US election result: what does it mean for infrastructure?
By Tim Allen, Partner
2016 will go down as a year that many people might want to forget – or perhaps even wish had never happened. It seemed likely that Brexit would be the biggest news event of the year – but on the morning of the 9th November that story was quite literally Trumped.
Pundits on both sides of the Atlantic are struggling to draw conclusions from what is happening – but what could it mean for our industry?
One of President-Elect Trump’s key statements has been about significant investment in infrastructure – not just the wall on the Mexican border, but also in roads, airports and utilities projects. The plan is that these will provide jobs for the hard-working citizen, and will be paid for by cuts to other “softer” services (as defined by Trump). This is all part of the strapline to “make America great again” that played so well at the mass rallies during his campaign.
The US electorate, like the British electorate in June, appears to have been prepared to take a step into the unknown (the “abyss”, according to many commentators). The risks of a falling dollar or pound, unstable Dow or FTSE, and endless complex negotiations were deemed acceptable to “take back control”.
So what does it mean for those looking to invest in development or infrastructure in the UK?
There is no doubt that the ability to predict outcomes – not just electoral, but in terms of market performance and economic growth has got a lot harder. Developing business cases for large-scale strategic schemes will be fraught with difficulty, as the assumptions about levels of growth will be harder to sustain. The classic warning that past performance is no guarantee of future success has never been starker.
The reality is, therefore, that investors are going to need to hunt for certainty where they can get it. If the out-turn performance of the scheme is less predictable, then the inputs need to be examined with much greater intensity. Fixing the input costs at the outset will allow for a greater range of uncertainty in the outcomes, and still remain viable across that range.
There will be a parallel need to drive risks and costs out of schemes. Investors will have to accept more risk in the out-turn in return for having less risk and absolute certainty in the costs of implementation. Understanding these costs, and engineering the right solutions at the outset will become the norm – indeed, is already becoming the norm.
The concern is that the initial work needed to support a scheme will be increased, and cost more, and that this will be a threat to any schemes that don’t fit into the most obvious and attractive categories. This is a risk – and one that the civil servants in the States will need to get to grips with in implementing Trumps plans, as will everyone else.
More stages will need to be developed in testing schemes, to step up investment as the risks are closed down. Designers, consultants, authorities and promoters are going to have to work more closely together, as teams, to resolve issues. Whilst this may not be a familiar route, it is certainly going to be important for those looking to promote strategic infrastructure or development projects. To realise them in the post-Brexit, post-Trump world there will be a need to take proper guidance and seek expert help.