The bright lights emerging in European infrastructure
We expect infrastructure investment to be a key tool in restarting European economies after Covid-19, especially as the under-investment in some key areas is clear.
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Infrastructure is the backbone of economies around the world. Could we imagine a modern society without roads, ports, airports, electricity, water and gas networks? Numerous studies have been able to show the correlation between the performance of an economy and the quality of its infrastructure.
As the world sinks into crisis post Covid-19, we believe boosting economies by investing in transport, energy and the environment makes perfect sense. And there is no shortage of opportunities in Europe.
A number of studies have demonstrated that Europe, and France in particular, have long neglected the maintenance of strategic infrastructure, at times with tragic outcomes.
France: infrastructure scores versus the world
France score(max 100) | Global ranking(141 economies worldwide) | |
Transport infrastructure | 82.6 | 10 |
Road connectivity | 96.6 | 6 |
Quality of road infrastructure | 73.9 | 18 |
Railroad density km/1.0km2 | 100 | 17 |
Efficiency of train services | 65.9 | 15 |
Airport connectivity | 95.8 | 13 |
Efficiency of air transport services | 74.9 | 24 |
Seaport/shipping connectivity | 84 | 12 |
Efficiency of seaport services | 69.4 | 20 |
Utility infrastructures | 96.9 | 20 |
Access to electricity (% of the population) | 100 | 2 |
Electricity supply quality (% of output) | 96.7 | 43 |
Exposure to safe drinking water (% population) | 100 | 22 |
Reliability of water supply | 90.9 | 20 |
Source : The Global Competitiveness Report 2019, Global Economic Forum.
Infrastructure also reflects the changes in our society. Current events and politics provide us with ever more examples of their strategic nature in tomorrow's world. How do we deliver energy transition against climate change? The answer lies in the construction of sustainable energies; wind power, especially offshore wind power, as well as solar farms, but also the modernization of our electricity grids and the construction of gas infrastructures capable of managing the intermittency of renewable energies. It is also in the installation of smart meters to make users more responsible for their consumption.
The period of lockdown we have just gone through has also shown our dependence on digital infrastructures, fibre networks and relay antennas, and highlighted the "digital deserts". Geopolitical tensions have demonstrated the importance of data centre locations. Locating these centres closer to users could preserve digital security.
Finally, in the very short term, the health crisis may also lead us to rapidly strengthen the equity capital of infrastructure companies, particularly in the transport sector, which, due to a lack of users, have suffered losses in recent months and thus seen their equity capital melt away.
Emergency measures, guaranteed loans and deferred charges, have provided them with the liquidity they need to survive and get through the crisis, but at the same time have increased their debt. Many of them will have to undertake a rapid capital increase to maintain their solvency at an acceptable level. These are all opportunities for infrastructure funds to support economies, support strategic companies and build the world of tomorrow.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.
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