Infrastructure programs in Australia have not only grabbed a plethora of recent headlines, but their importance has been keenly felt at the ballot box.
In 2013, when the Coalition won power Tony Abbott declared that he wanted to be remembered as “the infrastructure Prime Minister”.
Recent state elections have hinged on the controversial topics of public asset sales and infrastructure priorities. Badgerys Creek, the East West Link and the Northern Australia Infrastructure Facility are projects which have been at the forefront of public discussion.
But Nick Chism, KPMG’s Global Head of Infrastructure, Government and Healthcare, says that the topic is not just at the forefront of political debate in Australia, but around the world. Over the 25 years he’s worked in the industry, he believes conversation around infrastructure has shifted in a startling way.
“It’s been a fascinating journey because 25 years ago infrastructure was not a topic in the news,” Chism says. “There wasn’t an infrastructure sector — you could struggle to name any infrastructure projects around the world or any big players in the space.”
Chism grew up in the UK, Hong Kong and Japan, graduated from Oxford University, and undertook an internship with the US Senate before joining KPMG in 1990. In 1996, he moved to KPMG’s infrastructure team and worked on numerous public/private partnerships, principally in road and rail, while supporting the growth of a global network.
In 2008, Chism became KPMG’s inaugural Head of Global Infrastructure. He has been in a unique position to observe the changing discussions surrounding the importance and prioritisation of infrastructure.
Speaking to The Mandarin, he identifies 10 trends he believes are defining the global debate.
1. Governments take action to unclog infrastructure pipeline
According to Chism, the conversation has moved from simply talking about infrastructure and drawing up lists of necessary projects, to a mature phase of discussing how to get things done.
This has led to some governments taking a greater role in unclogging the pipeline of proposed projects.
Chism points to the UK’s US$60 billion guarantee facility as a great example of how governments have started to take an interventionist approach to reinforce the bankability of infrastructure projects.
“It has been used in a very limited number of cases, but just that government statement gave the market a boost to get some of these projects over the line,” he says.
He says the 2014 G20 summit in Brisbane was a milestone in the infrastructure conversation.
“The first and biggest item on the agenda at the G20 agenda was infrastructure. It signals this new state in the infrastructure debate.”
2. Political and regulatory risks rise up the agenda
Politics play a major role in infrastructure — long-term projects don’t always correspond with election cycles or short term budget and financing expectations.
Discussions in developed economies have started to centre on how to depoliticise infrastructure decision making and prioritise the selection of key infrastructure projects, Chism says.
Governments are starting to look at establishing informed pathways and economic models, based upon evidence, to get a consistent point of reference for politicians to refer to.
“If they decide to do something which shifts the pathway very radically that is all backed up by data which people can challenge or react to. It means political decisions are informed by fact, and while there will be short term political drivers, they’re countered by the evidence.”
There are three different voices in the infrastructure debate, says Chism.” … it comes down to what kind of world you want your kids to inherit.”
“Politicians can have views on what projects are best for the country. But we all know of infrastructure projects that have ended up being white elephants.”
As politicians become more aware and informed about infrastructure, the number of stakeholders and the questions are increasing. Meanwhile, the public wants to be engaged in the decisions and deciding the best for the community and future, says Chism.
“They’re beginning to understand why infrastructure is important and it comes down to what kind of world you want your kids to inherit.”
Then there’s the voice of the experts — the engineers and financial people who understand how these projects work who can interpret the vast amounts of data behind these projects. And this community doesn’t always have their voice heard to a proportional degree, he believes.
“The engineering community, in particular, needs to find its voice in this discussion.”
3. Market reforms: status quo is not fit for purpose
Regulatory systems are struggling to keep up with the changing world and disruptive technologies, says Chism.
He raises self-driving cars as a new technology which will change the ways in which cities work.
“How are regulations about traffic going to change in a world in which gradually you stop owning your own cars and vehicles drive themselves? How does that affect traffic laws, vehicle responsibilities and the way which cities are designed?”
Regulatory bodies will need to evolve and new laws enacted to keep pace with these changes, says Chism.
“At the same time the public and consumers need to be reassured that all of this is going to remain affordable and they’re not going to be ripped off.
“At the same time you have to have sufficient incentives for investors and the private sector to develop these markets and increase access to long-term capital that is essential to infrastructure investment.”
4. The shifting role of multilaterals and development banks
Multilateral banks have been heroes keeping infrastructure going in a post-GFC economic climate, says Chism. The US$50 billion Asian Infrastructure Investment Bank is a dramatic example of a new multilateral bank entering the field. The world is waiting to see what the China-led institution will achieve.
However, there has been a significant shift in the operating models and performance targets of many of the world’s multilateral and development banks.
“Previously, for multilaterals, success was measured by the amount of money lent. Now it’s about the extent to which they help set the strategy for projects to assist with the early stages of development and attract other investors.
“Traditionally all they did was give money to people. Now they sit back and think, ‘what are we trying to achieve here, how can we help, can we help bring others in?'”
5. Complexities are impeding big projects
As infrastructure needs grow, projects are getting bigger and more complex. Projects have to deal not only with a multitude of stakeholders with varying interests, but layers of regulations and laws from a local to an international level.
And as this is happening the number of people qualified to run big projects is decreasing, Chism says.” … you can only really begin to understand the affordability implications when you have those evidence-based pathways and the public are more engaged in the infrastructure debate.”
“We all know projects that have run massively over budget and haven’t been delivered on time and caused huge disruption. So we need to focus on working out what is global best practice and how to set models to replicate these.
“At the same time the number of people with that knowledge is declining, so you’ve got to be training up people.
“In the meantime there’s the people with the facts and the experience; they are in huge demand and are being attracted to different markets around the world.”
6. Striking the balance between opportunity and necessity
Governments and infrastructure planners face more critical need than ever to balance long term objectives with the realities of immediate need.
It’s about balancing what might be perceived as a short term fix to a problem relative to what you might need to build in the long term, says Chism.
“For example with roads and traffic congestion, we don’t know whether automated technology will be able to solve those in the next 20 years. Are we building a whole lot of roads which will be redundant very soon?”
Chism says another question is whether to prioritise physical infrastructure – such as roads or bridges – or social infrastructure – such as training up the engineers to build them in the future.
“You’d like to do everything and there are affordability implications. And you can only really begin to understand the affordability implications when you have those evidence-based pathways and the public are more engaged in the infrastructure debate.”
7. Striving for better asset performance
Talking about infrastructure is not just about constructing new projects, says Chism.
“Now the debate is maturing, people are realising in order to maximize return on dollars they need to understand what we’ve got already and how to extend the life of that,” he says.
“It has woken people up to try and understand what kind of infrastructures they have, what kind of infrastructure they need, and how can they optimise maintenance so you squeeze some extra time out of an asset.”
Chism says that minimising infrastructure maintenance for those assets is important.
“This is a huge emerging trend, how to get the most out of what we already have.”
Many governments are starting to benchmark performance of public utilities against best practices in the private sector and explore alternative delivery and ownership structures.
“Privatisation is not the default automatic answer, but it certainly is an option to explore. The more you have evidence of where privatisation and public/private partnerships work or don’t work, you can learn and make the best decisions.”
8. Resource scarcity drives investment
Energy, water, and resource security continue to account for a large percentage of infrastructure spending.
More than one third of the projects listed in KPMG’s latest Infrastructure 100 World Markets Report were directly related to resources.“Once you’ve successfully developed an infrastructure sector in your own country, chances are you either move into another sector in your own country or look to take that experience and do it somewhere else.”
The world is waking up to different types of resource issues that weren’t being talked about 25 years ago, says Chism.
“Now there is an emerging debate on water, which is becoming a far greater issue not only here in Australia, but globally.”
The number of projects focused on securing key resources is rising dramatically.
9. Infrastructure players go global
More and more international investors, operators, and developers are looking globally for opportunities. And Australia is in a great position to continue to export its expertise globally, says Chism.
“Once you’ve successfully developed an infrastructure sector in your own country, chances are you either move into another sector in your own country or look to take that experience and do it somewhere else.”
Chism says that one of the best examples for the potential to export infrastructure building capability is the Olympics Games.
“Once you’ve successfully run an Olympics in your own country that expertise is probably going to be of value to future games. So there’s now a global infrastructure industry built out of the Olympics.”
10. Cities sharpen their focus on urban mobility
Growth of urban areas has traditionally served as a crucible of economic growth in most countries and countries such as China are attempting to deal with the increasing demands of rapidly shifting demographics.
“More and more people are living more prosperous lives and are living longer. The fact that they live longer and they’re doing more things creates more demand for that energy and transport.”
As a result we’re seeing an increasing focus on urban mobility projects, particularly prevalent in a wave of metro rail projects around the world, says Chism.
Written by: Jacob Robinson
Read more at The Mandarin: Leadership in the public sector: make it effective in rapid change