In the deregulation days, much government infrastructure was privatised but new infrastructural investments stagnated or even reduced, in many countries, both the physical and the social infrastructure, in favour of quick financial profit. Now however the realisation is dawning that infrastructural investments are really essential, and could therefore provide a profitable investment... particularly if state funds could guarantee them. Arguably, the state is one of the few businesses in town which has a more or less guaranteed income and capital base longterm, "death and taxes" and all that. The state might have to invest, since e.g. if there are too many potholes in the road, it becomes dangerous to drive your car over it. And, if you have to use infrastructure, you cannot easily get away from paying for it, somebody has to pay anyway. In South Africa, for example, Mbeki cannot keep the lights on because of continual power shortages http://www.worldproutassembly.org/archives/2008/02/rand_sinks_as_s.html This causes mass protests http://www.thebusinessedition.com/millions-protest-in-south-africa-over-rising-electricity-food-prices-1222/

"The Banker" magazine comments:

Governments around the world are facing up to an unpalatable truth: that infrastructure is absolutely critical but extremely expensive. Organisation for Economic Co-operation and Development (OECD) countries are saddled with ageing and out-of-date infrastructure at the very time that public finances are becoming increasingly tight; and developing nations are discovering that infrastructure bottlenecks are the single biggest constraint on economic growth. The amount of investment needed is mind boggling. http://www.thebanker.com/news/fullstory.php/aid/5847/Infrastructure_assets_show_recession_resistance.html

Similarly, Goldman Sachs sees new profit opportunities in "building the world": http://www2.goldmansachs.com/ideas/global-growth/building-the-world-pdf.pdf

That sounds great and progressive, and vastly preferable to financial speculation which merely shifts capital from A to B without improving the conditions of life for ordinary people, or even making them worse. However, what do they mean by "infrastructure"? It's not really about potholes so much. What they appear to mean mainly is: telephone mainlines, mobile phone networks, electric power generation (and more generally, developing energy resources), and roads. Also, they don't necessarily mean building new infrastructure, but buying up existing facilities (since the state may not be able to afford any new plant anyway), and possibly restructuring them. A lot of infrastructure is already privatised, but there's still opportunities there.

For example of this, cast the mind to that civilized and wealthy country Canada, where private retirement savings amount to about $1.3 trillion, representing nearly a third of all capital assets owned by Canadian households http://dsp-psd.tpsgc.gc.ca/Collection-R/Statcan/74-507-XIE/0010074-507-XIE.pdf

Established in 1917, the famous Ontario Teachers' Pension Plan invested almost exclusively in bonds until 1990, when Robert Bertram was appointed "executive vice-president, investment", with a mandate to shake up its stodgy strategy. Under Mr. Bertram's leadership, Teachers has spread its investment tentacles around the globe, making it a feared competitor in some quarters and a highly respected ally in others. The fund was the first Canadian pension plan to test the waters of the derivative market. http://www.otppb.com/web/website.nsf/web/canwest_teachersearningcurve The Fund had various spin-offs, such as:

The Teachers' Merchant Bank, created in 1991 to handle private equity deals... It participated in the largest leveraged buyout in Canadian history in 2002, teaming with Kohlberg Kravis Roberts & Co., New York, for BCE Inc.'s telephone directory business. As of mid-year 2003, the merchant bank had invested in more than 100 companies and 25 private equity funds. The rate of return exceeded 25 percent per annum. http://www.fundinguniverse.com/company-histories/Ontario-Teachers-Pension-Plan-Company-History.html

The Ontario Teachers nowadays have very substantial foreign equity investments (CA$36.3 billion in foreign equities as against CA$13.7 billion in Canadian equities). The fund totalled CA$108.5 billion at the end of 2007. It now invests and manages the fund for 278,000 active and retired teachers http://www.otpp.com/web/website.nsf/web/fastfacts (for the major investments, see http://www.otpp.com/web/website.nsf/web/majorinvestments).

In 2006, the Ontario Teachers' Pension Plan nevertheless calculated it had a shortfall of $31.9 billion, despite recording a 17.1% return in 2005. http://www.nupge.ca/issues/pen-n26-apr-13-06.htm Despite good investment gains, a preliminary valuation of the $108.5-billion fund as of Jan. 1, 2008 still showed a shortfall of $12.7 billion, plan officials said. "This highlights the continuing challenge of managing a mature plan,” Teachers' CEO Jim Leech said in a statement, citing examples: The ratio of working members to pensioners has shrunk to 1.6 to one, and the plan now pays out $4 billion a year in benefits, almost twice the $2.1 billion it receives in contributions. http://www.cbc.ca/canada/story/2008/04/01/teachers-plan.html?ref=rss

At a guess, the average pension payout per retired Canadian teacher per year must now be about CA$37,000 or so. The OTPP owns title to about CA$390,288 of capital per member teacher, and if the reported long-term average return on this capital is 11.4% per year, there's a longterm average gross income of CA$44,493 per member teacher per year. Of course, the return in 2007 was much lower, only 4.5%. But point is for every dollar you pay out, you have to have 9 dollars invested.

Anyway, the additional money to cover the stated shortfall has to come from somewhere, so what do they do? Just recently, for example,

The Ontario Teachers’ Pension Plan (Teachers’) and Morgan Stanley Infrastructure (MSI) have completed the transaction to jointly acquire SAESA Group (SAESA), a Chilean electricity distribution, transmission and generation company from Public Service Enterprise Group (PSEG) for a purchase price of US$887 million. (...) The enterprise value of the company is US$1.3 billion. “As an international infrastructure investor, we are very pleased to be a new, long-term shareholder of SAESA’s diversified electricity assets,” said Stephen Dowd, Teachers’ Senior Vice-President, Infrastructure. “We invest in companies with stable cash flows linked to inflation to help pay inflation-indexed pensions." http://www.morganstanley.com/infrastructure/pdf/SAESA_closing.pdf

So you buy an asset in Chile for $887 million, which is worth $1.3 billion if it operates well (meaning among other things you recover outstanding debts), so that you gain an asset value of $400 billion, 30% more than you paid for it. Not bad going. They bought it off the American PSEG Global which had to settle some debts of its own and wanted to refocus its core business. http://tdworld.com/business/pseg-to-sell-saesa/ The sale generated an after-tax gain for PSEG of approximately $180 million during 2008. http://www.tradingmarkets.com/.site/news/Stock%20News/1782316/ (The Left ranks PSEG among the top corporate air polluters in the US http://www.peri.umass.edu/Toxic-100-Table.265.0.html ).

Late last year, Teachers’ also bought about 70 per cent of Chilean water services operator Esval S.A. for $570 million. In 2007, it also bought nearly half of the airport in Birmingham, England, with an Australian partner for $875 million Cdn, the New York Container Terminal on Staten Island, N.Y., for $2.4 billion US and other terminals in Bayonne, N.J., and in Vancouver and Delta, B.C. http://www.cbc.ca/money/story/2008/06/17/teachers-chilean.html

The investment by Ontario Teachers' in Chile, the fastest growing Latin American economy, exporting its copper, salmon and woodpulp, looks like a real winner:

According to a Fitch special report, titled 'Chilean Energy Crisis: Electricity Shortages Loom in 2008,' Fitch expects high diesel prices, combined with droughts, natural gas restrictions, rising energy demand, and the initial delay in the development of new projects to increase the likelihood of energy shortages and keep electricity prices in Chile on an upward trend for the next couple of years. 'Chile's current water deficit, combined with further disruptions in the supply of Argentine natural gas, has raised concerns about possible power shortages beginning as soon as March, the month when demand historically increases,' according to Giovanny Grosso, Director in Fitch's Latin America Corporates Group. http://www.reuters.com/article/pressRelease/idUS211253+14-Mar-2008+BW20080314 http://en.wikipedia.org/wiki/Electricity_sector_in_Chile

It is extrapolated that if electricity demand continues to grow in Chile at the current trend, per capita consumption would be equal to California's in about a decade. For now, "much will depend on how the volatile peso fares in coming months, as the government fixes its [electricity] prices in dollars... In April the government decided it would cut wholesale electricity prices by 5.2 percent in the country's heavily populated south and center, citing a strong appreciation of the peso against the dollar." http://in.reuters.com/article/oilRpt/idINN1731861720080717 However, electricity price hikes at the residential level are in the pipeline in Chile. http://www.morganstanley.com/views/gef/archive/2008/20080220-Wed.html

In August 2007, Santiago de Chile was filled by protesters demanding higher pensions, better public transport, subsidised housing and a halt to rising food and electricity prices. http://www.guardian.co.uk/world/2007/aug/30/chile.international It might happen again - Chile's annual CPI is in fact now said to be running at 9.5% (core inflation - excluding food and energy - is at 8.7% http://www.economist.com/agenda/displaystory.cfm?story_id=11731241). "There's a nasty little inflation spike developing in Chile", said Geoffrey Dennis, global markets strategist at Citigroup a year ago, which, he said, did not augur well for equities http://www.bloomberg.com/apps/news?pid=20601086&sid=aNSEyaWs4KhM&refer=news During the Lagos regime 2000-2005, average real wages in Chile rose by 1.6%. http://www.ilo.org/wcmsp5/groups/public/---dgreports/---integration/documents/publication/wcms_085042.pdf

But everybody needs electricity, right? And teleconnections... in June this year,

The Supreme Court of Canada... ruled that the $52 billion purchase of Bell Canada is valid, allowing the Canadian telecommunications firm to be owned by the Ontario Teachers' Pension Plan. CBC reports that BCE stock jumped almost 10-percent as a result, rising $3.35 to close at $37.45 in New York. http://www.electronista.com/articles/08/06/20/otpp.cleared.to.buy.bell/ Bell Canada lost 125,000 residential phone accounts in the quarter and 7,000 business accounts, which translated into further erosion of Bell's long distance revenue, down almost 3 per cent to $298-million. Those losses are part of a technological shift that has allowed cable companies to begin selling phone services. (...) BCE is relying on growth in wireless, Internet and television services to offset the losses. http://www.theglobeandmail.com/servlet/story/RTGAM.20080807.wrbce07/BNStory/Business/

The moral of this story? You can figure it out... a hundred years ago, most global private investors lacked the amount of capital,organisational ability or legal mandate to finance large infrastructural projects, necessitating state initiative. But nowadays the available private capital resources often dwarf state expenditures, and of course once the infrastructure is put in place, with or without state funding, you can buy the profitable or potentially profitable parts up, at relatively low risk, and resell them. This happens across the world. And in a turbulent world economy, low risk is where the big money goes... How can the proletariat revolt against electricity bills, for example? A popular pasttime across the world has been to rewire the supply or tamper with the meters (cf. e.g. South Africa and Bangladesh), giving rise to sophisticated software to track fraud. There are electricity protests nowadays around the globe, from Texas and New Jersey to Nigeria and Kenya, Yemen, China and New Zealand, England and Japan. But if the light goes out, how to get it back on?

Jurriaan