"Are You a CEO Interested in a Feature Interview?"
All Interviews are 100% FREE of Charge
Sadek Waba, Chairman and Managing Partner of I Squared Capital Advisors LLC, at the S&P Global Conference 2023 CERAWeek in Houston, Texas, USA, Wednesday, March 8, 2023. The global energy industry faces a vortex of uncertainty and change due to the impact of the global pandemic. Changing geopolitics and a war started by one of the world’s major energy powers. Soaring energy prices. Supply chain and infrastructure constraints. and economic instability.
Bloomberg | Bloomberg | Getty Images
As more people migrate to cities in the coming decades, the demand for improved infrastructure will continue to grow.
The next few decades will also be crucial in the global effort to address climate change. Energy efficiency will become a greater priority for builders, bringing new technologies, challenges and opportunities to investors.
Overall, “the sector as a whole is on an upward trajectory,” he said. Sadek WabaFounder and Chairman of I-squared capitalis a global infrastructure management company that currently manages approximately $40 billion worth of investments in infrastructure projects in more than 50 countries.
Waba is also a member of President Biden National Infrastructure Advisory Boardshared with CNBC how investors can get involved in this trend.
Invest in professional builders
“We need to completely revamp the entire power grid,” Waba said.
Utilities companies sometimes make this kind of buildup, but they aren’t “100% correlated with infrastructure” because utility stocks have much more to do with infrastructure construction.
So the best way to capitalize on this demand for new grids is to invest in a specialized construction company to build it, Waba told CNBC.
“I think it’s a very interesting area because there’s a lot of work, it requires expertise, and the barriers to entry are relatively high,” Waba told CNBC. “Not just anyone can build these transmission and distribution lines. You need training, you need licenses, you need environmental permits, and there are safety issues.”
Wahaba is also bullish on the electrification of urban transport. New York City is rolling out a congestion pricing plan for drivers entering downtown Manhattan. Waba said electric city transit would be a desirable investment if congestion pricing became more widespread.
High voltage power lines at dusk.
Yelantsev
Focusing on the technology that operates digital infrastructure
Another area Waba says is “very interesting” is the technology that supports the growth of new infrastructure.
“This is an offshoot of infrastructure investment, isn’t it? It’s not a direct investment in infrastructure,” Waba told CNBC.
For congestion charges, for example, cities need systems to measure and record how long drivers are on the road, and implement credit card processing and payment systems to collect such taxes.
“I think anything related to infrastructure services technology is going to grow exponentially,” Waba told CNBC.
Demand will also increase for technology products that improve building efficiency and adapt to changing conditions in real time, Waba said. “No one goes to Burger King or Chipotle or anything like that, and the temperature changes depending on how many people are in the room, but the technology exists to do that,” he told CNBC. “That would save millions of dollars.”
Another phenomenon stemming from the energy efficiency trend is the exponential growth of cybersecurity, Waba said. The digitization of more infrastructure systems means those systems are becoming more vulnerable to cybersecurity attacks.
“Digitalization is inevitable because we need it to make our infrastructure more efficient and grow,” Waba told CNBC. “Digitalization means more efficiency, and being more efficient means lower costs. Lower costs means less budgetary impact and less capital needed to invest in infrastructure. But it also means more vulnerability to attacks.”
Of particular concern is the risk of malicious hackers breaking into infrastructure systems.
“What if I controlled the hospital’s HVAC system? And no one but me could control it. Think of the surgery or the operating room. What if I controlled the hospital’s power backup? What if I controlled the sewer company and I had physical control over the equipment, so I could control the amount of waste going into the water system?”
“So cybersecurity will be a huge problem in the years to come, as the more technology we put into managing infrastructure, airports, ports and hydroelectric power plants, the more vulnerable they become,” Waba said.
The digitization of infrastructure will also increase demand for fiber optic cables and data centers, but interest in artificial intelligence and the move to 5G mobile networks have already made those stocks trade relatively high, Waba said.
Better with more opportunities to invest in infrastructure
Waba said the public listing market for infrastructure investments is actually very limited in the United States. Most of the infrastructure in the US is built by states, cities and local governments and financed through the municipal bond market.
But in other parts of the world this is not the case.
In the UK, private investors can put money into water companies, Mr Waba said. “You and I can buy Charles de Gaulle Airport in Paris, which is 50% government-owned and 50% listed,” Waba said. “Neither you nor I can buy JFK stock. Now we want to because we think it’s an interesting investment that offers long-term cash yields and so on. But it simply doesn’t exist in the United States.”
But Waba says that needs to change in the United States.
“This is the dilemma facing the United States: we need to increase ownership of infrastructure assets to create markets and generate capital to flow into the sector,” Waba said.
The more we make our infrastructure system open for public investment, the better the system will be. “More ownership creates more competition, more competition creates more efficiency, and more efficiency creates lower prices for consumers,” Waba said.
As America’s infrastructure becomes more privatized and available for public investment, we will need strong regulators to keep private companies from raising prices too high. Otherwise, privatizing infrastructure “would be a catastrophe,” Waba told CNBC.
One place in the United States where infrastructure is commonly privately owned is in the energy sector.
“Overall, our energy sector is the most sophisticated and most advanced in the world. So believe it or not, it’s true,” Waba said. Right now, the grid system isn’t working well enough, but he said, “Generation system, look, what we’ve done is great. We have the most sophisticated integrated power system. It’s a fact.”