The Emergence of Infrastructure as an Asset Class

Introduction

There have been a lot of revolutions and changes in the business environment of the entire world as far as investments are concerned with the goal of engaging in business activities that have the highest returns as well as great value in almost all sectors of the economy (Deloitte, 2010; 2). For example, there has been an increase in institutional players in the financial markets. Some of the players include pension funds, mutual funds and insurance companies (Della and Yermo, 2013; 8). A case example relates to the OECD countries in which the institutions held over USD 70 trillion by 2011; for this reason, a lot of concerns have been raised over the emergence of the infrastructure as an asset class in the past years. Based on the global investment community, a lot of attention has been focused on infrastructure, with high expectations on the aspects of budgetary challenges witnessed as numerous countries. Chen and Warren consider infrastructure assets to be structures as well any other facility that can be used in enhancing order of operations within a given country’s economy (2011; 86-103).

With respect to this definition, Deloitte (2010; 4) pointed out that communities rely extensively on communications networks, educational and health related facilities, transportation networks, as well as systems for distributing energy and water. For example, significant examples of infrastructure assets are highlighted below. First the transportation asset plays a significant role in a country’s economy and includes aspects such as the rail, tunnels, bridges, ports, airports and toll roads. According to Courtois (2013; 16-19), energy and utility assets are also important and include fuel storage facilities, gas and electricity networks, generation of power, as well as provision of water. Other types of infrastructure assets include communications assets (that comprise of transmission towers), and social infrastructure (like heath facilities, waste management, recreation and education).

Typical infrastructure assets have monopoly features, which affect the ease of entry to such investments. The implication of the high entry barriers characteristic of these assets is that there is a high possibility of increased sensitivity to the cycle of economy with respect to the financial performance of these assets. As such, typical infrastructure assets are significant to the economic growth of any country. However, investing in such assets involves risks that are low in magnitude due to the fact that the services provided through the infrastructure assets are very important in a country and for this reason, highly demanded. In addition, such low risks are characteristic of the terms of contract that protect associated revenues. On a global perspective, the private sector accounts for an insignificant portion of the ownership of infrastructure assets. For example, in the United Kingdom, the private sector owns the water. Numerous airports, ports and roads in Australia are privately owned. In addition, North America’s power generation is controlled and owned by the private sector. Based on the role of the private sector in the economic growth of any country, there is the need for high level of securitization.

According to Aikman (2014; 34-41), for the economy of any country to grow, a lot of consideration is based on the trends of regions demographics, the increased significance of private capital, as well as the level of turnover from assets that are owned by the private sector. As such, infrastructure assets are significantly attractive to investments that are geared towards long term management of liabilities, as well as on the yield. This assertion is based on the fact that investors of such projects can rely on the assets especially in matching distribution stream that can be predicted with the investors’ liability profile. In addition, Courtois (2013; 16-19) pointed out that such assets have low risks especially when examined alongside other traditional asset classes, and they can be used in optimizing the risk return of any portfolio and hence, very important in decisions involving strategic asset allocation.

Numerous economists have varying opinions regarding the development of markets for infrastructure assets (Aikman, 2014; 41). This is attributable to the fact that early in the nineties, there was a form of undervaluation of infrastructure. In spite of this, a revaluation process was witnessed in the following years, with a lot of overheating being experienced between 2006 and 2009. During this period, it was easy to access money since it was cheap; a fact that led to bidding, as well as leveraging wars that involved numerous parties including sovereign-wealth funds, pension plans, insurance companies, corporations, specialists’ boutiques, real estate and private-equity investors, and investment banks. Due to the high number of players in the market during this period, Chen and Warren (2011; 86-103) observed that competition was high and led to an increase in the amount of money in circulation. Consequently, only a few numbers of appropriate projects was available and hence, there was a state of overvaluation in most of the assets. For this reason, growth was experienced in deal size as well as the infrastructure funds.

Nevertheless, global financial crisis began in 2007, and led to dramatic change of the financial environment especially between 2008 and 2009 (Aikman, 2014; 41). The changes involved the fall in asset valuation accompanied by rise in liabilities, as well as high risk aversion, strict lending conditions, fall in demand alongside increased pressure to deleverage. At the end, the infrastructure field suffered de-levering and more challenges of raising money.

Over the recent years, Aikman noted that public infrastructural investments have become common especially by government institutions as well as private investors (2014; 40). Such popularity of infrastructure assets investment has resulted in the introduction of specialist products in the market as a means to counter the increasing demand that has been brought by the emergence of infrastructure as asset class. Such demand can be attributed to the availability of investment features of the infrastructure assets that are significantly distinctive and attractive (Aikman, 2014; 41; Courtois, 2013; 16). As such, huge investment funds are looking for infrastructure asset, opening avenues for governments to sell them. Such a scenario has raised a lot of concerns on the possibility of infrastructure assets living up to the promise.

In spite of the past years’ performance of infrastructure assets, there is limited research as far as this field is concerned. Such realization is regardless of the cultural, social, financial, economic and political significance of infrastructure assets, especially in long term investments. Aikman (2014; 34) pointed out that there is need for more research to critically analyze the emergence of infrastructure as an asset class. Investors rarely provide information regarding their experience in the field, which makes it hard for researchers to provide comprehensive analysis of the state of infrastructure as an asset class. Evidently, there is a need for more insights into the subject for the purpose of determining the possibility of infrastructure assets forming an asset class, as well as the role of government in such investment including aspects of control.

This thesis therefore, looks at the concept of the emergence of infrastructure assets as asset class, the review of such assets’ significance in the view of huge investment funds as well as the reasons behind governments’ sale of infrastructure assets and the possibility of government controlling them. To achieve such objectives, the study focuses on the examination of the available literature in risk and return, other features as well as any present empirical findings on the infrastructure assets. In addition, the study also reviews the state of demand for infrastructure assets by highlighting the drivers of the demand.

Significance of the study

The concept of infrastructure assets and the related investments has raised a lot of concerns as far as the possibility of such assets forming an asset class is concerned. On the same note, there are limited studies that show the probability of investment in infrastructure assets living up to the promise. For this reason, there is a need for a study that would clarify some of the issues regarding the emergence of infrastructure as an asset class. The results and findings from this study will be highly significant for academics as well as an addition to the existing knowledge on asset classes. Specifically, the study will provide background information about the aspect of infrastructure as an asset class as well as highlight the importance of infrastructure-related investments to investors, the reasons why governments are selling them and the available options for government to regulate such assets.

Research aims and objectives

This study primarily aims at analyzing the concept of infrastructure as an asset class in order to shed more light about the emergence of infrastructure as an asset class. On the other hand, the study seeks to fulfil the objectives listed below.

1. To review the aspect of infrastructure as an asset class
2. To find out the reasons why huge funding are interested in infrastructure assets
3. To establish some of the reasons why numerous governments are selling infrastructure assets
4. To find out whether there are any measures put in place by the government to regulate infrastructure assets.
5. To find out the role that such assets play in the economy of any country, as well as whether or not infrastructure assets are likely to live to the promises.

Research questions

Research questions are suitable examples of methods that a researcher uses to help them understand a given research phenomenon. As such, they are basically used as pathways through which a study follows. For this reason, Denk (2010; 23) noted that research questions ought to be chosen wisely to ensure that all the elements of any given study are revisited adequately. In line with this assertion, the study’s research questions were framed with respect to the need for more information on infrastructure assets. Therefore, the study uses the following research questions to review the aspect of infrastructure as an asset class:

1. What are some of the reasons why huge funding is interested in infrastructure assets?
2. Are there significant reasons why numerous governments are selling infrastructure assets?
3. Are there any measures put in place by the government to regulate infrastructure assets?
4. What is the role infrastructure asset in the economy of any country?
5. Are there significant evidences on the possibility of infrastructure assets living to the promises?

Thesis outline

This thesis is organized into 5 chapters including the introduction chapter, the review of existing literature, methodology, data analysis and presentation. The introduction chapter as outlined above provides background information, the aims and objectives of carrying out the research. In addition, the chapter has provided a review of the research question as guides to the realization of the research objectives. The rest of the paper is divided into various sections including the literature review, which analyses findings of existing studies on the emergence of infrastructure as asset class, while chapter 3 and 4 focuses on the methodology adopted the study and data analysis and presentation respectively. On the other hand, chapter 5 provides a comprehensive summary of the study taking consideration of all aspects of the infrastructure as asset class. In addition, chapter 5 provides an in-depth discussion the phenomenon under study based on the findings from the survey and the review of literature.

Literature Review

Introduction

There has been increasing attention globally with respect to the emergence of infrastructure as an asset class. Such attention has had significant impact on the private sector as far as the reduction of the budgetary problems experienced in numerous governments is concerned. In spite of this, Chen and Warren (2011; 86-103) observed that there are limited studies that cover the subject of infrastructure as an asset class and the role of the government and other stakeholders in ensuring control and efficiency. There is a need for more infrastructure assets in the world according to a report in 2014 that estimated to be about 57 trillion dollars by the year 2030. There has been a lot of progress in this sector with institutional investors showing a lot of interest in providing the necessary help to see the growth of infrastructure in the world.

For example, according to the International Monetary Fund (2016; 1), there are high numbers of people investing in infrastructure, and there is even more hope that such investments are likely to increase in the future. Evidently, a considerable development has been witnessed in the recent years although it comes with significant challenges. For the example, there have been challenges both from the government and private investors regarding the balance between complexity and opportunity as far as infrastructural investment is concerned. Such a challenge, according to Inderst and Stewart (2014; 3), is attributable to the fact that there is a need to minimize complexity in such investments while at the same tome maximizing the associated opportunities. For this reason, this section provides a review of the existing literature on infrastructure in an attempt to shed light on the possibility of them being asset classes, as well as the force driving the increased demand for infrastructure assets among investors relative to the high rate of governments’ sale of such assets.

Infrastructure as an asset class

The term infrastructure refers to the basic organizational as well as physical facilities and other structures such as power supplies, road, and buildings, among others, that are necessary in ensuring that an enterprise or a society operates effectively and efficiently (Aikman, 2014; 35). As such, it can be seen that infrastructure provides basic framework in which a county operates. On another aspect, infrastructure is considered to include all public works such as public buildings, utility lines, as well as roads. However, when viewed from the investment perspective, economic infrastructure is included that takes consideration of elements of communication, utilities, transport. The other view is the social infrastructure that brings into mix the concept of stadiums, prisons, judicial and defense buildings, healthcare facilities and education-related facilities. Nevertheless, such definitions are conflicting in some sense especially when it comes to determining the difference between private and public infrastructure, as well as the networks, distribution and production span of companies dealing in various types of infrastructure assets such as utilities. For this reason, and in order to ensure a wide coverage of investment funds, it is important to consider a wide approach to the definition of infrastructure whereby ‘infrastructure-related companies’ and any related industries are factored in.

According to the definition of infrastructure it is highly likely that it features the descriptions of an asset class. For example, many countries like United Kingdom, Canada and Australia have always taken infrastructure as asset class. Infrastructure as asset class takes into consideration private equity-type investments that are predominant through unlisted funds, listed infrastructure funds, as well as direct and co-direct investments that are common among unlisted infrastructure companies. Private sectors have become highly appealed by the fact that infrastructure projects have operating margins that are high, as well as have relative operational lives compared to any other given projects. Over the past years, Aikman (2014; 39) pointed out that infrastructure assets have recorded increased popularity among investors due to its ability to provide cash flows over a long term alongside a type of protection from inflation.

Recently, such investments have developed to adopt an innovation that involves package of the infrastructure assets in the form of pooled funds that accrue returns in the future, which are risk adjusted defensive, high-yielding and long-term. Usually, an infrastructure with defensive portfolio has characteristics of low correlation in relation to other types of asset classes (Akinkugbe, 2013; 7). In addition such an asset offers cash yield that is linked to inflation. For this reason, the presence of highly linked inflation cash yield and low correlation gives the warranty of allocating infrastructure an investment portfolio of its own. As such, any available infrastructure funds are qualified to be considered as pension funds as well as any other type of long term individuals with the goal of engaging in returns that can be relied upon. Often, people dealing with infrastructure funds are those investors who have a lot of interest in the value of any given investment and their goals involve the generation of cash from any given asset. Therefore, such individuals look for deal flow and execute any transaction as expected by any given asset’s management or the involved fund.

It is no doubt that infrastructure is now considered a distinct asset class. As such, the only suitable way that can be adopted to ensure that investment outcomes are better is to understand the factors influencing such investment. Numerous researchers have pointed the possibility that the watershed event was the financial crisis that affected the entire world, and to some extent led to the infrastructural development in most of the countries. The occurrence of the financial crisis of 2008 led to the reduction of the capital for the supply of infrastructure especially those coming from traditional sources. Such a situation was based on the fact that almost all governments were forced to engage in fiscal restraint while on the other hand the banks were required to deleverage. In addition, the financial crisis of 2008 led to the increase in the demand for bonds and stocks that were low in terms of correlation. This move also forced investors to look for new sources where they could get returns of investment with the lowest interest rates possible. Lastly, Courtois (2013; 19) pointed out that the financial crisis was very instrumental in promoting alternative strategies to infrastructure that provided reasonable approaches to investments with the goal of highlighting that the engagement in investments involving private-equity as evident in pre-crisis does not offer appropriate grounds for high returns at low interest rates.

In 2014, capital collected from infrastructure funds was estimated to be around 48.3 billion dollars, whereby 19 billion dollars were offered to fund institutional investments. According to recent trends, it can be inferred that there has been an increase of more than 315 billion dollars aggregate funds being managed under various sectors. This can be attributed to the increase in the demand and interest regarding infrastructure investment, as well as the increased pressure from the government with regard to the promotion of such investment. For this reason, there have been high hopes as far as the growth of the institutional flows. The engagement of such money in various projects is likely to sharpen the focus of the asset class considering the possibility of a longer period of track records’ assessment and improved performance.

Over the last decades, Courtois (2013; 19) noted that investors have learnt that there is a need to adopt a strategy toolkit that is a bit larger to enhance their operations in infrastructure investment. This development has led to the adoption of operating assets by numerous investors in markets that have already developed and are often considered to have low complexity but highly predictable. Such developments have led to increased competition increasing the challenges of investors in gaining the necessary exposure as far as getting the right price for any given asset is concerned. For this reason, most investors are looking for a wide range of geographical locations, strategies as well as the necessary education to achieve the desired outcomes by tailoring investments accordingly.

However, it has become common that for the infrastructure landscape to be navigated appropriately, investors ought to get hold of the geographies and sectors that are changing or growing at a faster rate than others. In most cases, such sectors are characterized by transformative change over a long period of time especially in economies that have already developed. On the other hand, developing economies emphasize on economy itself with a lot of interest on those experiencing growth at the inflection point. In spite of this, several researchers have showed that it requires a lot of attention and commitment to capture a significant percentage of the infrastructure field. This can be attributed to the fact that the sector is rapidly growing and features worldly realms. For this reason, there is the need for expanded strategy toolkit to help investors in approaching infrastructure-related investments as expected.

Based on the above analysis, it becomes important for investors to be aware of the factors that globally influence the infrastructure assets. Such knowledge is important for the purpose of determining the dimension of the sector since there are quite a number of dimensions. For this reason, investors are able to understand the asset in which the sector falls, whether the investment is standalone, regulated monopoly, or even an established company. As such, it is important for investors to be aware of the state of a given investment. The availability of numerous variables in infrastructure investment plays a significant role in explaining how investors have robust preference especially for strategies that are primary for any given investment, which take into consideration the role of equity exposure in a market.

Over the past years, the core strategies have been considered to be the category of preference among the investors whereby it is expected that many individuals are hoping to increase their level of infrastructure investment in the future. However, such increases are probably not possible due to the fact that most individuals have a lot of interest in new investments as opposed to increasing their operational ones. In the recent years, the thinking capacity of investors has been broadened by the increased competition for core strategies in infrastructure investments. Nevertheless, experience and growth of sophistication has been very instrumental in the operations of various infrastructures. For this reason, it is highly likely that organization of investments features the spectrum of real estate, with a lot of focus on the expected outcomes, and the need to take into consideration all risk factors. The strategy category in this case features junior and senior debt. As such, for an investor to assign various investments to given categories, it is important to consider the economic lifecycles of the investment, as well as possible outcomes and associated risks.

The Portfolio Perspective

As pointed out earlier, the need for infrastructure finance was estimated to be around 57 trillion dollars globally. In spite of this, it is important to look past the estimated need in order to determine the requirements that investors have to meet for the need to be realized. There is a constant need for economic, social and utility infrastructures such as hospitals, electricity and roads. On the other hand, the investors are required to have the necessary amount of income, required level of diversification, ability to protect inflation, as well as have the needed resources to match any liabilities in the sector. To achieve all these, investors are forced to have the right working capital, investment vehicles, portfolio construction, investment data and deal flow.

According to the 57 trillion dollar estimate of 2013, it was based on the global demand projection over a range of important infrastructural segments between 2013 and 2030. However, for such estimates to be achieved in terms of infrastructural expenditure, the total investment from various sources would be required to account for more than 3% of the world’s annual gross domestic product, which is likely to affect poor countries due to the exhaustion of available resources. A review of investors in infrastructure has showed that most of them are yet to achieve their initial targets. Nonetheless, there are diverse ways in which the investors use especially when it comes to the incorporation of infrastructure in each individual’s portfolios. As such, about 40% of the investors make use of the dedicated infrastructure bucket even though there has been a considerable decrease in the number of investors using this approach (Della and Yermo, 2013; 8). This can attributed to the emergence of the asset class, which has increased the level of popularity of real assets bucket as a decline in private equity bucket use is witnessed.

The sizes and categories of infrastructure are based on decisions around the required number of internal resources as well as the appropriate manner of exposure. Over the past years, trends have indicated an increase in real estate staffing, inclusive of infrastructure. In spite of this, the decision by institutions on the addition of geographic expertise and a significant sector is very important in the making of direct investments. Even though there is an increased level of interest in direct investment, only a significant small portion of investors are willing to engage in such ventures due to the lack of more information on their profitability and potential as asset class. On the other hand, closed end equity funds are very important as investment vehicles especially for investors without the interest of building teams for direct investment. Over years, an evolution has been witnessed as far as infrastructure funds are concerned. For example, before the onset of the financial crisis of 2008, it was a norm to have private-equity style funds that had levels of leverage that was extremely high. However, as of today, the market has changed significantly with a lot of focus on ensuring that there is a match in leverage levels, fee structures and time horizons to the objectives of any given investment and a characteristic difference between investments that re bought to dell from those that are bought and held for a given period (Benković, Milosavljević, and Barjaktarović-Rakočević, 2010; 4). Such changes can be attributed to the fact that the exit-oriented structures do not have much significance to most core investments. The act foregoing the appreciation of infrastructure assets as well as vehicles that are not levered with the right fees is likely to have a significant impact in the predictability of income.

Infrastructure assets, just like any other assets, have a number of risks that investors ought to understand and be ready to deliberately engage in provided they are priced appropriately. One of the challenges that face investors is to have full knowledge of the risks involved in any given investment. Some of the most important risks to be aware of include political risks and industry risks. Political risk arises from the fact that there are regulations that govern the stability of any given asset alongside a country’s support for financial and legal institutions. Investors ought to have confidence in the stability and support of such institutions whenever making any form of investment even though there are concerns that it can be impossible to achieve absolute certainty in these two aspects. Therefore, it is important for investors to consider the potential for political risk as well as the available compensation before making any investment. On the other hand, industry risk has come common in infrastructure investments. However, industry risks are subject the available technology and industry’s dynamics. Investors can mitigate such risk by entering in appropriate terms of contract as well as diversifying risks as industry risk cannot be eliminated entirely.

Comparison between infrastructure and other asset classes

The emergence of infrastructure as an asset class has elicited a lot of concerns especially regarding the need to have full understanding of the features that makes it an asset class, and how it compares with other assets (Schubert, 2015; 3). There are some features of infrastructure investment that are similar to those of other assets such as real assets, private equity and fixed income. For example, just like fixed assets, infrastructure assets have cash yields that are predictable over time (Badu, Edwards, Manu, and Brown, 2012; 261). Secondly, an infrastructure asset involves the investment in physical assets just like in the case with real estate assets. On the other hand, infrastructure investments are geared investment although there are underlying differences in the characteristics of the involved just like the private equity assets. Generally, there are a number of similarities and differences between infrastructure assets and other assets such as the fixed income, equities, real estate assets and private equity assets as discussed below.

Similarities

As pointed out earlier, infrastructure assets share similar characteristics with numerous other assets as highlighted below.

First, when considering the private equity, the control of management over infrastructure investments is similar to the management control over private equity investment. In addition, the private equity and infrastructure assets have converging investment techniques.

Secondly, the comparison between real estate assets and the infrastructure assets shows that location of the asset is significant important both for real estate asset and infrastructure asset. In addition, there a lot of focus in the two types of assets is given on the absolute return, with the significant part of such returns being cash yields.

Thirdly, the ownership of equities and infrastructure assets is equity based, with an upside return potential for any given investment.

When compared to fixed income assets, the two types of assets have cash yield that is obtained over a long period and is predictable. The assets, fixed income or infrastructure, have a long duration and hence, reduces the market risk significantly. Evidently, infrastructure class of asset shares several features with other types of assets; a fact that explains the emergence of infrastructure as an asset class.

Differences

There are several differences notable in the features of infrastructure assets and those of other assets such as the fixed income assets, equities, real estate and private equity assets. First, infrastructure assets are significant different with private equity especially in aspects of risk-return objectives. In addition, there is a significant difference in the level of economic cycle’s exposure, length of investment horizon, rate of growth in capital, strength in cash yield as well as the difference in the drivers of returns.

Secondly, a review of the features of infrastructure assets and real estate assets shows significant differences in the required control of the operating companies, the challenges faced by investors planning on starting such investments, level of valuation cycles’ exposure, predictability of the cash flow, and the level of gearing. In addition, a significant difference is also noted in the size of each individual asset in both cases.

Thirdly, the comparison between infrastructure and equities assets shows that the two assets differ in liquidity and securitization levels, business cycle’s correlation, as well as the predictability of cash yield. Lastly, infrastructure asset and fixed income assets also have several differing characteristics. For example, the ownership of asset between the two types is different, and so is the upside growth potential (Rajan andJain, 2013; 260). On the other hand, their extent of exposure to internal risk is also different despite the two types of assets having low market risk.

Economic importance of infrastructure

According to the economic theory, infrastructure has a lot of significance in the economy of any given country. For example, an infrastructure that is designed effectively is likely to lead to growth of the economies of scale, reduction of trade costs, as well as enhance specialization and production of various commodities in a country. Infrastructural services like the supply of water, communication, transportation and energy are very important for various economic activities in a country. The lack of infrastructure or the availability of infrastructure that is not reliable can lead to the increase in cost of trade because all firms in the affected country are forced to come up with their means of supply of the missing or ineffective infrastructure (Clark and Evans, 2008; 303). The availability of significant fixed costs makes the investment of firm-specific infrastructure a little bit ineffective. For this reason, firms are compelled to endure the productivity effects as well as the associated economies of scale.

Consequently, the availability of infrastructure that is adequate ensures the reduction of transaction costs especially in aspects of information and goods’ exchange. Such a move therefore, enhances the development of trade while providing avenue for comparative advantages. Such condition is also instrumental in the abolishment of regional monopolies given that the effective infrastructure enables the exchange of products, energy, labor and information (Luiz, 2010; 521). Furthermore, in cities that are highly populated, with shared resources being significant in the agglomeration of economies, adequate urban infrastructure plays a significant role in conceiving liquid markets and knowledge spillovers. Facilities such as water and sewer systems are important in urban life since they are very significant in the mitigation of cost of dense population in elements of diseases, waste, noise and congestion. For these reasons, efficient infrastructure both at urban and regional levels significantly affects other industries through the provision of the necessary platform for efficient functioning of the economy.

Anecdotal evidence has been presented that demonstrates how the infrastructure positively affects macro-economy, as well as the micro-level life of individuals. A good example in this case is the fact that lack of enough supply of power leads to substantial reduction of the gross domestic product by a margin of between 1% to 2% in countries such as Colombia, Pakistan, and India. Considering the African context, water is a problem that translates to loss of one hour daily as people engage in the collection of water. The Erie Canal construction has had significant and historic impact in New York City and its environs. This can be attributed to the fact that it led to the reduction of the cost of transporting wheat by 90% (Bristow, 2010; 15). The location of any given firm is a very important aspect that investors and firm owners consider when establishing a firm. The proximity to effective infrastructure is a factor that plays a very significant role in deciding the location of firms. For example, the headquarters if AT & T were moved to Dallas from San Antonio due to the fact that Dallas offered suitable location where the firm could access better air transport connections (Chen and Warren, 2011; 103).

In spite of the availability of anecdotal evidence showing the significance of infrastructure for a country’s economy, there are numerous empirical econometrics studies covering this phenomenon and offer support to the assertion that infrastructure impacts the welfare of a country in different ways (Chen and Warren, 2011; 86). For example, it has been considered that a change in infrastructure stock of about 1% affects the output of the private sector by about 0.4%. Even though this estimate and others used in the past have been considered to have characteristics of overestimation, the results are significant in that they tend to show the relevance of infrastructure in the growth of any given economy. According to Courtois (2013; 17), it is estimated that a rise of 1% in infrastructure asset leads to a proportionate increase of 0.1% in the gross domestic product per capita. On the expenditure context, Chen and Warren (2011; 86-103) showed that a 1.59 dollar boost is experienced for every single investment of one dollar. Nonetheless, it is important to understand that the significance of infrastructure varies from one country to the other as well as over time. Such variation in infrastructural relevance can be attributed to characteristics of each project, effects on networks, and other necessary challenges.

Most developing countries have low levels of income (Bristow, 2015; 15-22). Such economies experience consistent large but positive impact of infrastructure on employment, productivity and output. This can be attributed to the fact that the availability of positive externalities translates to returns form infrastructure that are not linear. For sufficiently developed network, the infrastructure effect is high (Chen and Warren, 2011; 86-103). The benefits from new infrastructure are felt after a while since the introduction of new facilities force individuals to align themselves according to the characteristics of the new infrastructure. However, where the economic development is hampered by competition, and liberalization degree, it becomes difficult to establish any positive productivity effect from such infrastructure.

Considering the social impact of infrastructure, it is evident that it plays a vital part in social development of any country (Caspary, 2009; 61). This assertion is based on the indispensable characteristic of infrastructure on the well-being and the existence of any given society. Apart from affecting the gross domestic product, a significant effect from infrastructure is felt on the living standards of people in a society in aspects of education and health.

Infrastructure investment needs

A review of the infrastructure needs of the world indicates that there is a surge in the demand for world infrastructure, which has been instigated by the convergence of various factors such as increased wealth, urbanization and growth in the global population. For example, in 2011, there were more than 7 billion people, and still there is high expectation that the population will go passed 9 billion people by 2050. Such a high rate of population growth necessitates the availability of efficient infrastructure to meet the increasing demand in economic and social aspects of life. In spite of the increased rate of growth, Courtois (2013; 19) asserted that infrastructural demand has been boosted by the increased urban densities over the recent years. With increasing rate of rural-urban migration, it is expected that there will be continuous rate of urbanization. An increase in the rate of urbanization causes a significant increase in the demand for efficient infrastructure since such increases comes with the need to provide the necessary services especially in areas such as diseases, pollution, and congestion. In addition, the increased needs for infrastructure can also be attributed to the rise in living standards of people and increase level of wealth.

In a case where there is high per capita income, it is highly likely that an increase in the demand for motorized transport, energy and communication is evident. The availability of progressing wealth in a society significantly affects the size of households making it to shrink and hence, straining infrastructure systems since it becomes important to provide all the necessary services for distinct housing units. In spite of the fact that there is an increase in the demand for technological advances, capacity of the infrastructure, increased environmental concerns, maintenance needs play a significant role in the requirements of infrastructure investments.

An analysis of the state of supply of infrastructure in the past shows that there has been a notable decrease in the infrastructure expenditure with respect to the gross domestic product of most developed countries. According to the International Monetary Fund (2016; 1), such a case was evident in countries such as Germany, Canada and Australia that spent over 4.0% of their gross domestic product in the sixties and seventies, only for such spending to decline by more than 2% in the 1990s as well as in 2000s. A dramatic decline was evident in the United Kingdom that included the fall of public infrastructure investments to as low as 1.4% from 5.7%. Such decline in infrastructure investment can be attributed to shift of emphasis from industrial to service sector, infrastructure systems that are fully built-out, lack of balance between expansion, maintenance and expenditure, as well as low growth in the economy. In the recent years, the expenditure level of most developing countries has increased up to 7% (International Monetary Fund, 2016; 1). Nevertheless, there is a need for more investments in infrastructure, which is instigated by the high growth in economy and strong population.

The supply of essential infrastructure services such as distribution networks, water treatment points, electricity transmission, power generation, mobile and fixed-line networks, airports, waterways, roads and rail tracks remains flat due to insufficient spending regardless of the increased demand. For a long period, Europe and U.S have had no new projects for airports, forcing a high percentage of the main airports to operate beyond their capacity. The fact that the infrastructure capacity is experiencing insufficient investment alongside deterioration in the quality of the already established assets explains the level of lack of satisfaction as far as the endowment of infrastructure is concerned.

Funding infrastructure assets

Most governments are tasked with the responsibility of providing infrastructure-based services such as the construction of roads, railways lines, airports and other social amenities. As a result, it is important for the government of any given country to be aware of the infrastructure needs in the country for a chance to ensure that the right services are provided whenever there is a need. There is a challenge in the financing and infrastructure funding that has been brought about by the increased demand and the current state of shock within the infrastructure field. More than 51 trillion dollars are required to fund the total infrastructure need in the entire world; a figure that translates to more than 3% of the annual gross domestic product of the world. According to Courtois (2013; 19), it can be seen that it goes past the present level of investment. For example, individual country estimates such as in the U.S shows that more than 2 trillion dollars are required to fund the infrastructure investment need over a period of more than five years. As for the United Kingdom, the infrastructure need is about GBP 350 billion, which is estimated to be more than 40% increase compared to annual expenditure on infrastructure in UK since 21^st century. Nevertheless, it is expected that each individual country is likely to have distinct pattern of infrastructure financing needs due to differences in economic growth and resource endowment. The emerging markets are facing a lot of pressure to develop their infrastructure following increasing demand due to increased population, progressed urbanization and increased wealth. The developed countries, on the other hand, are compelled to replace, rehabilitate as well as technically upgrade their aging infrastructure.

Evidently, the infrastructure financing needs are overwhelming for both developing and developed countries due to the fact that there is a continuous need to ensure maintenance or replacement of infrastructure to match the market demand. For this reason, it has become significantly hard for most traditional sources of public funds to maintain the required pace as far as the infrastructure funding and investment needs are concerned. In addition, the present economic conditions, debt crisis and increase in public debt burden have had significant contribution to the financing challenge of infrastructure assets. A worrisome funding gap for infrastructure investments has developed. Infrastructure systems that are effective in terms of performance are important in any economy. As such, it is imperative to find a sustainable solution to the funding challenge and the financing gap for infrastructure investments. The fact that infrastructure assets are important in the economy of any country and the world increases the investment interests of numerous investors. As pointed earlier, infrastructure investments have attracted huge investment funds over the past years, which is instigated by the fact that such investment require a lot of capital and have an attractive cash yield returns. On the other hand, huge funding have significant interest in infrastructure investment in that most governments in the world have financing challenges as far as meeting the increasing demand for various infrastructure investments. As such, the governments have no option but to involve the private sector in the provision of critical infrastructure services such as water, roads, as well as education and health facilities.

The growing need to provide adequate infrastructure to the public has presented the government with a lot of challenges, due to the fact that most of the infrastructure, whether new or requiring replacement, take a significant part of the world’s gross domestic product. As such, Ghosh and Meagher (2011; 22) noted that there are numerous cases whereby most governments sell existing public infrastructure in order to raise capital to finance other infrastructure investments depending on the public demand and needs. Over the recent years, most governments have been on record selling most of their infrastructure assets, a move that has raised a lot of concerns (Atmo and Duffield 2014; 341). A number of researches have showed that such cases are not uncommon, and may occur whenever a given government seeks funds for a given project. For example, International Monetary Fund (2016; 1) noted that in order to clear the mounting costs of infrastructure in Canada, the government leased as well as sold stakes in some of the existing infrastructure assets such as airports, rail lines, and highways. Evidently, monetizing governments’ assets is a very suitable way that various governments are using presently as a source of funds to meet the increased infrastructure needs.

The sale of infrastructure assets by the government is beneficial in the long run, which explains why most governments are selling most of their infrastructure assets nowadays. There are numerous benefits that the government and the public get from privatization of public infrastructure assets. First, governments are engaging in privatization of infrastructure assets in that the participation of the private sector in such assets increase expenditure, as well as the efficiency of revenue. This is based on the fact that the private sector has a significant amount of incentives that are quite high whenever compared to the public sector. Such incentives make it possible for the private sector to carry out various infrastructure investments efficiently. The participation of the private sector in the infrastructure operation and construction ensures that any available opportunities are maximized such as optimizing user pricing, developing ancillary business and working hard to ensure that there is minimal leakage in revenue.

Secondly, private participation in infrastructure asset ensures effective reallocation and unbundling of risk. According to Ghosh and Meagher (2011; 22), such actions are very important in the reduction of costs since the private sector has numerous incentives and resources necessary to enhance the mitigation of risks associated with the operations and management of public infrastructure investments.

Thirdly, one of the significant challenges affecting the efficiency of the government as far as infrastructure assets are concerned is the existence of a financing gap. The involvement of the private sector in the operations of infrastructure assets provides a platform to bridge the funding gap and hastens the speed of developing such assets. For this reason, most governments consider the private sector to be a suitable alternative to alleviate delays in investments especially in cases whereby the concerned government encounters fiscal challenges or even any other needs. The private sector operates under an upfront financing system, which ensures that the construction and operations of any given infrastructure are completed as fast as possible unlike the government’s approach of pay-as-you-go which leads to investment delays.

Fourthly, private sector offers a platform to do away with any potential political failure. Often, private investors carry out market test aimed at filtering white elephant projects. The private sector ensures that prices and cost of infrastructure investments are kept at a marginal level by focusing on user pricing, which does not take consideration of political concerns.

In spite of the fact that privatization is very beneficial as far as the effective operations and management of infrastructure investments is concerned, there are cases when it receives a lot of resistance from the public. Ghosh and Meagher (2011; 22) pointed out that one of the reasons for such rejection is the lack of consideration of community aspects, safety, environment, and equity while making decisions about any given infrastructure assets. Secondly, the involvement of the private sector in the operations of public deprives the public sector the necessary control as well as the associated flexibility based on the fact that the management of the infrastructure investments by the private sector takes a long time. This is attributed to the fact that there is always the need for coordinate various activities and facilities to achieve the objectives of a particular project. Always, most of the initial contracts involving the private sector tend to be incomplete implying that there is the need for numerous negotiations that might turn out to be quite expensive.

On the other hand, the lack of capacity of arranging or regulating a PPP structure by the public authority gives the private sector a platform to make excessive economic profits.

Governance and regulation of infrastructure assets

The International Monetary Fund (2016; 1) has pointed out that infrastructure plays as a significant role in the economy of any given country. This is based on the fact that infrastructure services offers background for the growth of any economy, as well as has direct impact on the development of individuals, sustainability of the environment and social inclusion. For this reason, infrastructural development is very important both to the citizens and the government. Such condition prevails for all the developmental stages in any given country. However, the involvement of the government in infrastructure development is very important for the purpose of ensuring the development of high quality infrastructure that matches the economic demands of a given society. This shows the significance of good governance and government’s control in ensuring the delivery of good infrastructure.

In spite of the significance of good governance in infrastructure delivery, a lot of literature has been dedicated on the challenges of funds for infrastructure projects, thereby neglecting the significance of in-depth public governance dimensions. The International Monetary Fund (2016; 1) has raised concerns over the need to have better management of public investment. For effective management of infrastructure to be realized, there is the need to identify the good infrastructure governance’s elements. For example, one of the points to such governance is by accessing the challenges that come about in cases whereby there is not effective governance and control of infrastructure assets and projects. The lack of efficiency in the governance of infrastructure projects plays a significant role in the failure of most infrastructure projects. Ray (2015; 3) observed that major projects that are not governed and controlled effectively take up high budget, take a long time to complete, and they do not achieve all the set objectives. On the other hand, infrastructure projects that have deficient governance leads to accelerated deterioration, underutilization, underperformance, delays and cost overruns.

Effective governance of infrastructure project ensures that the harnessing of efficiencies based on strategies that are not extremely complex, although comprehensive. Such an approach ensures that any risks and uncertainty can be identified early for effective action. Often, the transfer of risks to the private sector is at times expensive and thus, requires the involvement of a governance system that is highly modernized. In this case, good governance is considered from the perspective of effective planning, evaluation ad assessment of any given project, regulation, accountability and transparency. For this reason, there is a need for a strong institutional architecture for the purpose of delivering any infrastructure project within the budget, on time and according to the user’s requirements.

Infrastructure governance refers to the monitoring, decision making, modes of interaction, and processes adopted by agencies of the government to ensure that the necessary infrastructure services are provided to the public according to their demand and needs. Basically, infrastructure governance can be viewed from the perspective of citizens, users and private interaction with internal institutions of the government to ensure efficient provision of various infrastructure services. As such, it is important to have an effective framework that takes care of any infrastructure governance needs. Such a framework ought to ensure that the rights projects are funded provide the necessary measures to enhance cost-efficiency of the projects through approaches that are affordable and trustworthy. In addition, an effective governance framework ought to have a suitable methodology through which decision makers can effectively examine the given infrastructure to ascertain whether or not there are any challenges and identify the right approaches to deal with such challenges.

The life cycle of any given infrastructure project comprises of at least 5 phases. Such stages are characterized by different infrastructure needs and challenges. For this reason, it is important to identify the investment needs before prioritizing the project, preparing project’s phases, constructing any structures or even stage any operations for a given infrastructure. There are quite a number of challenges that affect almost all infrastructure projects. First, sustainable development plan for any given infrastructure can be affected by the lack of strong capacity to enhance effective strategic design for any infrastructure. Through the adoption of a suitable infrastructure governance, investors and other stakeholders are in a position to identify the need for an investment in a given region, determine the suitable elements, trade-offs and prioritization. Thus, the government requires the adoption of a strategic vision that is coherent to ensure that investors and all other parties involved have a clear picture of the potential project for a chance to identify all the necessary complementarities.

Lack of consultation in the process of any projects can lead to failure. Such consultation can involve the private sector, civil society organizations since the input of each one of these parties is very important in ensuring that any constructed infrastructure is of high quality. Through stakeholder involvement, investors are able to realize a common vision as far as development is concerned. The implication is that the government ought to establish the necessary measures to monitor and control the operations of the private investors whenever dealing with any form of infrastructure investments.

Issues of corruption tend to have an upper hand in the procurement of infrastructure projects. There are high numbers of bribery cases whereby certain investors have to bribe to be awarded a given tender to provide certain infrastructure services. In spite of this, identifying corruption cases in such projects has been reported to be quite hard since it is not easy to assess extent of corruption. Nonetheless, there are various studies that have provided quantitative reports on funds lost through bribes. For example, it is considered that about 10-30% of infrastructure investments get lost as a result of corruption and poor management.

Based on the analysis above, it is evident that infrastructures play a significant role in the world’s economy. In spite of this, there are numerous challenges that have adverse effects on the overcall structures constructed. For this reason, there is a need to ensure efficiency in the infrastructure projects that are undertaken in any given country for the purpose of ensuring efficient and high-quality structures. Such conditions necessitate the introduction of effective governance dimensions to monitor and control operations around infrastructure investments. To begin with, there ought to be a strategic vision that outlines how infrastructures should be used for the purpose of dealing with challenges of multi-dimensionality. Secondly, the government ought to establish regulatory frameworks processes and principles that are meant to encourage renewal, management, sustainability and affordable infrastructure development. However, it is important to ensure a user-centric process of infrastructure management. This should take consideration of consultations and inputs from various quarters for the purpose of ensuring that the final project is quality and meets the needs of all stakeholders. The adopted consultations should focus on coordination across various departments of the government as well as the jurisdiction in order to achieve equilibrium between sectoral views and government perspectives.

In addition, the availability of the necessary skills and procedures is very instrumental in achieving the projected goals and objectives of any given infrastructure project. On the other hand, it is important to ensure that any assessment of infrastructure projects is based on real data, as well as takes consideration of the value for money.

Chapter summary

This chapter was aimed at reviewing past studies on infrastructure investments. The focus of this study was on carrying out an in-depth analysis of the subject of infrastructure being an asset class. The review of literature has adequately tackled this concept with a lot of emphasis on establish the need for infrastructure development. The review of the existing literature on the subject has showed that infrastructural development is very important in any country’s economy. Presently, there is a high demand for various infrastructures, which according to the literature review are instigated by the high population growth, urbanization and increased wealth in various countries. In spite of this, the review of literature has showed that many countries in the world are facing financing challenges due to the fact that there is a continuous need to ensure maintenance or replacement of infrastructure to match the market demand. Such a condition calls for reliable approaches to infrastructure financings since majority of the sources relied on for funding are no longer effective due to the fact that there is a need to match the speed at which the completion of infrastructure projects are required to be completed. In addition, the review of literature indicated that the overwhelming financing needs are brought about by the present economic conditions, debt crisis and increase in public debt burden.

According to the literature review, there are numerous challenges that are associated with the increased need to provide adequate infrastructure to the public. The literature review has showed that there are numerous cases whereby most governments sell existing public infrastructure in order to raise capital to finance other infrastructure investments depending on the public demand and needs. Presently, numerous governments are considering engaging in privatization of public infrastructures as a means to obtain capital to fund other projects. Significantly, the several studies showed that privatization is beneficial as it provides grounds for increased expenditure, as well as the efficiency of revenue. This is based on the fact that the private sector has a significant amount of incentives that are quite high relative to the public sector. Evidently, the literature review was very instrumental in providing insights into the concept of the emergence of infrastructure as an asset class. The findings from this study are analyzed and compared with the interview results in chapter four.

Methodology

Introduction

Over the past decade, infrastructure as an asset class has experienced a rise in the investors’ interest. As a result, various equity funds, banks, and insurance companies have instigated allocations to the infrastructure asset class, which has been hailed as a new alternative to investment. With the new infrastructure as an asset class attracting huge investment funds, governments have been involved in the selling the assets, a shift from the past where major infrastructure were overly protected and regulated by the governments. Thus, the new orientation has called for changes in the regulation of the alternative asset class. As indicated in the prior chapter of this thesis, the main aim to explore the infrastructure asset, how they have increasingly become sought after by huge investment funds and the reasons the governments are selling and means they will employ to regulate the assets. Therefore, in line with the core objectives, this chapter about research methodology provides the guidelines which will be used to systematically provide answers to the research questions. The chapter focuses on the research philosophy, research design and the possible limitations to systematic probe of the area under investigation.

Methodology

Methodology involves the approaches that are applied in the collection of data. In any research, methodology is a key area that provides the practical procedures or techniques that are to be used to identify, collect and analyze information. It also includes the approaches applied in the data analysis and the rationale for settling on the selected approaches. According to Denk (2010; 31), study methodology is the systematic planning of actions that are applied in the collection of information. The logical processes are crucial in the realization of the research purpose. The study methodology is a broad section in a study as it encompasses the use of different research designs to inform the process of the data collection (Denk, 2010; 32). It is through research design that the direction of the study can be understood. Examples of the study designs include descriptive, cross-sectional, experimental, and explorative researches. For a researcher to select a specific research design, the key factors considered is the type of study phenomenon under investigation, the nature of the information being sought, i.e. qualitative or quantitative. It is worth noting that the various research methods can be combined.

According to Dixon (2005; 46), research entails moving from the unknown to the known in order to arrive at a solution to a specific issue being investigated. The process requires drawing of data to be used for the correlations. For instance, in the case of the present study, the main aim is to discover knowledge about the emergence of infrastructure as an asset class. Therefore, both qualitative and quantitative approaches can be used. Also, different research designs can be applied. However, based on the study questions which are used to the main guidelines for the issue under the study, the research design selected is in line with the questions. This ensures that the study does not divert from the core issue being addressed. The rationale for selecting the research design is provided by Sans (2011; 108), who pointed out that study methodology includes the logic behind the steps that are employed by the researcher. According to Silverman (2006; 12), the research methods are the techniques put in place by researchers in the process of executing a study.

The methods are applied based on the knowledge that research entails taking appropriate measures to unearth the truth behind a given phenomenon. Denk (2010; 30) added that it forms the basis of providing important information that can be used to enhance understanding. In business studies such as finance, research process requires drawing of data to be used for the correlations in order to make investors and other businesspeople to make informed decisions that will guarantee good returns. It important to note that the purpose of a scientific study is to discover answers to the research questions. This is achieved by use of reliable methods to produce results that are dependable and realistic. As such, methodology is concerned with the use of scientific procedures to find out the truth, which has not been discovered. Neumann (2007; 36) noted that the objective of a research is to gain familiarity with the issue being studied or to gain insights into a particular phenomenon.

It is worth noting that study methodology provides the basis for understanding the concepts and constructs that can be used to explain the issue under investigation. As stated in prior discussions, the focus is on the steady emergence of infrastructure as an asset class and the involvement of the government in selling and measures it is likely to apply for future regulation of the emerging asset alternative. Thus, the selection of the research designs is inclined to specific constructs based on the knowledge that infrastructure assets provide essential services and hence, demonstrate usage pattern that is not similar to other assets. For example, Flyvbjerg, Garbuio, and Lovallo pointed out that most infrastructure assets provide essential services; therefore, rates are levied to ensure affordability to the general public (2009; 174). Deloitte asserted that the rates are normally below the monopoly prices (2010; 2). This is based on the fact that utilization of the infrastructure assets does not significantly reduce if there are economic downturns or the rates are increased. The implication is that the main inquest to infrastructure as an asset class requires gathering information from credible sources and individuals who have in-depth understanding of the field. To understand this orientation, it is paramount to explore research philosophy that will form the basis for understanding the current study. The research philosophy will form the rationale for the selection of a suitable study design for the study.

Research Philosophy

The main aim of any social or scientific study is to discover meaning and reason for the topic under investigation; i.e. to discover answers to the research questions. According to Weber (2004; 4), it entails the use of scientific procedures to find the truth which has not been discovered. In business studies such as the present issue under investigation, the main philosophical paradigms that can be applied are positivism and the interepretivism. Positivism entails application of methods of natural sciences in which quantitative methods are used to measure constructs. On the other hand, the paradigm of interpretivism is based on idealism. Interpretivists argue that examination of meaning and reasons can be used to understand a social phenomenon. In essence, it discounts the positivist view of the natural objectivity. For example, Weber (2004; 7) emphasized that the positivist view applies social constructionism and hermeneutics. Therefore, issues that relate to human construct are better studied by qualitative approaches that use the interpretivism paradigm. In some studies, both the positivism and interpretivism can be used. This is normally the case in mixed study methods.

As noted by Weber (2004; 3), the aim of any research is to provide a platform for the discovery of the phenomenon being studied. In the current study, the main phenomenon under investigation relates to the stead rise of infrastructure as an asset class and the involvement of the government in selling and regulation of the alternative asset. The main issues that any businessperson will think of in relation to investment in an portfolio are the benefits and risks associated with infrastructure assets, how the investments have shown interest in the assets, the selling the assets and the intended means by the governments to regulate them. Focusing on the core issues, there are different perspectives that can be used to gain deeper understanding. For instance, a researcher can make use of the existing empirical data, carry out systematic inquiry from the concerned people and review theories that relate to the phenomenon under study. The implication is that both the positivism and interpretivism are best suited in the discovery of meaning in the current study; a signifier of employing both qualitative and quantitative methods. However, based on the research questions, the current study is aligned to gathering qualitative information about the emergence of the infrastructure as an asset class. As a result, the interpretivism approach becomes more favorable for the study unlike the positivism paradigm.

Research Strategy

The two basic research types applied in a research include the qualitative and the quantitative. The research strategies are usually based on the type of information being sought. As pointed out in the philosophical paradigm, the current study applies the interpretivism approach; hence, the signifier for the qualitative approach as the research strategy to be used. Qualitative research is an approach which is used to gain understanding of opinions and motivations. This denotes that researchers using the approach do not rely on numerical data. Silverman (2006; 11) pointed out that it provides insights into the phenomenon under the study by uncovering thoughts and opinions. Also, it provides a better understanding of the issue under the study by use of primary sources of data such as observation, interviews, participation, and focus group discussions. Each method is used based on the specific type of data and feasibility. In the context of the current study, the method to be used for the data collection will be use of interviews.

On the other hand, quantitative approach involves gathering of empirical data that can be subjected to numerical manipulation. Quantitative approach is normally applied in the quantification of attitudes, behaviors and other defined variables (Dixon, 2005; 46). The quantitative strategy uses measurable data to uncover patterns in a study. Unlike the qualitative strategy, the methods of data collection are more structured. Examples of the data collection methods include surveys, longitudinal studies, online pools and systematic observations. Also, larger sample populations are used unlike in the qualitative studies.

Rationale for Qualitative Approach

The rationale for settling on qualitative method was informed by the type of data to be collected in relation to inductive and deductive approaches. The deductive approach focuses on causality. On the other hand, the inductive approach is used to explore new phenomena. Inductive approach looks an already researched phenomenon on a new perspective. The inductive approach is mainly related to qualitative research while the deductive approach is related to quantitative approach (Dixon, 2005; 46). However, some qualitative approaches may apply deductive approach. In relation to the research question, the information to be collected will be aligned to inductive approach; hence, the rationale for using the qualitative strategy.

Research Design

Research design involves the systematic planning of actions that are applied in the collection of information and subsequent analysis of data in a logical manner that helps in realization of the purpose of the study (Denzin and Lincoln, 2008; 7). There are different types of research designs that can be used for any study. Bearing in mind that that the current study seeks to find answers to why and how questions; the suitable study design to be used will be explorative. It is worth reemphasizing that the emergence of infrastructure is meant to establish the trends that have been witnessed in the past in relation to the field of the study, the factors contributing to the trends and the financial implications for the investors. In addition, the study purposes to investigate how the government is involved in the sale of the assets and the intended regulations.

The emergence of infrastructure as an asset class raises key concerns for many private sector players who want to venture in the alternative asset. For example, Flyvbjerg, Garbuio, and Lovallo (2009; 176) noted that infrastructure does not have returns that are reliable compared to other asset class; which makes it relatively difficult to model it in the asset allocation. Therefore, for investors to make informed allocation decisions, historical cash flow model have become the only source of information for infrastructure investors. The cash flow is empirical data and due to the fact that the returns in the business are mainly influenced by the government regulations, it becomes prudent to information on how the governments are involved. Therefore the need to supplement the cash flow model by introduction of qualitative data which is obtained by interviewing key in the government departments that deal with the asset financing and businesspersons and finance managers in private sector dealing with investor funding such as the insurance companies and the banks.

Rationale for the Explorative Study Design

Exploratory research provides rich quality information about the issue under the study. The study design focuses on the discovery of ideas and helps the researcher to have a clear understanding of the issue being studied. Concerning the current research, infrastructure as an asset class has been gaining popularity in business circles. Due to the nature of the asset, which is different from other assets, there is need for investors to understand key issues that relate to the emerging business. This will enable them to make prudent financial decisions. Therefore, to answer the concerns, explorative research design provides the basis for answering, why, how and when questions. These answers can best be provided by the experts in the field of finance who have already been dealing with the infrastructure asset.

Sampling Design and sample

Sampling

The main emphasis for sampling in this study is to identify sources that can provide substantive qualitative data that can be subjected to analysis in order to draw inferences. There are varied sources that can provide the information required. However, it is generally impossible to study entire target population; hence, the need to acquire a section of population that is representative of the whole. This forms the basis of sampling rationale. According to Neumann (2007; 38), sampling is the process of selecting a subset of the target population. Denzin and Lincoln pointed out that the key factor underpinning research methodology is to have a representative sample from which acceptable inferences can be drawn (2008; 13). In order to arrive at a representative sample, the population being studied should be clearly defined, the sampling frame should be clearly specified, the method to be applied in the sampling should be identified and the sample size should be determined. This denotes having specific area that is being investigated and tentative knowledge on where the required information can be obtained from. As a result, in systematic studies, there are different sampling designs that are used such as purposive sampling, stratified random sampling, simple random sampling and multistage random sampling.

In order to obtain the primary data for the study, the sampling design used for the current study is purposive sampling in which the finance professionals and the government officials who are concerned with infrastructural development will be interviewed. According to Sans (2011; 107), purposive sampling is discriminatory as it gives the researcher the discretion to identify the subjects to be included in the study. As a result, there is the possibility of personal bias in the identification of the study participants. However, the method is paramount when specific information required can only be achieved from specific people. For example, historically, governmental bodies have been tasked with the provision of the infrastructure assets. Besides, as economies of the world expand, there has been growing need for the governments to increase financing, maintenance, modernization and expansion of the infrastructure facilities in order to ensure continued growth of their economies and productivity. However, this is not feasible for many governments and hence they have realized that private sector can be incorporated to inject capital into the infrastructure development and maintenance.

The complexity of the infrastructure in terms of returns on capital and the role of governments in the regulation necessitate adequate information which is supposed to act as guide map for the investors willing to contribute their capital. This is further enhanced by the emergence of infrastructure as an attractive investment alternative that can ensure portfolio diversification and ability to yield returns that are stable. This information signifies that in the current study, only people who have knowledge and prior experience in the infrastructure as an emerging class asset will be targeted; hence, the reason to use the purposive sampling.

Sample frame

Sample frame entails the complete list of the attributes or the members of the population that are to be studied. Sampling frame represents the working population that is utilized in the study (Denk, 2010; 31). If a sample frame is taken correctly, it leads to a study sample that can be used for drawing inferences for the whole population. Bearing in mind that the sampling procedure to be used is purposive which is based on the judgment of the researcher, the sample frame in this study will be limited to only to people from organizations/firms who can provide the required data. For this reason, the sampling frame will include all the people with clear understanding of infrastructure as an emerging asset class. To add on that, the inclusion criteria for the study participants will be limited to the scope of the study, i.e. government officials with relevant information and those from listed infrastructure firms. Also, the study will include finance managers in the firms that interact with people seeking huge funds for the infrastructure assets such as insurance companies and banks.

Sample size

The main determinant of sample size is the type of the data required for the study in order to ensure substantive information that can be used for analyzes and consequent drawing of inferences. Therefore, in the present study, the judgment of the researcher will be to select individuals who can provide substantive data. The projected number of the individuals to be included in the study will be 15. These will include experts both from the identified listed infrastructure firms and the government institutions that are directly involved with the phenomenon under study. It is worth noting that it is expected that each sector is to produce at least five people. This will ensure that adequate information is obtained which can be subjected to comparison and rule out the possibility of personal bias that is normally related to qualitative studies and the reliance on purposive sampling design.

Data Collection Methods

The use of right instruments for collecting data is very essential; it forms the basis of actual research undertaking in which the researcher implements the laid down procedures. There exist different methods for data collection. Just as in the case of selecting the research and sampling designs, the method of data collection are varied and are influenced by the nature of the study. The method of data collection is normally influenced by the research strategies, the point of collection and the person to carry out the research. In the case of the current study, the main method of data collection will be by use of interviews. This implies that the type of data is primary instead of secondary. The primary source is in line with the qualitative approach for the study. The primary source of data will entail interviewing the personnel who have clear understanding of the issues under discussion.

According to Gill, the primary sources are the original materials which are used to provide data (2008; 293). They provide first-hand information; this entails providing direct experiences in relation to the topic under review. Silverman (2006; 12) established that collection of data using primary sources plays an imperative role in research projects. For instance, the use of the proper technique ensures that data is collected in scientific manner, minimizes bias and ensures consistency. As a result, proper techniques of data collection enhance the accuracy, reliability and validity of the study findings. However, it is worth noting that the reliance on primary data is likely to lead to personal bias. To overcome the challenge, application of well-designed data collection instruments helps in overcoming the challenge. In addition, it is advisable to carry out a pilot study to identify the key personnel with relevant experience who can provide objective data for the study. There are different ways of collecting primary data. They include observations, interviews, trial transcripts, experiments and personal narratives. As stated in the current study the data collection will be by the use of interviews. In order to garner the required information, semi-structured interviews will be used as the primary instrument for collecting the data.

Rationale for using Interviews

Interviews consist of discussions between the interviewer and the informant; this takes place mainly on one-on-one basis. The aim of the interview is to obtain specific information about a study topic. There are different means of conducting an interview, i.e. in can be in person or through teleconferencing or simply over the phone. However, it is worth noting that there are differences between interviews which are normally used for qualitative research and surveys that are usually used for quantitative researches. The differences are mainly in the level of structure used and the interaction. In qualitative interviews, there are more interactions and hence the interviewer can control the direction of the interview unlike the surveys where the questionnaires may be sent to the respondent. Interviewing is more economical in time.

The interview can be standardized, semi structured or unstructured. Silverman stated that qualitative research is best undertaken by use interviews based on the type of information being sought and the experience of the interviewer (2006; 4). The type of interview used affects the reliability of the study. For instance, Silverman (2006; 7) argued that the use of standardized interview questions increases the reliability of a study. However, this does not rule out the reliability of unstructured or semi structured interviews. In the current study, most of the data is primarily obtained from the experts identified in the sampling process. Denzin and Lincoln noted that interviews are good research instruments that can be applied in collection of information in order to gain insights into trends and strategies used in an organization (2008; 9). Interviews provide descriptive information. Also, they aid in determining the experiences of people and the outcomes they have witnessed in the process of implementation of different strategies.

In this study, interviews will be used to collect first-hand information. Due to the possibility of logistical challenges of meeting the 15 study participants, the method of administering the interviews will be either through face to face or teleconferencing processes. Therefore, to ensure that the right information is collected, a semi structured interview schedule was used. The main reason for using semi structured interviews is to give the interviewer the room to probe the experts in order to clarify issues that are complex to understand. Also, the study being qualitative, it is important to explore in-depth information in order to obtain sentiments of the experts in relation to the emerging trends in the alternative assets.

Data Analysis

After collecting the data, it is important to synthesize the data in order to make it easy to discover the useful information. This is obtained through data analysis. Dixon defined data analysis as the process of cleaning, transforming and modeling data in order to establish the useful information that can be used to draw inferences (2005; 46). There are different tools for analyzing data. The tools of data analysis entail applications used to synthesize the data and present it in a manner that allow easy drawing of correlations. This is normally carried out by use of different approaches that may include use of statistical softwares. Examples of software for the data analysis includes use of excel functions or advanced tools such as SPSS. The tools are mainly used for numerical data and operationalization of qualitative data.

In qualitative studies, data can be synthesized by application of different strategies. However, it is imperative to note that the difference between quantitative and qualitative methods of data analysis is that in the former, numbers are analyzed while the latter deals with texts. Also, there are no hypothesis and variables that are supposed to be tested in the qualitative data. Thus, the focus is on obtaining meaning instead of quantification of the phenomenon. The identification and refinery of important concepts forms the basis of qualitative research (Gill, 2008; 293). Therefore, in some instances it is common to have direct interpretation based on observation or texts obtained from the responded. As such, thematic analysis becomes an option for most qualitative studies.

Limitations

Data collection is the practical part of any research process. It entails meeting the potential sources of data and convincing them to provide objective information. As a result, this is normally the major source of functional challenges in the methodology. For example, the inability to reach all the identified study participants; thus, missing some of crucial data for the research. Another potential limitation is biased information. However, this is addressed in the process of analysis in which correlations can be drawn to omit data that is subjective. In addition, authentication of the data can be conducted to explore how credible was the informant was and whether the responses provided related to the interview questions. The use of the interview makes it to address such responses. In addition, the use of purposive sampling makes it for the researcher to seek information from other experts who were included in the sampling frame in case some of the study participants abscond from the appointments.

Conclusion

The methodology section has provided a detailed analysis of the methods and the practical steps to be applied in the research. This included the use of interpretivism philosophical paradigm, which led to the rationale for qualitative research strategy. In summary, the research draws on the use of purposive sampling to identify the right sources of data. The data collection method used to extract information from the primary sources is the semi structured questionnaires. In the chapter, it was also pointed out that the interpretation of the data is by conceptualization of the texts gathered during the data collection.

Data Analysis and Presentation

Introduction

The objectives of the study included establishing some of the reasons why huge funding is interested in infrastructure asset, whether or not there are any significant reasons why numerous governments are selling infrastructure assets, any measures put in place by the government to regulate infrastructure assets, the role of infrastructure asset in the economy of any country, as well as whether or not there are significant evidences on the possibility of infrastructure assets living to the promises. In order to achieve the highlighted objective, the study focused on reviewing existing literature on the emergence of infrastructure as asset class, as well as carrying out interviews on selected individuals with the necessary experience dealing with infrastructure investments. For this reason, the study used interviews as instrument of data collection since the study relied on both secondary and primary sources of data.

The purposive sampling method was used to obtain the primary data for the study, whereby finance professionals and the government officials who are concerned with infrastructural development were interviewed. The choice of the purposive sampling was based on the fact that it is discriminatory and thus, gives the researcher the option to identify the subjects to be included in any given study. In addition, the approach was also informed by the fact that such a sampling method is very instrumental in studies that seek specific information from specific people. This chapter provides an analysis of the collected data, results and findings from the interview.

Respondents’ Data

Gender classification of the respondents

In order to achieve the objectives of the research, the study carried out an interview that comprised of individuals from UAE, with the necessary years of experience in infrastructure investment as well as operations of the government. The initial focus of the study was 25 study participants. However, after distributing questionnaires to the targeted population, only 20 questionnaires were returned back for analysis. In addition, not all of the collected questionnaires were suitable for use in data analysis since there were 5 questionnaires that were not filled according to the requirements of the study; this included areas that were left blank while other sections were marked more than once. For this reason, only 15 questionnaires were used for the study to analyze the concept of infrastructure as an asset class.

The sample size for the study comprised of 15 professionals and government officials. Out of the total participants of the study, 7 were female, while the rest (8), were male as presented in the table below.

Table 1: Gender of the respondents.

As evident from the table above, the percentage of male respondents exceeded that of the female participants. However, the difference in gender was evenly distributed with only an insignificant percentage difference between male and female participants. However, the inclusion of gender in this analysis was meant to examine the number of females and males in the sample. The above data is presented in the form of a graph as shown below.

Profession of the respondents

It was important to examine the profession of the study participants to ascertain whether or not the opinions from the respondents could be relied on. According to the interview, all the respondents had the necessary level of knowledge and expertise in infrastructure investment. As showed in the table below. The study found out that 2 of the respondents were economists, 3 were government officials, 7 were private investors, while the rest (3), were officials from lending institutions.

Table 2: Profession of the respondents.

As evident from table above, all the respondents were suitable to offer their opinions on infrastructure investments since they had some level of knowledge and expertise in related fields. Out of the 2 economists, one was male and the other, female. Secondly, out of the 3 government staff, 2 were male and 1 female. On the other, the private investors comprised of 3 males and 4 females, while the rest of the respondents (lenders) were 2 males and 1 female. The graph below shows respondents’ profession.

Years of experience of the respondents

The study focused on engaging participants who had a lot of experience and knowledge of infrastructure investment. For this reason, it was important to find out the years of experience the respondents had in relation to the field of infrastructure investments. According to the results of the interview, most of the study participants (66.7%) had experience of 10 years of experience and more in their profession. Secondly, 20.0% of the study participants had expertise in infrastructure related investments that ranged from 5 to 10 years. Lastly, 13.3% of the respondents reported to have less than 5 years of experience in infrastructure investment. The table below presents the data on the participants’ years of experience.

Table 3: Participants’ years of experience.

The graph below shows the years of experience of the respondents.

The participants who had experience of more than 10 years comprised of 6 males and 4 females. On the other hand, those with experience ranging between 5 and 10 years comprised of 1 male and 2 female, while the rest (individuals with experience of less than 5 years) comprised of 1 female and 1 man, as showed in the table below and graph below

Table 4: Showing gender classification on years of experience.

Results and Findings

This study was based on several research questions, which acted as the guide through which the study would fulfill its objectives. As such, the interviews were based on fulfilling the objectives of the study as evident in the following sections.

Respondents’ awareness of the aspect of infrastructure as an asset class

The study focused entirely on the concept of infrastructure investment, with a lot of emphasis on the aspect of infrastructure as an asset class. The respondents were examined on their awareness of the fact that infrastructure was warranted to have its own rights as an asset class. All the respondents pointed out that they felt that infrastructure had all the necessary features to qualify it to be an asset class.

Reasons why huge funding are interested in infrastructure assets

There have been concerns over the increased interest that has been showed by huge funding on infrastructure. For this reason, it was important to establish some of the reasons for such interest and hence, the participants of the study were interviewed for a chance to provide their opinions on this aspect. Some of the respondents (20%) believed that the growing interest of huge funding is attributed to the requirement for high capital which is not available within the government. The rest the respondents (80%) pointed out that huge funding are interested in infrastructure assets due to the significant high cash yield associated with such assets.

Reasons why numerous governments are selling infrastructure assets

There have been concerns that over the recent years the number of government’s sale of infrastructure assets has increased significantly. As such, the study participants were questioned for their opinions regarding the reasons for the increased sale of public infrastructure assets. Majority of the respondents (66.7%) pointed out that most governments are selling their infrastructure assets to obtain capital to fund other projects. However, there were other participants (20.0%) who pointed out that various governments are privatizing their infrastructure assets to increase expenditure, as well as the efficiency of revenue, while others (13.3%) pointed out that such sales are aimed at effective reallocation and unbundling of risk.

Measures put in place by the government to regulate infrastructure assets

The study investigated the possibility of any measures established by the government to regulate the infrastructure assets. All the study participants pointed out that various strategies are in place to ensure efficiency of infrastructure assets.

The role of infrastructure assets in the economy of any country

The study examined the relevance of infrastructure assets in the economy of any country. The respondents had varied responses. The study found out that 20% of the respondents had strong believe that infrastructure assets are very important in the growth of the economies of scale, 33.3% pointed out that infrastructure assets are very important in reducing trade costs, while the rest (46.7%) indicated that such assets are very instrumental in enhancing specialization and production of various commodities in any country.

Conclusion

The study was very comprehensive and focused on providing insights into the concept of emergence of infrastructure as an asset class. The sample size of the study was 15 professionals and government staff who had enough experience in infrastructure investment. From the study findings, it was evident that infrastructure assets and associated investments are very important in the growth of any given country’s economy especially in aspects of reduction in the costs of trade, and products’ specialization. Secondly, the analysis showed that most governments are selling their infrastructure assets to obtain capital to fund other projects, increase expenditure, as and the efficiency of revenue alongside reallocation and unbundling of risk. Lastly, it was evident that infrastructure assets require high amount of capital, which may be hard to get from the government. The implication is that many governments are willing to sell some of their public infrastructure or even to lease in order to obtain money to fund other projects.

Discussion and Conclusion

Introduction

The study focused on establishing some of the reasons why huge funding is interested in infrastructure asset, whether or not there are any significant reasons why numerous governments are selling infrastructure assets, any measures put in place by the government to regulate infrastructure assets, the role of infrastructure asset in the economy of any country, as well as whether or not there are significant evidences on the possibility of infrastructure assets living to the promises. Therefore, this section of the thesis covers the discussion of the results and findings of the study on the emergence of infrastructure as an asset class. Secondly, the chapter provides an overview of the entire study alongside an in-depth review of the results and findings from both the interviews and the review of the literature on the emergence of infrastructure as an asset class. Such discussion is meant to establish the state of need for infrastructure investments, the extent of demand for infrastructure and the role of the private sector and the government in satisfying any growing demand. In addition, the chapter provides conclusion and recommendation based on the results and findings from the study.

Summary of study

To achieve the objectives, the study used the interpretivism approach; hence, the signifier for the qualitative approach as the research strategy to be used. Qualitative approach was suitable in this case since it is used to gain understanding of opinions and motivations. This denotes that researchers using the approach do not rely on numerical data. According to Silverman (2006; 11), it provides insights into the phenomenon under the study by uncovering thoughts and opinions. In addition, the choice of the qualitative research approach was informed by the need to provide a better understanding of the issue under the study by use of primary sources of data such as interviews, participation, and focus group discussions. According to the scope of the study, it was important for the current study to find answers on various aspects of the emergence of infrastructure as an asset class. Hence; the suitable study design for such a study was considered to be explorative. For this reason, the study projected to supplement the cash flow model by the introduction of qualitative data which was obtained by interviewing key individuals in the government that deal with the asset financing and businesspersons and finance managers in private sector dealing with investor funding such as the insurance companies and the banks.

The study relied on a sample frame based on UAE that was limited to only the people from organizations/firms that can provide the required data. For this reason, the sampling frame included all the people with clear understanding of infrastructure as an emerging asset class. The projected number of the individuals included in the study was 15. These included experts both from the identified listed infrastructure firms and the government institutions that are directly involved with the phenomenon under study.

In the case of the current study, the main method of data collection was the use of interviews. This implies that the type of data is primary instead of secondary. The primary source is in line with the qualitative approach for the study. The primary source of data will entail interviewing the personnel who have clear understanding of the issues under discussion. The choice of the interviews as data collection method was informed by the need to collect first-hand information. Due to the possibility of logistical challenges of meeting the 15 study participants, the method of administering the interviews was either through face to face or teleconferencing processes. Therefore, to ensure that the right information was collected, a semi structured interview schedule was used.

All the collected was recorded and analyzed through the use of MS excel sheet and presented in graphs for the purpose of easy understanding. According to the analysis, it was evident that there is a high demand for infrastructure in the world, which is based on its significance for economic growth. Secondly, the study found out that there is an increasing trend of sale of public infrastructure assets by governments, as well as increase in the interest of huge funding on infrastructure investment. Thirdly, the study found out that various government measures are in place to control and monitor the operations of infrastructure assets to ensure that high-quality structures are constructed with respect to the demand and needs of the public.

Discussion of findings

The primary aim of this study was to carry out an analysis of the concept of emergence of infrastructure as an asset class. As such, the study used interviews alongside review of literature to deeply analyze the subject under study in order to establish the reasons for governments’ sale of infrastructure assets, the reasons for huge funding interest on infrastructure investment, the measures in place by the government to monitor and regulate infrastructure assets, as well as to ascertain whether or not there is any significant relevance of infrastructure assets in the economy of any given country.

From the interview results, the study found out that all the respondents pointed out that they felt that infrastructure had all the necessary features to qualify it to be an asset class. As such, the response rate in this case was 100% success. On the other hand, the study hoped to ascertain the certainty of the concerns over the increased interest that has been showed by huge funding on infrastructure. It was evident from the analysis that some of the respondents (20%) believed that the growing interest of huge funding is attributed to the requirement for high capital which is not available within the government. On the other hand, a significant fraction of the respondents (80%) pointed out that huge funding are interested in infrastructure assets due to the significant high cash yield associated with such assets. These results have a significant correlation with the findings from the literature review as far as the increased interest of the huge funding on infrastructure investments was concerned.

According to Deloitte (2010; 2), most governments are facing a lot of challenge when it comes to financing and the funding of infrastructure investments. Such a condition has been instigated by increasing demand for such assets and the current state of shock within the infrastructure field. For this reason, it is estimated that nearly over 51 trillion dollars are required to fund the total infrastructure need in the entire world, a figure that translates to more than 3% of the annual gross domestic product of the world. This has provided huge funding with an avenue to make significant investment in the world since the demand for infrastructure services is overwhelming.

While there are expectations that each individual country is likely to have distinct pattern of infrastructure financing needs due to differences in economic growth and resource endowment, it is important to point out that all these needs are based on the global increase in demand for infrastructure-based services such as the need for better healthcare services following the increasing population due to urbanization. The huge funding has become significant as the only reliable sources of funds due to the high amount of capital involved. In addition, the cash yields associated with such investments are very high, a factor that has contributed to the growing interest. The emerging markets are facing a lot of pressure to develop their infrastructure following increasing demand due to increased population, progressed urbanization and increased wealth. The developed countries, on the other hand, are compelled to replace, rehabilitate as well as technically upgrade their aging infrastructure. All these cases have significant impact in the development of the required infrastructure and the associated demand, which therefore, increases the need to adopt a sustainable solution as far as the source of funding, is concerned.

According to Aikman (2014; 36), infrastructure financing needs are overwhelming for both developing and developed countries due to the fact that there is a continuous need to ensure maintenance or replacement of infrastructure to match the market demand. Consequently, most traditional sources of public funds are not able to maintain the required pace as far as the infrastructure funding and investment needs are concerned. In addition, the present economic conditions, debt crisis and increase in public debt burden have had significant contribution to the financing challenge of infrastructure assets. This situation has attracted huge investment funds over the past years, which is instigated by the fact that such investment requires a lot of capital and have an attractive cash yield returns. Significantly, the governments have no option but to involve the private sector in the provision of critical infrastructure services such as water, roads, as well as education and health facilities.

Reasons why numerous governments are selling infrastructure assets

The study investigated the concerns that over the recent years the number of government’s sale of infrastructure assets has increased significantly. According to the interview, it was evident that most of the study participants were of the increased rate at which governments are selling their infrastructure assets. The analysis showed that 66.7% of the respondents had a strong belief that most governments are selling their infrastructure assets to obtain capital to fund other projects. On the other hand, 20% of the study participants opined that various governments are privatizing their infrastructure assets to increase expenditure, as well as the efficiency of revenue. Yet, there was another group of respondents who accounted for 13.3% of the total number of respondents and believed that the increased rate of public infrastructure sale was necessary for the purpose of reallocating and unbundling the involved risk.

These findings were in line with the findings from the literature review that were based on the role of the private sector in the provision of infrastructure services. According to Aikman (2014; 41), most governments have realized that the private sector is very important whenever it comes to infrastructure investments. The sale of infrastructure assets can be attributed to the growing need to provide adequate infrastructure to the public, which has presented the government with a lot of challenges due to the fact that most of the infrastructure, whether new of requiring replacement, take a significant part of the world’s gross domestic product. For this reason, most governments engage in the sale of particular assets as the only option to obtain a significant amount of capital that can be used in funding other important projects in the country. A good example of such a case was evident in Canada following the need to clear the mounting costs of infrastructure in Canada, which forced the government to lease as well as sell stake in some of the existing infrastructure assets such as airports, rail lines, and highways.

Numerous researchers have pointed out that monetizing any infrastructure asset is a very suitable way that various governments can use as a source of funds to meet the increased infrastructure needs (Aikman, 2014; 36). In the long run, such sales have a lot of benefits to the government and the public. Most governments are selling their infrastructure assets to the private sector in order to increase the expenditure, as well as the efficiency of revenue. According to Bristow (2015; 22), such approach is based on the fact that the private sector has a significant amount of incentives that are quite high whenever compared to the public sector. For this reason, the government estimates the relevance of such incentives in ensuring that the private sector has the capacity of carrying out various infrastructure investments efficiently. In addition, by bringing in the participation of the private sector in the infrastructure operation and construction, the government hopes to ensure that any available opportunities are maximized such as optimizing user pricing, developing ancillary business and working hard to ensure that there is minimal leakage in revenue.

Further, selling infrastructure asset to the private sector is a suitable way to ensure effective reallocation and unbundling of risk (International Monetary Fund, 2016; 1). In the light of Bristow’s assertion, such actions are geared towards reducing the involved costs since the private sector has numerous incentives and resources necessary to enhance the mitigation of risks associated with the operations and management of public infrastructure investments (2015; 22).

In addition, as Ghosh and Meagher (2011; 22) pointed out, the provision of infrastructure services by the government suffers the problem of effective financing. This challenge has pushed the government into seeking alternative sources of finance for its major infrastructure projects by considering selling, or even leasing some of the existing assets. Significantly, such sales of infrastructure to the private sector is beneficial in that the operations of infrastructure assets provides a platform to bridge the funding gap and hastens the speed of developing such assets. Most governments consider the private sector to be a suitable alternative to alleviate delays in investments especially in cases whereby the concerned government suffers fiscal challenges or even any other needs (Flyvbjerg et al., 2009; 173). One of the reasons for preference of the private sector when it comes to infrastructure investments is its fast development of the required infrastructure assets since its operation is based on an upfront financing system that ensures that the construction and operations of any given infrastructure are completed as fast as possible unlike the government’s approach of pay-as-you-go which leads to investment delays.

On the other hand, Ghosh and Meagher (2011; 22) pointed out that numerous governments continue to sell their assets to private sector to do away with any potential political failure associated with various projects. The operations of private investors as far as infrastructure investment is concerned is based on tested projects to ensure that prices and cost of infrastructure investments are kept at a marginal level by focusing on user pricing, which does not take consideration of political concerns. Evidently, governments sell their existing assets to obtain capital to finance more urgent and highly demanded projects.

Measures put in place by the government to regulate infrastructure assets

The study investigated the possibility of any measures established by the government to regulate the infrastructure assets. All the study participants pointed out that various strategies are in place to ensure efficiency of infrastructure assets. In line with these findings, Bristow (2015; 22) pointed out that the success of any infrastructure projects is based on the processes and procedures of operation. Regulating and monitoring infrastructure investment projects is very important for the purpose of ensuring the achievement of the necessary quality and objectives for any given project. As such, various laws have been enacted to ensure smooth operation of the government and the private sector as far as any given infrastructure project is concerned.

The role of infrastructure assets in the economy of any country

All the study participants had varied responses regarding the relevance of infrastructure assets in the economy of any country. For example, the study established that a significant fraction (20%) of the respondents strongly believed that infrastructure assets are very important in the growth of the economies of scale, while 33.3% pointed out that infrastructure assets are very important in reducing trade costs, and yet 46.7% of the respondents pointed out that such assets are very instrumental in enhancing specialization and production of various commodities in any country.

All the above responses are valid according to the literature review’s findings. Basing argument on the postulates of the economic theory, Bristow (2015; 15) noted that infrastructure assets are very important for the economics of any given country. This assertion is based on the fact that an infrastructure that follows the required design has a high contribution to the growth in the economies of scale, reduction of trade costs, as well as enhances specialization and production of various commodities in a country. Most infrastructural services are basic needs such as the supply of water and hence are inevitable in a country. On the other hand, Ghosh and Meagher (2011; 22) noted that other services such as communication, transportation and energy are essential for the smooth operations of any country. For this reason, the provision of such assets is important to the government and the public since the availability of infrastructure that is not reliable lead to the increase in cost of trade because all firms in the affected country are forced to come up with their means of supply of the missing or ineffective infrastructure. On the other hand, the availability of significant fixed costs makes the investment of firm-specific infrastructure a little bit ineffective. For this reason, firms are compelled to endure the productivity effects as well as the associated economies of scale. Consequently, the availability of infrastructure that is adequate ensures the reduction of transaction costs especially in aspects of information and goods’ exchange in order to ensure effective development of trade while at the same time offering grounds for comparative advantages. Such condition is also instrumental in the abolishment of regional monopolies given that the effective infrastructure enables the exchange of products, energy, labor and information.

In addition, infrastructure assets are vital in any country especially whereby cities have high population since there is a need agglomeration of economies and the conception of liquid markets and knowledge spillovers. The lack of important facilities such as water and sewer systems would increase the cost of managing a dense population due to the fact that water shortage is likely to be experienced alongside increased diseases and congestion, which have adverse impacts on the health of any country’s businesses. For these reasons, Bristow (2015; 17) noted that efficient infrastructure both at urban and regional levels significantly affects other industries through the provision of the necessary platform for efficient functioning of the economy, which translates to increased rate of economic growth and vice versa if the infrastructures are well-developed according to the prevailing demand. On the other hand, there are numerous studies that have been dedicated towards offering anecdotal evidence to demonstrate the positive impact of the infrastructure on macro-economy, as well as the micro-level life of individuals.

Conclusion

The study was primarily focused on investigating the position of infrastructure investments in the economy of any given country by analyzing the concept of its emergence as an asset class. Using secondary and primary sources of data, the study hoped to gain insights into the study phenomenon. First, interviews were conducted that obtained the necessary data from 15 study participants who were purposively selected. On the other hand, the review of literature focused on establishing the reasons for governments’ sale of its infrastructure assets, the reasons for increased interest from huge funding, as well as the role of infrastructure in the economy of any country.

The study found out that infrastructure assets are very important in any country’s economy since they offer the necessary grounds for business by reducing the cost of various aspects such as trade and enhancing specialization and production of various commodities in a country. This is based on the fact that all infrastructure services are significant since they involve the satisfaction of basic needs and significant demands among different individuals.

Secondly, it was evident that the governments involve the private sector in the provision of infrastructure-based services as a means of diversifying risks, as well as cutting costs. As such, the sale of government’s infrastructure assets is aimed at consolidating the necessary funds for the purpose of providing other major projects in a country. However, it is important for the government to put in place suitable mechanism to protect infrastructure assets for a chance to ensure that quality is maintained always.

In addition, it was evident that the provision of various services by the government is very expensive and hence requires the adoption of sustainable solution as far as the financing needs are concerned. This explains the increased interest for huge funding of infrastructure assets. In addition, such financing challenges forces the government to sell, lease of even offer a few of its stake to the private sector, as a means to cut costs. However, such approach is very beneficial since it ensures that major infrastructures are operational in spite of the strained global economy.

Summary of the study

The study was primarily focused on investigating the position of infrastructure investments in the economy of any given country by analyzing the concept of its emergence as an asset class. Using secondary and primary sources of data, the study hoped to gain insights into the study phenomenon. First, interviews were conducted that obtained the necessary data from 15 study participants who were purposively selected. On the other hand, the review of literature focused on establishing the reasons for governments’ sale of its infrastructure assets, the reasons for increased interest from huge funding, as well as the role of infrastructure in the economy of any country.

The study found out that infrastructure assets are very important in any country’s economy since they offer the necessary grounds for business by reducing the cost of various aspects such as trade and enhancing specialization and production of various commodities in a country. This is based on the fact that all infrastructure services are significant since they involve the satisfaction of basic needs and significant demands among different individuals.

Secondly, it was evident that the governments involve the private sector in the provision of infrastructure-based services as a means of diversifying risks, as well as cutting costs. As such, the sale of government’s infrastructure assets is aimed at consolidating the necessary funds for the purpose of providing other major projects in a country. However, it is important for the government to put in place suitable mechanism to protect infrastructure assets for a chance to ensure that quality is maintained always.

In addition, it was evident that the provision of various services by the government is very expensive and hence requires the adoption of sustainable solution as far as the financing needs are concerned. This explains the increased interest for huge funding of infrastructure assets. In addition, such financing challenges forces the government to sell, lease of even offer a few of its stake to the private sector, as a means to cut costs. However, such approach is very beneficial since it ensures that major infrastructures are operational in spite of the strained global economy.

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