Time to break the cycle of ‘intergenerational theft in infrastructure investment’

From

Talal Yassine

Prominent businessman and academic Talal Yassine OAM has called on the Federal Government to break Australia’s cycle of underinvestment in infrastructure by underwriting local superannuation fund investment in needed infrastructure assets and using Islamic financing.

Mr Yassine, who is managing director of Crescent Wealth and has served on the boards of Australia Post, Sydney Ports and Macquarie University, said the lack of investment in infrastructure was nothing less than ‘intergenerational theft’ at a time when Australia was wealthier than at any point in its history.

Speaking at the National Infrastructure Summit in Sydney today, Mr Yassine said close to a trillion dollars of additional infrastructure investment was needed to ‘future proof’ Australia’s economic growth trajectory and quality of life for future generations.

“However, while this asset-rich, infrastructure-poor reality is becoming increasingly well-known, solutions seem too hard for the nation’s leaders to apply. This can’t be allowed to continue. It is not enough to simply be the ‘lucky country’. We need to think, plan and invest now to maintain our standards and grow into the forward-thinking nation that we all want to be a part of,” he told conference attendees.

The superannuation and Islamic finance solutions

Mr Yassine said one obvious solution was to encourage and incentivise the managers of Australia’s rapidly growing $2.5 trillion superannuation stockpile to invest in Australian infrastructure rather than send large amounts overseas to support the infrastructure needs of other nations. Currently many fund managers believed they could get better returns from lower risk infrastructure investments overseas and felt compelled to chase these because Australian law required them to invest in fund member’s ‘best interests’ which they interpret as financial. However, there were simple fixes for these issues, Mr Yassine said.

“The first would be to set up a hybrid public-private limited partnership structure under which the Federal Government could provide seed funding and use its large reserves to underwrite guaranteed minimum returns for necessary infrastructure projects, while the superannuation funds would syndicate the investments to their members.

“Member investors and all Australians would benefit now and well into the future from the government and superannuation funds taking the risks that each is best placed to take for the national good.

“It would be a relatively quick fix to amend the legislative covenant requiring superfunds to act in member’s ‘best interests’ to also include investing in projects that support Australia’s economic wellbeing. Isn’t improved infrastructure also in the best interests of superannuation fund beneficiaries?” he asked.

Islamic finance investment as a serious option

My Yassine said another source of funding for Australian infrastructure was the growing regional and global Islamic finance market. “If Australia’s burgeoning superannuation industry cannot or will not invest in infrastructure for Australia’s future, Islamic finance investment should be seriously considered.

“Islamic investment principles and values align with low risk-medium returns over the long period and with Islamic banking assets expected to reach about US$3.4 trillion globally this year, Islamic finance has the scale to be a real alternative. Only a very small fraction of this would be needed to provide Australian infrastructure with the lifeblood it needs,” he said.

“Australians who think it may be hard to source Islamic debt need only look at the United Kingdom, which in 2014 became the first Western country to issue an Islamic bond, otherwise known as a sukuk. This five-year sukuk raised GBP£200 million and was 10 times oversubscribed, with investor demand exceeding GBP£2.3 billion.

“The Australian Government is equally well placed, and possibly even better placed by geography, to issue sukuks to assist in the funding of our infrastructure. Local financial institutions, such as National Australia Bank and Crescent Wealth have expertise in building compliant Islamic debt structures, and could be used in these funding initiatives,” Mr Yassine said.

“It is also worth noting that our relatively close neighbour, Malaysia has been using the sukuk market to support its infrastructure push for a prolonged period. Malaysian data suggests that up to 60% of the US$31 billion raised via debt from Malaysia and other Southeast Asian countries last year came through the Islamic finance market,” he added.

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