Infrastructure (also known as"capital goods", or"fixed capital") is a platform for governance, commerce, and economic growth and is "a lifeline for modern societies".[1] It is the hallmark ofeconomic development.[2]
It has been characterized as the mechanism that delivers the "..fundamental needs of society: food, water, energy, shelter, governance ... without infrastructure, societies disintegrate and people die."[3]Adam Smith argued thatfixed asset spending was the "third rationale for the state, behind the provision of defense and justice."[4] Societies enjoy the use of "...highway, waterway, air, and rail systems that have allowed the unparalleled mobility of people and goods. Water-borne diseases are virtually nonexistent because of water and wastewater treatment, distribution, and collection systems. In addition, telecommunications and power systems have enabled our economic growth."[5]
This development happened over a period of several centuries. It represents a number of successes and failures in the past that were termedpublic works and even before thatinternal improvements. In the 21st century, this type of development is termed infrastructure.[6]Infrastructure can be described as tangiblecapital assets (income-earning assets), whether owned by private companies or the government.[7]
Infrastructure may be owned and managed bygovernments or by private companies, such as solepublic utility orrailway companies. Generally, most roads, major ports and airports, water distribution systems and sewage networks are publicly owned, whereas most energy and telecommunications networks are privately owned. Publicly owned infrastructure may be paid for from taxes, tolls, or metered user fees, whereas private infrastructure is generally paid for by metered user fees.[8][9] Major investment projects are generally financed by the issuance ofinfrastructure bonds, specialized long-termbonds, which (often) offer interest and tax benefits.
Hence,government owned and operated infrastructure may be developed and operated in theprivate sector or inpublic-private partnerships, in addition to in thepublic sector. In the United States, public spending on infrastructure has varied between 2.3% and 3.6% of GDP since 1950.[10] Manyfinancial institutions invest in infrastructure.
Infrastructure debt is a complex investment category reserved for highly sophisticatedinstitutional investors who can gauge jurisdiction-specific risk parameters, assess a project’s long-term viability, understand transaction risks, conductdue diligence, negotiate (multi)creditors’ agreements, make timely decisions onconsents andwaivers, and analyze loan performance over time.
Research conducted by theWorld Pensions Council (WPC) suggests that most UK and European pensions wishing to gain a degree of exposure to infrastructure debt have done so indirectly, through investments made in infrastructure funds managed by specialised Canadian, US and Australian funds.[11]
On November 29, 2011, the British government unveiled an unprecedented plan to encourage large-scale pension investments in new roads, hospitals, airports, etc. across the UK. The plan is aimed at enticing 20 billion pounds ($30.97 billion) of investment in domestic infrastructure projects.
Pension and sovereign wealth funds are major direct investors in infrastructure.[12][13] Most pension funds have long-dated liabilities, with matching long-term investments. These large institutional investors need to protect the long-term value of their investments from inflationary debasement of currency and market fluctuations, and provide recurrentcash flows to pay for retiree benefits in the short-medium term: from that perspective, think-tanks such as theWorld Pensions Council (WPC) have argued that infrastructure is an idealasset class that provides tangible advantages such as long duration (facilitating cash flow matching with long-term liabilities), protection against inflation and statisticaldiversification (low correlation with ‘traditional’ listed assets such as equity and fixed income investments), thus reducing overall portfolio volatility.[14][12] Furthermore, in order to facilitate the investment of institutional investors in developing countries' infrastructure markets, it is necessary to design risk-allocation mechanisms more carefully, given the higher risks of developing countries' markets.[15]
The notion ofsupranational and public co-investment in infrastructure projects jointly with private institutional asset owners has gained traction amongstIMF,World Bank andEuropean Commission policy makers in recent years notably in the last months of 2014/early 2015: Annual Meetings of theInternational Monetary Fund and the World Bank Group (October 2014) and adoption of the €315 bnEuropean Commission Investment Plan for Europe (December 2014).[16]
Some experts have warned against the risk of "infrastructure nationalism", insisting that steady investment flows from foreign pension and sovereign funds were key for the long-term success of the asset class- notably in large European jurisdictions such as France and the UK[17]
An interesting comparison betweenprivatisation versus government-sponsoredpublic works involveshigh-speed rail (HSR) projects inEast Asia. In 1998, theTaiwan government awarded theTaiwan High Speed Rail Corporation, a private organisation, to construct the 345 km line fromTaipei toKaohsiung in a 35-year concession contract. Conversely, in 2004 theSouth Korean government charged theKorean High Speed Rail Construction Authority, a public entity, to construct its high-speed rail line, 412 km fromSeoul toBusan, in two phases. While different implementation strategies, Taiwan successfully delivered the HSR project in terms ofproject management (time, cost, and quality), whereas South Korea successfully delivered its HSR project in terms of product success (meeting owners' and users' needs, particularly in ridership). Additionally, South Korea successfully created atechnology transfer of high-speed rail technology from French engineers, essentially creating an industry of HSR manufacturing capable of exporting knowledge, equipment, and parts worldwide.[18]
The method ofinfrastructure asset management is based upon the definition of aStandard of service (SoS) that describes how an asset will perform in objective and measurable terms. The SoS includes the definition of aminimum condition grade, which is established by considering the consequences of a failure of the infrastructure asset.
The key components of infrastructure asset management are:
After completing asset management, official conclusions are made. TheAmerican Society of Civil Engineers gave the United States a "D+" on its 2017 infrastructure report card.[19]
Most infrastructure is designed bycivil engineers orarchitects.[20] Generally road and rail transport networks, as well as water and waste management infrastructure are designed bycivil engineers, electrical power and lighting networks are designed bypower engineers andelectrical engineers, and telecommunications, computing and monitoring networks are designed bysystems engineers.
In the case of urban infrastructure, the general layout of roads, sidewalks and public places may sometimes be developed at a conceptual level byurban planners orarchitects, although the detailed design will still be performed by civil engineers. Depending upon the height of the building, it may be designed by anarchitect or fortall buildings, astructural engineer, and if an industrial or processing plant is required, the structures and foundation work will still be done by civil engineers, but the process equipment and piping may be designed byindustrial engineer or aprocess engineer.
In terms of engineering tasks, the design and construction management process usually follows these steps:
In general, infrastructure is planned byurban planners orcivil engineers[21] at a high level for transportation, water/waste water, electrical, urban zones, parks and other public and private systems. These plans typically analyze policy decisions and impacts of trade offs for alternatives. In addition, planners may lead or assist with environmental review that are commonly required to construct infrastructure. Colloquially this process is referred to asInfrastructure Planning. These activities are usually performed in preparation for preliminary engineering orconceptual design that is led bycivil engineers orarchitects.
Preliminary studies may also be performed and may include steps such as:
Investment in infrastructure is part of thecapital accumulation required for economic development and may affectsocioeconomic measures of welfare.[22] Thecausality of infrastructure andeconomic growth has always been in debate. Generally, infrastructure plays a critical role in expanding national production capacity, which leads to increase in a country's wealth.[23] In developing nations, expansions inelectric grids,roadways, andrailways show marked growth in economic development. However, the relationship does not remain in advanced nations who witness ever lowerrates of return on such infrastructureinvestments.
Nevertheless, infrastructure yields indirect benefits through the supply chain, land values, small business growth, consumer sales, and social benefits of community development and access to opportunity. TheAmerican Society of Civil Engineers cite the many transformative projects that have shaped the growth of the United States including theTranscontinental Railroad that connected major cities from the Atlantic to Pacific coast; thePanama Canal that revolutionised shipment in connected the two oceans in the Western hemisphere; the Interstate Highway System that spawned the mobility of the masses; and still others that include theHoover Dam,Trans-Alaskan pipeline, and many bridges (theGolden Gate,Brooklyn, andSan Francisco–Oakland Bay Bridge).[24] All these efforts are testimony to the infrastructure and economic development correlation.
European and Asiandevelopment economists have also argued that the existence of modern rail infrastructure is a significant indicator of a country’s economic advancement: this perspective is illustrated notably through theBasic Rail Transportation Infrastructure Index (known as BRTI Index)[25]
During theGreat Depression of the 1930s, many governments undertook public works projects in order to create jobs and stimulate the economy. The economistJohn Maynard Keynes provided a theoretical justification for this policy inThe General Theory of Employment, Interest and Money,[26] published in 1936. Following theGreat Recession, some again proposed investing in infrastructure as a means of stimulating the economy (see theAmerican Recovery and Reinvestment Act of 2009).
While infrastructure development may initially be damaging to thenatural environment, justifying the need to assess environmental impacts, it may contribute in mitigating the "perfect storm" of environmental and energysustainability, particularly in the role transportation plays inmodern society.[27]Offshore wind power inEngland andDenmark may cause issues to local ecosystems but are incubators toclean energy technology for the surrounding regions.Ethanol production may overuse available farmland inBrazil but have propelled the country toenergy independence.High-speed rail may cause noise and wide swathes of rights-of-way through countrysides and urban communities but have helped China, Spain, France, Germany, Japan, and other nations deal with concurrent issues of economiccompetitiveness,climate change,energy use, andbuilt environmentsustainability.
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