As Europe recovers from the financial crisis, investors such as IFM anticipate an increase in sales of existing infrastructure assets. And these brownfield opportunities are often accompanied by easily understood regulatory systems and more predictable cash flows. Matina Papathanasiou, a partner in the global infrastructure boutique at Queensland Investment Corporation (QIC), echoes Mangini. She says the long history of private ownership of infrastructure in developed markets contrasts with the trend of government-owned infrastructure in emerging markets. And it can be more difficult to transact with a government than a private investor. “The political situation [in emerging markets] may be more fluid, with a wider range of potential policy outcomes than in developed markets. This makes the future regulatory framework more uncertain,” she says. Papathanasiou also stresses the importance of investors having local knowledge and a physical base in emerging markets.
Understanding these specific markets, their dynamics and major players is important because they can be much more localised and tricky for foreign investors. “Market structures, legal and regulatory frameworks and political influences are generally assessed as having greater risk than developed markets, [and] currency risk can be both greater and harder to manage,” she says. Papathanasiou also outlines the importance of investors needing to identify the right sub-sectors and work with appropriately qualified people who have the experience and skills needed to efficiently execute complex projects. This is because infrastructure players in India are local and often lack global expertise. In China, however, AMP Capital’s Garling believes investing is going to get easier. He bases this belief on regular announcements from the authorities about foreign investment regulations.
“Almost every week there is another announcement that liberalises and encourages foreign direct investment in the country – and particularly in infrastructure,” says Garling. The AMP Capital Infrastructure Research Report, published in December 2010, backs this up. “The Chinese government will continue economic reform to encourage private investment and reduce the reliance of economic growth on investments and exports, thereby ensuring the sustainability of long-term growth,” the report states. Garling adds that India has undergone similar liberalisation. He says infrastructure investment opportunities in the country only exist because the government identified six years ago that a lack of investment in the sector was “the single most important thing holding growth back”. In due course, the Indian government liberalised investment procedures to make it easier for foreigners to make the most of the opportunities available, he says. At QIC, Papathanasiou says the main challenge of investing in Indian infrastructure is the lack of a stable and reliable regulatory system.