Infrastructure has become a hot topic of concern around the globe – from the increasingly congested airports and underground rail services in major European cities, to the demand and supply mismatches for energy in China and India, to sustainable growth and development in drought-threatened areas in the US.
The United Nations estimates that the global population will approach 8.5 billion in the next 15 years – a 16 to 20 per cent increase in today’s population. This growth will inevitably put further pressure on the existing infrastructure. Consequently, significant infrastructural development will be required to support growth in different communities, and this will have implications for transportation, healthcare, energy procurement, education and communication, among others.
In addition, increased commercial activity as a way of sustaining global GDP levels will also escalate issues relating to the transportation of goods, such as rail, ports, airports and motorways. And finally, there are also pressing environment-related issues having to do with the fight against climate change, a fight which will involve a considerable capital outlay in the next decades.
The McKinsey Global Institute estimates that worldwide, $57 trillion in infrastructure investment will be required by 2030 simply to keep up with projected GDP growth levels. This staggering figure is higher than the estimated value of today’s worldwide infrastructure. In light of the fact that government debt globally is on the rise, the issue becomes even more complex. Public finances are scarce and need to be prioritised effectively, making it ever harder for the public sector to finance the required infrastructure over the coming years. This creates a very real infrastructure gap.
These issues are being faced by both emerging and developing nations alike. Malta is no exception. We are experiencing challenges in terms of capacity issues with existing infrastructure, but also in trying to address existing deficiencies and backlogs in infrastructure maintenance.
Several areas, such as State healthcare, road maintenance, education, mass transport and connectivity with Europe’s energy grid are receiving some level of attention. Yet, funding all these and similar projects required to boost Malta’s competitiveness exclusively through public finances, remains an acute challenge.
A good momentum is gathering to support Malta’s infrastructure development
There are several ways how Malta can mitigate these challenges. An obvious one is to involve the private sector as a key player in the nation’s quest to bridge the emerging infrastructure gap. Combining private and public sector resources in infrastructure projects can be a smart way of leveraging efficient resource use to enhance project execution and delivery.
Whether this takes the form of a management contract, a public-private partnership (PPP), or a concession will depend on the project at hand. Underpinning all the option is the belief that adding the private to public sector in infrastructure will amount to more than the sum of the parts. Global experience already bears this out.
Secondly, the conceptual and design stages framing the use of infrastructure assets is a key factor to ensure improved productivity levels, optimisation of project cost, and the avoidance of the negative consequences of poorly planned infrastructure investment. The approach to productivity also entails the adoption of best practices and ensures that the right asset portfolio is bundled into an infrastructural project. Such investments invariably remain with us for a considerable number of years, and careful planning is vital.
Finally, it is good to recognise that there is a need for innovative financing and for the setting up of capital funds to take an equity stake in projects with a clear potential for a positive return on investment. Government plays a very important role in this respect. Getting the right funding without appropriate government backing is becoming increasingly hard to achieve.
Achieving these aims requires the right structures and mindset to be in place: an appropriate regulatory framework, an intuitive process for the procurement of infrastructure and a long-term approach to planning, to name some of the key ones.
With the birth of Projects Malta as a central facilitator for PPPs and the announcement of various ambitious projects over the past years, a good momentum is gathering to support Malta’s infrastructure development.
Gilbert Guillaumier is an executive director at EY Malta and leads its local infrastructure advisory practice.