EIB: PPP market remains weak

The European Investment Bank (EIB) has warned that while the PPP market has improved, investment activity remains at historically low levels.

Key findings of the EIB Investment Report 2017/18 show PPPs make up of 6% of infrastructure investment and stricter rules for the accounting of these PPPs could pose a risk to future investment.

In light of weak government infrastructure investment and, at best, stable corporate infrastructure investment activities, it says many observers had hoped PPP could fill the gap. However, the multilateral adds: “So far, this hope has not materialised.”

The report suggests this is partly due to the fact that even before the crisis, the PPP market played a relatively small role in the overall infrastructure sector (5%); and it is partly due to the PPP market’s relatively poor performance in recent years.

PPP activity picked up slightly in 2016, but deal volumes and numbers remain far below pre-crisis levels, with the shift in the UK market having an important impact.

“Between 2006 and 2016, the UK market shrank from around €12bn to only €5bn, accounting for about 35% of the overall decline in PPPs (in terms of volume). Part of this (disproportionate) fall in PPPs was due to a change in political sentiment and the public perception of PPPs and the value for money that they deliver.”

Other factors include the retreat of many banks from the project finance market, limited fiscal space and a deterioration in project credit quality that has led to a spike in PPP credit spreads from which the market has not yet fully recovered.

Another key finding of the report was that 50% of infrastructure investment takes place at the sub-national level, with municipalities reporting a more upbeat picture than national figures suggest. Municipalities nonetheless report a significant investment gap.