Welcome to the March 2017 edition of Voices on Infrastructure. This collection of articles by industry leaders and McKinsey experts focuses on the crucial opening phases of infrastructure projects: project development and financing. Smart development and stable financing can make the difference between a successful project and one that falls short. These elements, however, are often missing on projects ranging from toll roads in North America to renewable energy installations in Africa.
In principle, developing and financing should not be as challenging as they sometimes turn out to be. The world needs infrastructure financing: $3.3 trillion per year, or almost $50 trillion through 2030, to sustain economic growth, according to McKinsey’s latest estimates. Institutional investors and banks manage $120 trillion in assets. What would it take to direct more of that capital toward the development and renewal of the world’s infrastructure?
Better financial terms and conditions could help increase the flow of capital toward investment in infrastructure. These might include loan guarantees, changes to tax structures, or corporate-risk management measures such as foreign-currency hedges. We believe, however, that investors are deterred by a more fundamental problem: too many infrastructure projects offer unattractive risk-adjusted returns because they are poorly structured or make little financial sense.
We have dedicated this issue of Voices to ideas about how project owners and investors can overcome these challenges. The articles feature lessons on mitigating risks and boosting returns, drawn from projects such as Heathrow Airport’s proposed third runway and BP’s Mad Dog 2 offshore-drilling project. Our contributors also look at how governments can catalyze investment with infrastructure banks and public–private partnerships. We hope you find their insights helpful in developing and financing the large projects the world needs.
Senior partner, McKinsey & Company
Partner, McKinsey & Company