Australia could lose on infrastructure investments, IPA warns

Photo by Dan Freeman on Unsplash.

Australia is still the destination of choice for infrastructure investors, but a lack of investment opportunities, the cost and complexity of bidding, and policy instability risk Australia losing out on capital, according to a new report from Infrastructure Partnerships Australia and commercial law firm, Allens.

Based on a survey of international and Australian investors who collectively own or manage more than $570 billion of infrastructure assets across the globe, the report reveals that 84 per cent of investors remain ‘highly likely’ to invest in Australia, down from 90 per cent in 2019.

According to the report, 44 per cent of investors see competition for assets as a key challenge to investing in Australia. Meanwhile, 76 per cent say the cost of bidding hinders investment, and 73 per cent agree that uncertainty in Australia’s policy and regulatory settings limits their willingness to invest.

“While Australia still performs well among its international peers as a leading destination for infrastructure investment, a lack of opportunities, the cost and complexity of bidding, and policy instability are starting to bite,” said Infrastructure Partnerships Australia Chief Executive, Adrian Dwyer.

“The message from investors is clear – capital is a coward, it will go where it is treated well.”

With the United States set to pass a US$1 trillion infrastructure package and Europe gearing up for a major investment drive in renewable energy, Mr Dwyer said Australia risks losing out on capital unless we get our investment and policy settings right.

“The grass isn’t quite greener in the other paddocks yet, but they are being well-watered and we need to be watchful,” Mr Dwyer said.

“The capital is available to finance Australia’s recovery, but we need government to put their deal pants on and get brokering,” he added.

Environmental, social, and governance (ESG) has become a growing investment driver for traditional and emerging assets, with 93 per cent of participants agreeing that ESG has grown in importance over the last two years. This is while only 22 per cent see the availability of stock as an attraction to the Australian market.

“Investors have told us there is an insatiable appetite for ESG friendly investment opportunities, with investor preference for renewable energy and social infrastructure assets a clear favourite in the market,” Mr Dwyer said.

“While there is strong demand for ESG-friendly opportunities, investors have made clear that Australia risks being left behind by more capital-hungry markets unless we develop a coherent set of decarbonisation policies.

“Greater policy and regulatory clarity in the energy sector could catalyse investment in more sustainable energy, transport, waste and construction projects and see Australia outperform global peers.

“Australia has one of the best infrastructure investment reputations in the world, underpinned by a strong track record of infrastructure business, knowledgeable market participants, and good economic fundamentals – but reputations are hard won and easily lost,” Mr Dwyer said

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