What needs to change to close the infrastructure gap?

Aging infrastructure is causing a conundrum. For example, the recent collapse of the Francis Scott Key Bridge in Baltimore represents a common challenge around the world: the need to look more closely at maintaining and updating critical infrastructure. The bridge had been in operation for almost fifty years and was nearing the end of its lifecycle. In the absence of a catastrophic incident, it would have continued to serve the community as needed. 

However, you don't need a catastrophe to force the consideration of what might be done differently. What strategy, planning and design decisions would eliminate the probability of any failure happening again? What options are available from a repair and maintenance point of view that would reduce the possibility of the bridge being compromised in the future? Introducing digital solutions and technology could carve out new ways to inspect and protect bridges. Rebuilding efforts tend to be reactive and rely heavily on costly disaster recovery funding programs, often costing more than repair, maintenance, and upkeep. Usually, the premise is a like-for-like replacement rather than integrating necessary upgrades to better future-proof the asset. 

Overall, more significant funding is needed than most governments and agencies can access for current and future needs. As critical infrastructure owners, governments are responsible for ongoing operations and maintenance. Yet, adequate funding rarely extends beyond the initial build to include whole of life. For example, funding approval processes for future infrastructure could be better streamlined and include upgrades. Consolidation of mega pension funds is also driving short-term profit pressure on the infrastructure gap. Traditionally, smaller funds have been invested in niche energy transition-style projects. Today, larger funds are needed to deploy bigger capital, seeking mega projects with guaranteed returns.

We need a reset, a redesign of the whole approach, significant structural and policy reforms, and the simplification of processes. More leaders are discussing the need to change policy to attract more third parties or external funding for infrastructure that might traditionally been government-owned. The mindset of government is shifting to embrace private capital. Yet, there are increasing concerns around the rate of private capital deployment to meet the ongoing yields that investors demand to maintain the asset and revenue stream. Institutional investment in infrastructure has slowed down as macroeconomic headwinds and valuations remain important factors for investors to consider. Inflation and rising rates have also impacted most asset-class fundamentals. 

Looking forward, the macro environment is expected to be more supportive of the asset class as moderating interest rates improve valuation, and robust policy support will continue to enhance the investment case for infrastructure. Given the fiscal pressures on governments, the private sector must be more engaged. However, governments often need help to create investment-ready project pipelines, leaving investors unsure of how, where and when to commit to capital.

More foresight is needed in policies that consider repair, end-of-life, closures and transitioning. Governments are best suited to kick off infrastructure projects, but are they suited to build, own, and operate them long-term? A viable alternative may be for governments to reallocate efforts towards processes around streamlining approvals, setting a clear strategy, ensuring policies are aligned to market demands, and enabling private sector investment and success. Another option could be to explore changing funding models to include provisions for upgrades and repairs. Some wind farms were established over 20 years ago and are now due for repowering, an aspect that has yet to be considered in original approvals. 

Considering how to upskill the workforce is critical in replacing, upgrading, and closing infrastructure. For example, the energy sector will be required to upskill as renewable and essential minerals industries emerge, but training the next generation of workers needs to be front and centre. Coordinating on policy across the education and tertiary sectors, and even immigration, means that any shortfall of technical skills can be comprehensively addressed. Education, training and workforce mapping in collaboration between government, industry and workers will see alignment between aspirations and needs. 

Jurisdictions worldwide need to immediately adjust policy settings to enable the most effective mechanisms to deploy capital and fund the infrastructure gap. The future of sustainable industries and our communities is dependent on these critical shifts and mindset changes.