US infrastructure: strong impetus from a fast-growing market

The development of infrastructure on a global scale requires colossal capital investment, both to modernise existing infrastructure and to build new infrastructure.

According to the World Economic Forum, the global infrastructure financing gap will exceed $15,000 billion by 2040¹. This amount reflects the combined effect of several factors, including underlying trends such as digitalisation, urbanisation, the energy transition and the fight against climate change, as well as chronic under-investment by governments in critical infrastructure.

In the United States alone, the investment needed to modernise existing infrastructure is estimated at $6,000 billion¹. The delay in this nonetheless essential effort is reflected today in an infrastructure market that is among the most dynamic in the world, supported by massive public investment, but also by a marked desire to relocate production chains and maintain a leading position in many strategic sectors.
Faced with this major challenge, the private sector clearly has an essential role to play in the transition.

Geopolitical events as catalysts for a new momentum

Recent geopolitical events, such as the Covid-19 pandemic, persistent trade tensions with China, and armed conflicts in Ukraine and the Middle East, have profoundly disrupted global supply chains. These disruptions have highlighted the vulnerability of international dependencies in key sectors, including semiconductor production, energy resources and essential manufactured goods.

Brandon Freiman, Head of North American Infrastructure at KKR points out: “In the United States, deglobalization is raising concerns about redundancy in supply chains, energy independence, and technological advancement as a strategic national issue. All three of these have implications for infrastructure.”

Faced with these challenges, the United States has intensified and accelerated its efforts to relocate its industry and bring its activities closer together geographically to reduce its dependence on foreign markets and secure its supply chains.
This relocation movement, also known as reshoring or onshoring, has stimulated the massive development of national infrastructure, particularly in the technology, energy and transport sectors, to meet the growing need for local production and resilient infrastructure.

Development largely stimulated by public programmes

Government initiatives remain at the heart of infrastructure development in the United States.
This support takes the form of a number of major programmes. These include the Infrastructure Investment and Jobs Act (IIJA), established in November 2021, which allocates $1,200 billion to modernise and rebuild the USA's ageing infrastructure. The plan aims to repair thousands of miles of roads and bridges, modernise public transport systems, improve water treatment and distribution infrastructure, and extend broadband networks to rural areas. Emphasis is also being placed on the transition to infrastructure that is resilient in the face of climate change, notably by investing in clean energy and modernising the electricity network to meet the growing demand for green electricity.

At the same time, the Inflation Reduction Act (IRA), adopted in 2022, aims to stimulate investment in clean energy, supporting the transition to a more sustainable economy. A total of $369 billion will be made available over 10 years to support clean energy and climate infrastructure initiatives, making it the largest climate change initiative in US history.
It includes tax credits to encourage the production of renewable energy (wind, solar, hydrogen), as well as investment in carbon capture technologies. Carbon capture pilot projects in natural gas power stations and cement plants are already underway. Subsidies and tax credits have also been allocated for the purchase of electric vehicles and the creation of recharging infrastructure across the United States.

Lastly, the CHIPS and Science Act, adopted in 2022, is a piece of legislation designed to strengthen the United States' technological sovereignty, particularly in the field of semiconductors, science and high-tech. The $280 billion programme aims to boost domestic semiconductor production and strengthen the country's science and technology infrastructure.

Overall, these strategic programmes not only promote the upgrading of existing infrastructure, but also the adoption of innovative technologies, consolidating the United States' competitiveness on a global scale and enabling it to maintain its leading position in strategic areas such as artificial intelligence, the cloud and data centres. However, the ever-increasing public debt continues to justify the need for private capital in infrastructure projects.

Strategic assets

In addition to these public programmes, which are providing a certain momentum, the infrastructure market in the United States has a number of specific characteristics that make it more attractive to investors.

First of all, as far as financing is concerned, the US municipal bond market is highly developed, enabling local authorities to issue low-cost bonds to finance investment in public infrastructure such as roads, bridges, tunnels, ports, drinking water supply networks and hospitals.

More specifically, when it comes to digital infrastructure, the US federal government has built up a position of global leader. It has the highest per capita data centre capacity in the world, necessary to cover the immense and growing needs generated by digital technology, the cloud and artificial intelligence. It's no coincidence that Northern Virginia is home to the world's largest and most active data centre complex. Initiatives such as the CHIPS and Science Act underline the strategic importance of this sector to the country's competitiveness and demonstrate the United States' determination to maintain its position as technological champion.

However, certain areas still require a great deal of development. This is the case, for example, for fibre optics, where deployment is slower than in Europe. Brandon Freiman explains: “the existing deployment of coaxial cable in the US, which offers relatively fast speeds, has meant that transition to fiber has been slower than in markets where copper is the only alternative. As the U.S. catches up on this dimension, we see significant opportunities in fiber.”

Another unique feature of the United States is the diversity of its energy mix - and therefore of the associated infrastructure - split between traditional and renewable energies. In 2023, around 60% of the electricity produced came from fossil sources, nuclear accounted for 19%, and renewable energies represented 21% of the country's electricity production². With a target of 50% of electricity coming from renewable sources by 2030, wind, solar and hydroelectric capacity should increase rapidly, supported by public and private investment, as well as legislative initiatives (IRA). Grid and storage infrastructure will also be impacted to integrate these intermittent energies and guarantee the reliability of the electricity system.

Digitalisation and decarbonisation, in particular, are therefore long-term trends that will lead to a growing need for private capital in the United States. 

Priorities that transcend political cycles

Although there are differences between the political parties, there are still many areas of agreement. Infrastructure, in particular, is a subject on which there is generally consensus across the different levels of government.

Both the Republican and Democratic parties recognise that the energy transition is important to promote energy security, which is an important geopolitical consideration, reinforced by Russia's attack on Ukraine.

Energy efficiency is another point of convergence, becoming all the more crucial with the growing demand for computing power. The proliferation of data centres, which are essential to support digital technologies, generates considerable energy consumption. This context gives energy efficiency a strategic dimension, supported by both political parties, which are aware of the issues at stake, both in terms of competitiveness and of controlling and reducing energy costs.

Ultimately, the impetus provided by the various government initiatives, and by the growing challenges posed by digitalisation, the energy transition and geopolitical upheaval, provides a particularly favourable investment environment for US infrastructure.

Investment opportunities in these sectors will be significant, and with traditional sources of public funding unable to keep pace with investment needs, the involvement of private capital in this sector, at the crossroads of strategic and economic issues, will prove crucial.

^{1- World Economic Forum - Global Infrastructure Outlook - Oxford Economics
2- Source U.S. Energy Information Administration (EIA) - 2023}