 billion to approximately £30 billion. With the government under intense pressure to reduce its debt burden, it’s simply not feasible for the public sector to pick up an annual £40 billion bill. But that is at the lower end of the actual investment that is urgently required: we need to be more pragmatic in our efforts to secure capital for some of the UK’s most important projects.
This is why I believe Public Private Partnerships could become pivotal: they can be an attractive platform to help the private sector step up and do its bit to ensure the UK has the infrastructure it needs. This is essential because although investors can see real opportunities in infrastructure projects, they are also understandably concerned about global economic uncertainty and hence unwilling to commit to high risk expensive, long-term infrastructure projects. PPP models can reassure them by spreading the risk and workload between the government and the private sector.
It is true that PPP models have suffered reputational setbacks. They’ve previously been criticised for failing to deliver value for money. I understand how this view has taken hold but I feel that the criticism cannot be applied to PPP as a whole: the simple truth is that models are highly complex. As we have witnessed for ourselves at MID Group, they require a combination of complex frameworks, commercial and political negotiations, long-term commitments and greater scrutiny, no matter what country or sector you are operating in.
The success of PPP projects therefore depends on the right structures being in place. If an appropriate framework and conditions can be agreed, PPP can deliver much needed infrastructure projects at regional and national levels and assist with tackling the debt constraints typically linked to major infrastructure projects. PPP would bring much-needed private sector capabilities, advanced technologies and expertise. PPP shall deliver efficiency and cost savings through bundling maintenance and operation with construction. This will put more emphasis on a specified service as a defined level as opposed to the delivery of an asset.
Although the global economic outlook may look uncertain, if the constraints it has created help bring together the public and private sectors to deliver projects for the greater good, then at least it is also providing a silver lining that we and our future generations can reap the rewards of for decades to come.