Canada is facing a massive infrastructure deficit, and spending in the sector will generate lucrative investment opportunities in the years ahead, a conference on alternative investments was told on Monday.

David McFadden, a partner at Gowling Lafleur Henderson LLP, said government spending on infrastructure has been neglected for several decades. Of Canada’s infrastructure, nearly 60% is 40 years old or older.

“Our infrastructure is aging, and aging rapidly,” said McFadden. “We’re going to have to massively replace our infrastructure.”

He estimates that the country’s infrastructure deficit totals between $200 billion and $300 billion. This deficit has steadily grown as spending on infrastructure has declined in recent decades. Total investment on public infrastructure fell from 2.75% of GDP in 1962 to roughly 1% in 2000.

Both the federal government and provincial governments in Canada have begun allocating significant amounts of funding to infrastructure, including $12 billion in additional funding in the 2009 federal budget.

“It’s an aggressive figure,” McFadden said about the infrastructure spending in the 2009 budget. “Hopefully it helps deal with our infrastructure deficit.”

Among the provinces, leaders in infrastructure spending include B.C., Alberta and Ontario, McFadden said.

He noted that both federal and provincial governments have increasingly embraced public-private partnerships for infrastructure projects in recent years. In the past five years, 36 public-private partnerships have closed, totaling investment of $10.5 billion, he said. These types of projects are likely to become more common, particularly in health care facilities, transportation, border crossings and water and waste facilities.

McFadden expects infrastructure spending in Canada to expand more than ever before. The growth in this sector will provide significant opportunities for investors, he said.

Two common ways for investors to access the infrastructure sector are through investment in publicly traded Canadian infrastructure construction and engineering companies, and through Canadian infrastructure development funds.

These investments have already proven to reward investors, according to McFadden. Since 2004, the Canadian infrastructure index, which features 18 publicly listed companies, has consistently outperformed the S&P/TSX composite index, he said.

In addition, infrastructure development funds have become very common investments among pension funds in Canada. Such investments have grown from roughly 2% of total assets in 1995 to 6% of total assets currently. By 2015, infrastructure development funds are expected to comprise nearly 14% of pension assets, he noted.

IE