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Infrastructure in Greece Funding the Future

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Infrastructure in Greece Funding the Future Infrastructure in Greece Funding the future March 2018 PwC Content overview 1 Executive 2 Infrastructure summary investment The investment gap in Greek 3 Greek 4 Funding of infrastructure infrastructure Greek projects infrastructure is around pipeline projects Conclusion 5 1.5pp of GDP Infrastructure March 2018 PwC 2 Executive Summary Funding the future • According to OECD, global infrastructure needs* are expected to reach around $ 87trln by 2030 • Greece is ranked 24th among the E.U. countries in terms of infrastructure quality, € 18.7bn total remaining budget along with systematic low infrastructure quality countries, mostly in Eastern and Infrastructure backlog and budget of upcoming Southern Europe projects • In Greece, infrastructure investments were affected by the deep economic recession. Waste Management The infrastructure investment gap is between 0.8 pp of GDP (against the European Rail 3,07% average) or 1.5 pp of GDP (against historical performance) translating into on 9,64% average 1.1% of GDP or € 2bn spending per year • Infrastructure investments have an economic multiplier of 1.8x** which can boost Energy 37,64% demand in construction and other sectors Urban Rail • The infrastructure backlog has grown significantly during the crisis. The value of 75 26,17% projects, which are in progress or upcoming is around € 18.7bn, of these 21% refer to energy projects, while 36% are rail and motorway projects • The investment pipeline has slightly decreased comparing to the stability of the past 8,98% three years. The pipeline of projects in progress has been reduced in 2017 as a 14,50% Tourism Infrastructure number of projects have been completed Transit Transport • Between 2014-2017, 25 of the infrastructure projects have been completed mainly motorways Source: Press, PwC calculations • Announced tourist infrastructure and waste management projects (the latter are financed through PPPs), estimated at 10% of total pipeline budget, are important to improving the quality of life • Traditional funding sources, such as loan facilities and the Public Investment Program are limited, shifting the financing focus to the private sector. • Historically, private funding in Greece was limited to about 15% of total budget, *excluding telecoms and social infrastructure while public sector financing (State and EU) accounted for around 40% **for every Euro spent on infrastructure, GDP is further • PPPs and Project Bonds could provide a significantly higher private sector increased by € 0.8 (IMF Working paper “The welfare multiplier of Public Infrastructure Investment, 2016) participation in infrastructure funding, having as prerequisites the improvement of Infrastructure the business environment and lower levels of political uncertainty March 2018 PwC 3 Sustainable Development Goals 17 SDGs focusing mainly on 6 investment areas addressing poverty and universal development In 2015, 193 UN Member Investment areas States adopted the Sustainable Development Health 1. In the long-term, infrastructure Goals (SDGs) to be investment can jolt economic achieved by 2030 in order 2.Education growth by increasing the potential to build sustainable supply capacity of an economy economic growth 3.Social Protection 4.Food Security and Sustainable Agriculture 1. Energy access and low- carbon energy infrastructure 5. Infrastructure 2. Water and Sanitation 3. Transport infrastructure 4. Telecommunications 6.Ecosystem Services infrastructure Infrastructure March 2018 PwC 4 Infrastructure investment Definition of infrastructure • “Infrastructure is the system of public works in a country, state or region, including roads, utility lines and public buildings” OECD • “Infrastructure is “the basic framework for delivering energy, transport, water & sanitation and information & communication technology (ICT) services to people affecting directly or indirectly their lives” World Bank In the study, we have included projects with regards to transport (airport, ports, roads & rail), energy (electricity, oil & gas) as well as water & sewage, whilst ICT and Social Infrastructure (e.g. Hospitals, Schools, Public Buildings, Sport Structures and Green Areas) have been excluded Information & Communications Technology, according to the World Bank, refers to physical telecommunications systems and networks (cellar, broadcast, cable, satellite, postal) and the services that utilize them (internet, voice, mail, radio, and television) Infrastructure March 2018 PwC 5 According to OECD, global infrastructure will absorb around $ 87trln of investment by 2030 In the period 2017-2030, 6.3% of global GDP Traditional funding sources are no longer needs to be invested in water infrastructure, road enough to cover the rapid increase in & rail transportation, airports and ports, energy infrastructure projects, which are expected to reach $ 6.6trln annually by 2030 Road 6.3% 31.9 Rail Airports & Ports 6.4 2.7 Transport 86.7 3.0% 2.3% 41.0 1.0% 32.1 13.6 Water Transport Energy* Total Infrastructure needs ($trln) % of Global GDP Source: OECD Infrastructure *Energy includes Power and electricity T&D, Energy demand/efficiency and oil and gas supply March 2018 The OECD estimates include additional capital costs of 29% in the energy sector, related to the PwC decarbonisation of the power sector and to the grid extension for the electrification of end-use sectors (e.g. 6 transport); and investment in energy efficiency in the transport, industry and buildings sectors 32 Quality of infrastructure Greece is ranked 24th among the EU countries in terms of quality of infrastructure, revealing also a quality gap for the current level of GDP per capita Avg.5.0 Quality of infrastructure (Index) 6.5 Netherlands 푅ത²=0.96 Romania 3.3 France Bulgaria 3.9 6.0 Finland Poland 4.2 Austria Slovakia 4.2 Denmark Greece 4.3 Portugal Germany Sweden Italy 4.3 5.5 Spain Latvia 4.3 Estonia Belgium Luxemburg Ireland 4.4 Lithuania Hungary 4.5 Czech Republic Slovenia 4.6 Czech Republic 4.6 5.0 Malta United Kingdom Croatia 4.7 Croatia Cyprus 4.7 Cyprus 4.8 Malta (Index) of Infrastructure Quality Hungary Slovenia Lithuania 4.9 4.5 Quality 5.0 Ireland United Kingdom gap Belgium 5.4 Poland Italy Estonia 5.4 Spain 5.5 4.0 Luxemburg 5.6 Latvia Greece Sweden 5.6 Bulgaria Portugal 5.7 Slovakia Germany 5.7 3.5 Denmark 5.8 Austria 5.9 Romania France 6.1 Finland 6.1 Netherlands 6.2 3.0 0 20,000 40,000 60,000 80,000 100,000 120,000 Gross domestic product per capita, current prices $ PwC 7 Source: The Global Competitiveness Report 2016-2017, World Economic Forum, IMF Source: The Global Competitiveness Report 2016-2017, World Economic Forum, IMF There are two statistically distinct levels of infrastructure quality, 6.5 Index Netherlands France Finland Denmark whose difference can’t be 6.0 Germany Austria explained by the level of Sweden Estonia 5.5 Spain GDP Belgium United Kingdom 5.0 Τhe differences in Infrastructure investments, Lithuania infrastructure quality measured through the Gross Infrastructure of Quality Croatia between Western and Fixed Capital Formation Hungary Czech Republic 4.5 Quality gap Slovenia Northern European (GFCF), appear to have a Ireland countries, compared to the different impact on Italy Latvia Central and Eastern infrastructure quality in Poland Slovakia 4.0 Greece European countries, cannot each group Bulgaria be explained by the level of relative investment In Greece, the average 3.5 infrastructure investments Romania during 2000-2017 corresponded to only 19% of 3.0 GDP, third lowest among 10 15% 20% 25% 30% all E.U. countries, undermining country’s Gross Fixed Capital Formation in Infrastructure / GDP upcoming infrastructure Source: World Economic Forum - The Global Competitiveness quality Report 2017-2018, BMI Infrastructure March 2018 PwC 8 There is an investment gap of 1.5pp of GDP (or € 2bn p.a.) in Greek infrastructure Infrastructure in Greece has According to ELSTAT, the number been severely affected by the of employees* directly related to Infrastructure investment*** deep recession. Total value of infrastructure amounted to around infrastructure projects has 580k in 2017 (about 15% of total 3.7% €67 bn gap decreased between 2006 and workforce) posting a significant 8 2017 by c. 75%, while its share decline of 37% compared to 2009. 7 in Greek GDP has fallen by Employees indirectly linked to 2.6pps in the same period infrastructure projects 6 2.5% Greek Average 2.6% amount to 880k 5 European Average 1.9% The current rate of 4 8.1 infrastructure investment The backlog up to 2023 of both in 1.3% 1.3% is around 1.1% of GDP, progress and planned infrastructure 3 1.1% 1.1% 1.1% 1.1% 1.1% 5.8 1.0% 1.0% 1.0% compared to the historical pre projects is estimated at around 2 crisis average of 2.6% and the €18.7bn or c. € 3.1bn on an annual 3.2 3.1 2.6 European average of 1.9% of basis 2.1 1 2.0 1.9 1.9 1.8 1.9 2.0 GDP 0 Infrastructure investments in 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017f The erosionInsert of infrastructure Greece have an economic text Infrastructure industry value (€ bn) Infrastructure industry value (% of GDP) investment from 2006 to 2017 multiplier of around 1.8x**, resulted in a €67bn which boosts demand in other Source: BMI International cumulative shortage sectors BMI Infrastructure Investment incudes: Transport Infrastructure (Roads, Bridges, Railways, Airports, Ports and Waterways) and Energy & Utilities (Power Plants, Transmission Grids, Oil & Gas, Pipelines and Water infrastructure) ***Infrastructure Investment data is derived from GDP by output figures
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