Much of the Capital in PPPs Comes from American Sources

The Reason Foundation’s Annual Privatization Report 2011 Surface Transportation Chapter reveals that much of the capital in Public Private Partnerships comes from American sources. Specifically as my colleague Bob Poole explains:

In the United States, concerns continue to be raised about “foreign takeovers” of infrastructure. It is therefore worthwhile to compare the nationality of the funds providing equity for infrastructure projects with the nationality of the concession companies that are implementing the projects. Based on Infrastructure Investor’s analysis of the 30 largest investors, 34% of the capital comes from U.S-based institutions, with Australia’s share at 29%. When you add Canada to the U.S. share, the total of North American investors is 54%. European institutions constitute 14% of the capital.

The large majority of project experience is European. Of the top 10 companies, eight are from Europe, one from Australia and one from China. Of the top 20 companies, 14 are from Europe (Spain, France, Germany, UK and Portugal), three from China, and one each from Australia, Mexico and Brazil. A U.S. firm does not show up until position 33. We can see that while the large majority of infrastructure development and operational expertise currently resides with European firms, the majority of the capital is coming from North American and Australian investment funds. Those who raise political concerns about foreigners “buying our toll roads” seem to have missed the difference between those who are building and operating these infrastructure projects and those who are financing them. More than half of all the equity investment is coming from North American funds.

The reason why “foreign control” has become an issue is because the United States entered the infrastructure privatization arena late in the game. Many European countries as well as Australia, Brazil, India and many others have been using PPPs for more than 20 years. Since foreign nations used PPPs before the U.S., it is only natural that many foreign companies are leaders in PPPs. Additional U.S. PPP infrastructure projects will lead to additional U.S. companies becoming involved in PPPs.

For many years, the U.S. was fortunate to have a robust federal funding source: the federal gas tax. Although the country could have enhanced its infrastructure with PPPs there was no pressing need. Times have certainly changed. As a result of inflation the gas tax has diminished purchasing power. Vehicles are more fuel-efficient than ever resulting in less money for infrastructure. Additionally, an increasing amount of fuel tax revenue is diverted to transit, non-motorized transportation uses, or economic development projects. While PPPs are not ideal for every transportation project they can reduce the contributions from cash-strapped governments allowing projects to be built far sooner than if the public sector acted alone. PPPs are more important than ever for constructing a robust infrastructure system.

Unfortunately, xenophobic politicians who exaggerate the influence of foreign companies have become a major threat to PPPs. These xenophobes can be found in both political parties and appeal to union members and tea-party members alike. While fear of foreign investment is misplaced and illogical, it is also not accurate. While infrastructure development and operational experience resides with foreign companies, the majority of the capital is coming from U.S. sources. In addition, most contractors hired by foreign companies are American. While foreign companies may be managing the process, they are employing American workers.

Annual Privatization Report 2011: Surface Transportation

Annual Privatization Report 2011: Homepage