An infrastructure stimulus: A shot in the arm for US industrials?

March 21, 2017

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By Bob McCutcheon and Mike Sobolewski

It’s been a long time (maybe since Eisenhower?) that infrastructure has grabbed headlines.

President Donald Trump has made infrastructure investment a front-and-center priority as a jobs creator and an economic stimulus. In his February address to Congress, the President highlighted his commitment of a $1 trillion infrastructure investment, ‘financed through both public and private capital – creating millions of new jobs”[1]. Additionally, he also recently met with key industry executives to discuss infrastructure. The scope of the plan – and how much of it will be federally funded – however, is still undetermined. Meanwhile, the Senate Democrats also announced their version of an infrastructure stimulus.

Clearly, both sides of the aisle agree our nation’s infrastructure is in need of rebuilding. While the selection of projects earmarked for investment is yet to unfold and legislation is yet to be drafted, the administration has nonetheless signaled that much of the spending will be dedicated to ground and air transportation as well as to water infrastructure; however, other infrastructure such as broadband and social infrastructure (schools, hospitals) should not be ruled out.

Even at this early stage, it’s safe to assume that companies that may stand to benefit from such a stimulus are beginning to think how they can be best positioned and best prepared to do so. In our recent report, What a US infrastructure stimulus could mean for the industrial sector, we consider what kind of impacts a stimulus could have on the industrial products sectors – and what companies – most notably, engineering and construction companies – could be, or ought to be, considering now in order to optimally benefit.

Who could benefit?

Within the industrial products sector, there will likely be myriad beneficiaries beyond engineering and construction, including steel producers, makers of heavy machinery, pumps, earth-moving and transportation vehicles, producers of building materials (such as cement, asphalt and fly ash), marine construction equipment, advanced materials (lightweight metals and composites) – to name a few. In addition to these traditional sectors, other converging sectors will also likely benefit, even if indirectly, especially if new infrastructure build-outs exploit Internet of Things (IoT) technology driving smart cities to make them “future-proof” and innovative infrastructure (such as smart metering in water utilities, smart road and rail systems, high-speed broadband, distributed renewable power). These include producers of information and communications technology (ICT) hardware and software, sensors and data-gathering and analytics capabilities needed to build out IoT ecosystems.

Our view is that industrial manufacturers should not consider themselves merely passive recipients of new business generated by infrastructure spending. As states and the federal government finalize their selection of infrastructure projects in the coming months, industrial products and services companies can begin positioning themselves as vendors for—and even as planners of—projects. For instance, they can and ought to be part of the selection of infrastructure projects that would directly improve their operations (e.g., improved land and air transport infrastructure boosting the speed and efficiencies of their supply chains and distribution). Input from industrial products will be key to regions, for example, which benefit from their presence, and jobs creation.

Additionally, likely beneficiaries—especially engineering and construction and steel producers—should consider preparing to scale-up their operational capacity and employee base in order to manage increased demand.

And, assuming that private investors will play a role in the stimulus program, larger industrial products companies with investment arms, most notably in the engineering and construction sector, may consider expanding their roles as investors in infrastructure projects, through public-private partnerships (P3s). They can also begin building strategies that leverage programs already established to lure private investment (e.g., Building America Bureau, FAST, WIFIA, renewable energy production and tax credits). For a start, industrial products companies that are considering participation in a P3—and to assess the risks and rewards attached to these investments—ought to consider the following:

  • Learn the ins and outs of P3s and assess whether it is the best time for your organization to participate.
  • Carry out a risk assessment and determine what role your organization will play in a P3.
  • Create a resume of sorts, highlighting strengths and experience your company brings to the table.
  • Determine if your company possesses the resources and the tolerance for risk to assume an equity position in a P3.

 

[1] “Donald Trump’s Congress speech (full text)”, CNN.com, March 1, 2017.

 

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