Social infrastructure: the key link in the chain

Blog Frontal / 27-08-2020

Chile still has major infrastructure deficits. However, before we go back on the road we were traversing, we should consider the shortcomings exposed by the social, health and economic crisis that affects us, and in the short term focus this type of investment on disadvantaged sectors.

We do not yet know what post-pandemic life will look like, but we will continue to move, communicate, and need water and electricity. However, the health crisis has made visible how important it is to have areas for recreation, especially for people living in small houses or apartments. It has been demonstrated that having a place where to practice sports, to play, or a space to meet neighbors outdoors is fundamental to the quality of life.

Some of this was seen in the last infrastructure plan presented by the government that involves more than US$ 34,000 million during the period 2020 and 2021. Not only are there important projects of construction, improvement, and expansion of roads, bridges, hydraulic works, and airports, there are also police stations, schools, health centers, museums, theaters, and municipal buildings, among others.

All these initiatives have been put under the category of social infrastructure and are necessary structures for a society to function properly. Historically, the construction and maintenance of this type of facility were carried out by the public sector. But as a result of the pandemic, the State has been unfunded and has made many commitments, so it should rely on the private sector so that these investments do not put pressure on the government resources in the short term.

And this is not a very novel idea. In 2006, with the launch in the UK of the first infrastructure fund (HICL), these assets became of social infrastructure became an investment class. Over the past 20 years, more than 700 projects have been financed with some £60,000 million of private equity (US$80,000 million at the current exchange rate)

The possibility of long-term investment, with government-backed flows and attractive returns, has enabled these assets to receive significant capital inflows in many countries. For all these reasons, social infrastructure can become a very interesting source of diversification.

For this to be realized, it is necessary to combine a broad range of political will to validate private investment in these types of projects, to develop projects that are economically and socially profitable, and to adapt the existing institutional structure to these types of projects. If these conditions are met, the private sector, via infrastructure funds such as those we administer at Frontal Trust, will be there to finance them.

See letter published by Diario Financiero