This year there was little dissent that Ian Tyler, chief executive of Balfour Beatty, deserved to win the KPMG-sponsored Chief Executive of the year award at the Building Awards.
Even before government cuts started to bite, Balfour Beatty was diversifying its business. It no longer benchmarks itself against the UK market but against other global infrastructure businesses. The big question is: where will that journey lead them and what will they have to navigate on the way? What will the future challenges be for the newly crowned Chief Executive of the year and indeed for any chief executive in the sector?
The biggest industry issue is the global need for infrastructure, which is one of the great challenges of our time. Not only do the new big economies like China and India need more and better infrastructure but we are also at a point where a lot of the ageing infrastructure in Europe and the US needs replacing. Failure to invest means failure to grow and develop our social and economic fabric. Experts estimate that about $40tn (£24.6tn) is needed globally to build or upgrade roads, railways, power plants and other infrastructure.
The chief executive of the future needs to work out where to place their bets. Today everyone seems to be fixated with energy needs but I think water scarcity will be the big issue of the future. It is already a major problem in Africa and India and soon it will be a big issue in other parts of the world. Investment in desalination plants and in water pipelines will be needed. We will also need wholesale trading mechanisms, retail pricing models and a water version of the carbon trading scheme.
The second big strategic issue is China. Over the last 30 years, China has invested heavily in core infrastructure networks to keep its economy driving forward and support its population of over 1.3 billion. However, the result is massive overcapacity in China’s production capability and that overcapacity is increasingly being deployed overseas.
China has for a long time been a major investor in infrastructure in developing countries, in greater part to help secure the resources it needs to feed Chinese factories and construction. However, the Chinese are now becoming both increasingly important players and investors in ports, airports, railways, power generation and transmission globally, including in the UK, and with nearly $3tn (£1.8m) of foreign exchange reserves, this trend is likely to continue. The chief executive of the future will no longer just need to know how to compete with Ferrovial or Hochtief but with Huaneng or the China Civil Engineering Construction Corporation. The rules of the game are changing and the chief executive of the future needs to recognise that.
The third and perhaps most crucial issue for any chief executive is the lack of clarity around how that $40tn might get funded. The old model of turning up when someone has the cash already fails to hold across vast swaths of the emerging markets, or any part of the UK for that matter. The companies that can help promoters find innovative ways to pay for their infrastructure requirements will soon find themselves ahead of the pack.
The big challenge is finding funding mechanisms that tap into the future wealth of an economy. One example is the Greater Manchester Transport Fund, a £1.5bn scheme that accesses multiple sources of local and central funding. The result is a long-term funding vehicle that supports up-front investment in a large urban transport programme. Soon it will be extended to housing and regeneration schemes. The next question is how it can be scaled up and applied to other infrastructure projects.
These are the challenges of the next decades. The competitive landscape will look very different by 2050, but the chief executive who recognises and navigates those challenges will be the chief executive of the company with a future.
Richard Threlfall is head of infrastructure, building and construction at KPMG
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