Investors who fund large-scale transport infrastructure programmes across Asia are much more likely to focus on China than India, according to research by EC Harris, which describes itself as an international built asset consultancy.
Both countries clearly have “huge investment plans, [but] political and fiscal uncertainty combined with high operating costs are deterring many parties from investing in India”, concluded the authors of the report, released on Wednesday.
The study ranked 17 major markets across the world according to the relative attractiveness of investment in their transportation sectors. Each country was assessed across the four main transportation sectors — aviation, rail, highways and ports — and their overall ranking was then calculated based on the sum of those four figures. Ahead of China were the developed markets of Germany, the US and France.
So it seems that despite the huge investment plans proposed in many non-OECD countries, investors looking for a more reliable return will “continue to focus on Europe and North America where there is greater stability and more effective regulatory systems in place”.
The criteria used to judge each country covered a broad range of factors including political and economic stability, government policies and incentives, and the private finance funding channels already in place to support inward investment.
China stands alone as the one Bric market where investors are confident that the country will indeed finance its ambitious programmes that are likely to cost around Rmb1 trillion ($154 billion) in the next few years.
“The results confirm that for investors who want to look beyond well-established markets, China is an attractive proposition,” said Alan Brookes, head of EC Harris in Asia. “To help secure this opportunity it will be vital that the right financial mechanisms are in place to attract institutional investment, whilst reaching agreement on the proposals to develop major freight networks to link China to Europe and Southeast Asia would further strengthen their case.”
The research also showed that environmental pressure to reduce carbon emissions was leading to greater investment in rail and port infrastructure projects throughout the world. In China, for instance, almost 70% of the country’s transport budget has been earmarked for investment in rail projects.
On a sector specific level, China was assessed as the most attractive market for fund managers interested in investing in aviation infrastructure projects — well ahead of countries including Russia, the US and the GCC region.
Caspar Baum, EC Harris head of aviation in Asia, pointed out that China plans to build up to 45 airports before 2016, but to secure private funding, a detailed business case will be required which outlines how the capital expenditure can be minimised during the construction phase, and which indicates the economic return that each facility will ultimately deliver once built.”
When ranked according to the size of their general transport spending plans, India headed the league table; on its likelihood of attracting inward investment, however, it was placed in a lowly 12th position.
Apparently, India is a difficult place in which to operate and a very risky target for some investors. Some of the deterrents often cited by investors include the high cost involved in setting up a business, the length of time it takes to purchase land, and the country’s reluctance to formally ratify anti-corruption and bribery conventions.
“New policy initiatives recently launched to stimulate private investment in rail freight terminals are a welcome first step, however much greater clarity is still needed on a fiscal, political and operational level if India wishes to attract the investment required to build the new transport network that is needed to promote further economic development in the country,” added Brookes.
Nevertheless, India needs to overcome major hurdles if it wishes to attract significant foreign investment to help finance its infrastructure requirements.