Infrastructure top risks forecast

Directly and indirectly, the fight for critical minerals and resources poses a significant geopolitical risk for infrastructure players. On the one hand, the rise of resource protectionism in some markets (either through sticks or carrots) is creating supply chain and investment distortions which, in turn, is increasing the potential for resource price volatility and supply delays (the global competition over lithium offers a great current example). That is one of the direct impacts that the sector is experiencing today. 

Less obvious, however, is the growing cost that geopolitical risk could be adding to infrastructure projects, particularly in emerging markets. Investors are starting to price these risks into their equations, raising the cost of capital for some and making projects economically unviable for others. The more trade wars and resource protectionism impacts global supply chains today, the dearer the cost for future generations. In the last few years, geopolitical conflicts have led to shortages, delays and price hikes for essential commodities and supplies. For instance, the war in Ukraine has impacted steel and lumber supplies globally and has obviously stalled a number of infrastructure projects in the country. As investors perceive higher risk, they demand a higher rate of return for their investment. This could raise the cost of borrowing for infrastructure, making projects in affected jurisdictions more difficult to finance.

That being said, shortages can also lead to innovation. Last year, for example, more than US$6 billion was invested into the fusion industry globally⁴ as energy price volatility and rising demand for clean power encouraged investors to explore alternatives. Billions more have been invested into discovering new battery minerals.