• Richard Perrin, Partner |
6 min read

The infrastructure sector is an important driver of economic growth and is analysed every year by KPMG in the Emerging Trends in Infrastructure report. The 2023 edition has recently been issued. It comes at a time of considerable uncertainty, as geopolitical tensions pose questions about globalization, as supply chains are facing disruption, as inflation emerges as a problem for the first time in decades in much of the developed world, and as the global community is faced with the growing challenges of climate change. The KPMG survey has identified ten key trends in the infrastructure sector, as businesses and governments grapple with these issues.

1. Tilting towards territorialism and shifting allegiances

Globalisation is being eroded by several factors, including geopolitical tensions and supply chain problems. Nevertheless, infrastructure projects continue to be needed and governments often want to see them happen. Yet infrastructure players- developers, investors and operators in particular- face numerous uncertainties, such as rising costs. There is a risk that in spite of the need for infrastructure projects the pace could slow down. Infrastructure players will need to be aware of the challenges and agile in dealing with them. 

2. Backed into the sustainability corner

Sustainability is now a prerequisite for infrastructure projects. In fact, the sector has a key role to play in the effort to combat climate change. Successful projects will address the key issues of security, affordability and sustainability. We can expect to see a significant shift in investment towards research into cleaner fuels, carbon abatement and energy efficiency, along with innovations in new green technologies like green hydrogen.

3. The age of mass customization emerges

Infrastructure is becoming much more customized and focused on the individual than has been the case in the past and technology is playing a key role. For example, new technologies have revolutionized the way we travel and access healthcare and education. The challenge for existing infrastructure players is to remain relevant by adapting to these trends. 

4. Inflation, pricing and supply elevates the risk

Inflation has created uncertainty and increased risk for infrastructure players. In the past, price risk had often been considered as being an effect of poor cost management. But today, the link between risk and discipline has been unhinged. Moreover, there is also concern about supply chain bankruptcy. Nevertheless, inflation has been faced in the past, such as in the 1980s in the US when multiple cost scenarios had to be planned for, and more recently in countries like Turkey and Venezuela. So players will need to understand the new realities and negotiate ways to continue to do business. 

5. Getting the most from digital

Digital transformation clearly plays a critical role throughout the economy. But infrastructure developers have not always been quick to embrace it. Part of the problem has been that brownfield infrastructure is notoriously difficult to digitize. Nevertheless, many brownfield owners are still finding opportunities to vastly improve their asset management through the effective use of data analytics tools and the adoption of newer technologies. For greenfield investments, the position is much simpler and here digital should be embedded into every aspect and phase of infrastructure development. Going forward, we can expect pressure on infrastructure developers to enhance their digital capabilities. 

6. Cities look for purpose

Cities are changing as a result of new ways of living and working. The pandemic encouraged certain behaviours which have persisted as they have been seen by many as offering advantages compared to previous practices. For example, hybrid working remains common, as does greater reliance on e commerce. So new concepts of the design of cities are emerging, based on new expectations and demands, particularly when it comes to housing, transport and commercial infrastructure. Infrastructure developers clearly have a key role in supporting such transformation, but will also need to keep abreast of new trends. 

7. Institutional players drive the climate agenda

The costs of addressing climate change are very high- some estimates suggest upwards of 7 percent of global GDP between now and 2050. At a time when governments are facing constraints on finances, they are naturally looking to institutional investors, which have considerable funds at their disposal. Increasingly such investors understand the long-term effects of climate change and are invested enough to want to do something about it. And over the past few years, many have become much more active in the management of their assets, working with their investments to deliver real and measurable decarbonization goals. We can expect to see greater involvement by these sources of private capital in driving the climate agenda, particularly as realization grows as to the urgency of the issue. 

8. Globalization gets buffeted by security

Amid geopolitical uncertainty there is a growing trend to rethink supply chains to focus on more obviously friendly markets which are less likely to be disrupted. Some of the pressure to do so will come from political leaders. However, more is at stake than simply securing supply chains. Governments in particular are also keen to secure infrastructure. They increasingly recognize that their assets could be vulnerable to insecure supply. Furthermore, they are taking a heavier hand in helping infrastructure owners decide where they can source key parts of their inventory from, and who they can work with to operate them. We can expect to see a move away from organizing around cost, which was fairly straightforward, to organizing around the strength of one market’s relationship to another, which is more challenging. Infrastructure players are likely to start to rework their supply chains into more dynamic supply webs that form around security of supply.

9. Dealing with sunk costs and abandoned assets

There may be a need to focus less on sunk costs to take full advantage of future opportunities and embrace change. This can be particularly difficult in this sector. Infrastructure assets are expensive and they are made to last decades. So, there is an obvious reluctance to abandon them early. Yet society’s needs and expectations have changed. Climate change has rewritten the value equation in many markets. And technological change has upped the risk of obsolescence. So we can expect to see infrastructure planners and investors start to think more creatively about the problems they face and the outcomes they hope to achieve. Continuously polishing the status quo will not get us where we need to be. So there will be cases where it makes more sense to walk away from sunk costs and assets in order to find a better way.

10. The definition of infrastructure evolves

The line between infrastructure players and other sectors is becoming increasingly blurred. For example, many energy providers are now becoming technology, mobility, energy and infrastructure players, while big tech firms are positioning themselves as connectivity providers. So the concept of ‘infrastructure’ is broadening to be much more about serving the needs of society than delivering a specific asset. What is clear is that the definition of infrastructure is evolving. The competitive landscape is rapidly changing. Governments are no longer the sole purveyor of infrastructure. There will likely be implications for everyone in the sector.

So the infrastructure sector faces many challenges and opportunities. I invite you to read about these in more detail in the KPMG report

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