It is axiomatic that good infrastructure leads to higher productivity, which is in turn a factor in attracting inward investment. And it follows, then, that significant infrastructure investment is needed if the UK is to remain internationally competitive, particularly in a post-Brexit economy. The government’s project pipeline illustrates grand ambitions to boost infrastructure; however, the UK is not alone in its ambition to attract inward investment. With infrastructure forming one of several asset classes comprising a diversified investment portfolio, there will be competition between nations to attract investors.
The prerequisite characteristics for long-term investors include transparency, certainty and assurance. An impending Brexit threatens to reduce or remove all of these, and may instead explain investor sentiment as demonstrated by recent contractions in the construction sector. If the UK is to maintain its world-class reputation for excellence in construction and in the wider economy, it must attract domestic and international investment, through the use of international standards.
International standards attract investment
International standards, defined as common frameworks adhered to by practitioners, can influence investment decisions by providing the certainty that attract investors, particularly where ethical compliance is robustly regulated. They are agreed collaboratively by international standard setting and professional organisations acting in the public interest by providing consistent reporting, increased transparency, facilitating accurate comparatives, and reducing the risk of fraud. International collaboration adds credibility to a sector that knows no borders, exemplified by constructors undertaking work globally.
Accurately reporting construction costs
Rarely are projects, especially those of national significance in the UK, completed on time and to budget. This signals that data on the initial cost are flawed. The built environment is of a magnitude that merits the formulation of a transparent international consistent method in reporting construction costs, capital expenditure (capex), associated with projects. This would benefit investors whose investment decision may rely on the metrics associated with capex, such as where breaching a debt service cover ratio can change a project’s credit rating, which may form part of an investment criteria.
The International Construction and Measurement Standard (ICMS) was launched in 2017, in collaboration with over 40 global professional bodies, to report construction costs. It aims to provide global consistency in classifying, defining, measuring, analysing and presenting entire construction costs at a project, regional, state, national or international level. The regulatory compliant data that underlies ICMS can also be used by investors to assess the economic viability of a project before construction and monitoring its liquidity position during the risky construction period. The accurate and transparent reporting of capex can increase investment as investor will take assurance from a practitioner that is complying with ethical regulatory reporting requirements.
Standards across land, property and construction
Together with the ICMS, global standards covering land measurement (ILMS), property measurement (IPMS) and international valuation (IVS) can form an all-encompassing set of standards to assess the feasibility of a project at initiation or during investment assessment. The ILMS standardises land tenure and ownership rights, a global challenge especially in emerging economies. The IPMS aims to enhance the transparency and consistency in the way property is measured across markets – the IMF has said it will request IPMS for its premises. The IVS builds confidence and public trust in the valuation process through the creation of a framework for delivery of credible valuation opinions.
The adoption of international standards can provide assurance that relevant output is in line with ethically regulated international standards. The Royal Institution of Chartered Surveyors (RICS) forms part of several global professional coalitions acting to develop and embed strictly regulated international standards that provide assurance and mitigate investor uncertainty.
It can be surmised with a degree of certainty the adoption of international standards would not only increase infrastructure investment but would also benefit future generations and the built environment. Increased transparency through the presence of qualified and regulated professionals working to globally recognised standards in the public interest can only improve how the sector is portrayed. Adopting international standards will be advantageous for the UK government’s ambition to bring in international investors.
Mo Rahee is the Infrastructure Policy Senior Manager at the Royal Institution of Chartered Surveyors