Stability combined with growth
In an increasingly complex world, technological progress, demographic change and geopolitical uncertainty are changing the economic parameters to an ever greater extent. In this dynamic environment, many investors would like to see rather more stability. The solution could lie in companies which perform basic services such as energy, logistics and resource management and are therefore of critical importance for the functioning of society. As the backbone of a modern economy, they have not only a fundamental robustness, but also long-term growth prospects. That is because these sectors are characterised by systematic and inelastic demand and, as was demonstrated during the coronavirus pandemic, remain resilient even in the face of economic turbulence. Digitalisation and globalisation are also central drivers of long-term growth.
High barriers to market entry
While the term “infrastructure” may perhaps sound a little boring, on closer inspection it has a certain charm. That is because basic services and systems such as energy supply, waste disposal, water treatment, transport logistics and telecommunications are characterised by consistently high demand that is largely independent of economic cycles. Despite political uncertainties, for instance, globalisation continues to drive networking and trade. The second central force, digitalisation, improves the efficiency of resource allocation, route planning and reactive capacity. Furthermore, the infrastructure sectors have systemic relevance and are often protected by high barriers to market entry.
Highly promising companies
The opportunities for investors are attractive in many respects. A lot of infrastructure companies, for instance, work on the basis of long-term contracts or enjoy monopoly positions, which are in turn ideal prerequisites for stable cash flows and the reliable dividends associated with them. Not only do infrastructure operators offer a certain degree of protection against inflation – most can pass on rising costs to their customers – but sustainability is another potential factor in their favour, with low-emission energy and clean water appealing to ESG-minded investors. Last but not least, infrastructure is embedded in many mega-trends such as digitalisation, the energy transition and urbanisation.
Ahead on growth
Trends are generally associated with high growth rates – and the same is true of the infrastructure sector. According to an analysis by Mordor Intelligence, for instance, the infrastructure construction market will enlarge from USDtn 2.72 in 2024 to USDtn 3.69 over the next few years. This is equivalent to an average annual increase of 6.27% in the forecast period. Progress in other sectors is even more dynamic: Fortune Business Insights, for instance, is predicting that the global market for water purification will enjoy a compound annual growth rate (CAGR) of 7.6%, hitting USDbn 62.9 in 2032. On the back of digitalisation, global demand for electricity will also climb by almost 80% in the next 25 years. According to estimates from S&P Global, renewable energies already account for 85% of all new power generation capacity. It is not only electricity demand that will increase in the next few years, however – so too will rubbish. That means the waste management sector likewise has a particular role to play. To ensure it works even more efficiently, the industry is also now making use of artificial intelligence. This allows materials to be classified and sorted more easily, thereby reducing contamination in recycling processes. Precedence Research anticipates that the global market volume of waste recycling services will reach USDbn 109.61 by 2034, which corresponds to a CAGR of 5.30%.