“The first priority of our new economic plan will be to rebuild our national infrastructure…We’ll settle for nothing less than an infrastructure revolution.”
The words of the new Chancellor, Sajid Javid, at yesterday’s Spending Review were music to my ears. For decades infrastructure development in the UK has lagged behind other countries and, at last, it seems we have a Chancellor willing to set things right.
The problem for many years has been that successive governments have approached infrastructure in the wrong way. Too many projects have failed because governments of all politics stripes have unnecessarily politicised them. Building more infrastructure is, of course, a completely legitimate aim – as the Chancellor said: “high quality and reliable infrastructure is essential to how we live, work and travel”. However, it does not necessarily follow that all those new roads, bridges and so on must be funded by the taxpayer.
Indeed, in countries such as Japan and Hong Kong there are railway systems that are run perfectly well through the private sector. MTR, in Hong Kong, is in fact a great British entrepreneurial success story. Yet here in Britain the default seems to be for the government to foot the bill. The ever-growing bill for HS2, although run through a private firm, is ultimately going to be footed by taxpayers. Like many other projects, HS2 is also highly politicised, with a series of aims that go well beyond its commercial viability.
And things would be even worse under a Labour government if they follow through on the pledge to nationalise the railways. That would mean taking a system that is already heavily subsidised, but could be reformed, and pumping ever more taxpayer cash in, presumably forever and a day.
Fortunately, what Mr Javid seems to be proposing is very different. He made a commitment in the Commons to “do more to give private investors the confidence to back these projects”. If he can achieve this, it will help deliver infrastructure that is demand-led, commercially minded and solves the chronic failures of previous administrations.
The question now is, how can the government achieve this? The key to attracting investors is ensuring that projects are both commercially viable and sustainable. There is a significant amount of private sector capital ready to provide investment for infrastructure projects. The trick is to make them ‘bankable’.
Bankability is the greatest challenge of our time for countries seeking to meet the infrastructural needs of their growing populations. It is the process of making development projects attractive to commercial lending and other investors by mitigating risks and ensuring the projects are sustainable.
This is where firms like my own, Commonwealth Research Centre Limited (CRC), come in, helping clients – both governments and private organisations – to enhance the bankability of their projects. The approach CRC takes is a consortia-orientated methodology with accountable phases. This phased approach ensures that projects can be implemented effectively on terms that work for countries and investors alike. It increases the sustainability of partnerships as it works for all parties involved and allows for infrastructure to develop in a more efficient way.
It is clear that the new Chancellor wants to change the way that infrastructure is developed in the UK. The key to his success in bringing about the revolution is whether he can make it sustainable. In that, he needs to make infrastructure projects the state does become involved with as bankable as possible.
