‘New normal’ investing
Investment in developing countries such as Liberia is still on the agenda of global operators
After a ‘bounce-back’ year in 2010, mothballed port investment projects are coming off the shelf again. Felicity Landon reports
Take a look at global container statistics for 2010 and it’s hard not to feel positive. According to figures from Drewry Shipping Consultants, there was 11% growth, which meant volumes had recovered to their 2008 peak. And beyond that, Drewry is forecasting global growth of 7%-8% per annum between 2011 and 2015.
“That is more modest than the double-digit growth we had before, but it still means over 200m teu of throughput added in 2010-2015,” says Drewry’s senior ports advisor, Neil Davidson. “That is very substantial and there is a need for investment.”
But “global” is the key word here; there are significant regional variations, and port investment decisions are bound to reflect those differences. The focus is on the fastest-recovering regions – the Far East, South East Asia, the Indian Subcontinent, Middle East and Africa, while recovery is expected later in North Europe and North America.
In the post-recession ‘new normal’, the good news is that highly speculative and ‘mad’ port/terminal projects are dead, says Mr Davidson. The bad news is that getting funding for good projects can be difficult and slow.
“I think the main focus for investment is on emerging countries, rather than simply on BRIC,” he says. Brazil, India, China and, to a lesser extent, Russia, are key emerging markets, he says, but he also includes South America generally, Africa and the Middle East on the list, and warns that there could soon be pressure on capacity in some key locations.
“In many of these places expansion projects were put on hold across the board; but in those markets where volumes recovered very quickly, before you know if there will be pressure on capacity. And it isn’t just a question of reactivating expansion projects – it is getting finance. Banks are more wary and choosy.”
And where would he put his money? “It would depend on my attitude to risk, and I think that is a reflection of the corporate culture of different investors and companies. For most risk and highest possible returns, it’s Africa and Russia in particular and certain ports in Latin America. Or, if you want to bet very safely, it’s South East Asia and the Far East, and India.”
India, in particular, offers huge opportunity. In its National Maritime Development Programme, the government has identified 276 port projects with an estimated investment of $20.8bn, and it is looking to the private sector for much of this investment. An “investor-friendly” policy framework has been put in place, including allowing 100% foreign direct investment in shipping and port sectors, simplifying the model concession agreement for port projects and standardising bidding documents.
With a population comparable to that of China, but relative container volumes at just a fraction, and with a rising middle class, there is obvious potential for India as both production and consumption country, says Mr Davidson.
“But you do have to have the stamina to get through the bureaucratic obstacles that are undoubtedly in your way – and it depends how quickly you want results. Are you prepared to get in there and sit tight for the longer term, or do you want a more immediate response?”
Meanwhile, he says, many people haven’t taken on board the potential in Africa, a massive continent with a huge population and many countries, but a minuscule container throughput.
“China is investing heavily in Africa, buying mines and production facilities and starting to generate more activity. Africa has always been a continent with a lot of promise but difficult to turn into reality – but maybe it’s time has come. Again, patience is the name of the game. There are often difficult political challenges and bureaucracy.”
Before the downturn the general attitude was “concessions, acquisition opportunities, it doesn’t matter where it is, if we can get it, get it – plant flags wherever you can”, he says. “Now investors are taking a much more sensible, measured view.”
He also expects the global operators to take more of a ‘portfolio management’ view, selling as well as buying terminals.
Who pays for what becomes another question. Until the crash, the private sector was increasingly willing to invest in infrastructure as well as superstructure, with a plethora of BOT and similar schemes. The traditional role of the state investing in infrastructure was taken over by a private sector prepared to invest in quay walls and dredging.
“But the crash has turned that around. Port authorities and governments have to think about changing their mindset back to more traditional ways and investing in infrastructure as they did in the past.”
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