Posted on Oct 31, 2019
The European Investment Bank (EIB) has announced a slew of infrastructure investments across the continent, with particular focus on energy and water projects, as well as the transport industry. From congested roads in Bosnia-Herzegovina to German renewable energy initiatives, some €8.4 billion in new financing is being apportioned out to give Europe a major facelift.
The influx of investment is badly needed, given Europe has long been falling behind on infrastructure spending. According to one EIB Municipality Survey, a full one-third of European municipalities reported infrastructure underinvestment in recent years. While many of these areas were found in financially-strained Italy and Spain, municipalities in the UK and Germany also reported mismatched infrastructure provisions. Some 75% of areas surveyed by the EIB reported fiscal constraints, including budget and/or debt ceilings, as the main obstacle to investment.
Finding the money to maintain and expand Europe’s infrastructure base is a vital task. Take transport links, for example: the future development of European economies relies on adequate land, air and sea links to facilitate growing volumes of freight and passengers.
“The shape of supply chains is evolving and changing fast,” says Lisa Graham, EMEA logistics and industrial research head at Cushman & Wakefield, “Traditional long-haul transport is reaching breaking point and it’s crucial that all parties work together to ensure the seamless flow of goods into, out of, and across Europe is maintained.”
Facing investment gaps, some European countries turn to a problematic partner
Indeed, in some regions, infrastructure gaps are so significant that countries are turning to China for much-needed capital funding, despite widespread concerns over the strings attached to Beijing’s cash. Plans, for example, are currently in the works for a Chinese-funded high-speed railway from Budapest to Belgrade, with the line expected to link up with the Chinese-controlled port at Piraeus and serve as an entry point for Chinese goods being funneled throughout Central and Eastern Europe.
China certainly seems to have grand machinations in mind for Europe. In December 2018, a freight truck travelled from the Chinese town of Khorgos through Kazakhstan, Russia and Belarus. Less than two weeks later, it arrived in Poland, completing a 7,000 kilometre journey at a door-to-door cost comparable to both air and rail options.
For supporters of China’s Belt and Road Initiative, the journey was a success of historical proportions. “This is a day to remember,” claimed Kelvin Tang, director of Road and Rail at CEVA Logistics Greater China. Those on the other side of the fence, however, are not as easily convinced, with many viewing Beijing’s global infrastructure scheme as having “neo-colonial” goals
An eastern example to emulate
European countries are nevertheless tempted to turn to China for help, though, because the effort and funding required to upgrade infrastructure across the European continent is quite frankly overwhelming, given that current investment levels—even with recent boosts— are nowhere near where they should be. To the east, however, lies a surprisingly strong example for the EU to follow: Russia, which is currently undertaking a 6 million rouble (US$96 billion) campaign to overhaul the country’s entire transportation infrastructure before 2024.
“It’s of enormous importance for binding our country together, and it’s especially important for us, the country with the biggest territory in the world,” President Vladimir Putin said in his February address, outlining plans for new high-speed highways, refurbished airports, and the development of the Russian Far East- including the world’s northernmost railway.
While some have critiqued the plan for leaving a number of areas behind, the infrastructural revamp would certainly be a major step toward connecting Russia’s disparate regions while catalyzing much-needed economic development in the areas it does benefit. With Russian economic growth stagnating, Putin’s infrastructure plan might just be what Russia’s local economies need.
Moreover, just as certain regions are set to especially benefit from Moscow’s infrastructure “New Deal,” certain companies and industries are looking forward to a windfall. State-owned railway firm Russian Railways, for example, should see its passenger traffic and route network dramatically increase. The infrastructure overhaul includes a number of upgrades to Russia’s massive railway system.
The “Sapsan” trains which connect Moscow and Saint Petersburg, for example, cut traffic times between the “two capitals” in half when they started up in 2009, and swiftly became Russia’s most profitable rail line. The trains currently travel at 155 miles an hour—but once new high-speed track is laid, they will be able to travel at 220 miles an hour. Further expansion of this nascent high-speed rail network is on the cards as well, as bullet trains are expected to cut the travel time between Moscow and Kazan from fourteen hours to a mere three.
Airport operator Novaport, which has 16 airports in its network in the Russian Federation from Chita in Siberia to Murmansk in the far north and Vladikavkaz in the south, is similarly well poised to take advantage of improved regional connectivity. Novaport’s airport in Ulan-Ude, for example, is close to tourist hotspot Lake Baikal. It’s also in the sunniest region of Russia, enjoying more than 350 clear days a year, and—as the closest international airport in Russia to the Mongolian border—is attractive to tourists from Asian countries including China and Japan.
Novaport, which is co-owned by Hong Kong-based investment firm Meridian Capital Limited, has already made significant improvements to the airports it operates. Construction is ongoing at Baikal International Airport for a new passenger terminal for international flights, while its Khrabrovo Airport, in the Russian enclave of Kaliningrad, underwent a massive overhaul recently to double its capacity and lengthen its runway. Meridian Capital and Novaport look likely to continue investing in Russia’s regional airports in parallel with the broader infrastructure push. As Meridian Capital Limited founding principal Yevgeniy Feld explained, “Novaport is an exciting long-term infrastructure investment opportunity for Meridian Capital Limited. Alongside our partner and co-owner Aeon Corporation, we have been able to contribute to Russia’s ambitious regional connectivity plan and cater to the country’s boom in air passenger numbers”.
Gas producer Novatek, meanwhile, could see its port at Sabetta become the most important Arctic point in the world. In 2015, local customs data shows that some 50 foreign vessels delivered a total of 538,000 tons of goods onsite throughout the year; thanks to the ever-widening Northern Sea Route, Sabetta will soon be handling up to 70 million tons of goods annually.
As the question of European infrastructure funding becomes ever more pertinent, then, companies and governments across the continent should take heart. While large-scale modernisation of the bloc’s assets is undoubtedly costly, the benefits are immeasurable.
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