Investing in Infrastructure

Infrastructure is very important for economies as it attracts business and reduces transportation costs for both SME and multinationals. Good infrastructure also provides better access to more potential customers across the United States. Not even businesses, but basically everybody benefits from improved infrastructure. Due to improved infrastructure one might expect that there will be less traffic jams, flight delays and cancellations.

The US government has lacked in maintaining good roads, bridges, airports, and investing in infrastructure can support GDP growth in the long term. Empirical studies show that a doubling of infrastructure capital raises the GDP by 15%

How to finance for better infrastructure?

From a government perspective there are three main solutions to improve infrastructure:

  1. Private capital:

The government could secure loans on investment programs and local corporates could invest in these programs. A municipal bond for private partnerships is already proposed by the Environmental Protection Agency.

  1. Raise taxes:

Currently, taxes on gasoline and airplane tickets are pretty low compared to European countries, where car users pay twice as much tax money per gallon

  1. Reforming business tax:

President Obama decided to dedicate more than 100 billion dollar to infrastructure enhancements. This budget could come from foreign corporate income taxes.

Figure 2: Infographic: Three Major Asset Pools

Investing in infrastructure

Investing in municipal infrastructure bonds can be multi beneficial for SME depending heavily on local transport. Improvements in infrastructure is a long term winning strategy for businesses in the US.

The environmental protection agency also announced that they will work together with private investors to address more than 600 billion dollar for drinking water and wastewater management over the next 20 years. This implies that investors attain the possibility to diversify their investments. The underlying value can be the improvements of roads, airports, sewers and wastewater installations.

From an investor perspective, there are numerous benefits to invest in infrastructure.

  1. Investing in tax-saving infrastructure bonds. These are approved by the government and offer decent interest rates (7.5 to 8.5%)

  2. Low investment hurdle. The minimum investment usually is 5000 dollar for bonds who mature in 10 to 15 years. With only 5K, SME entrepreneurs can invest in long term market opportunities.

  3. Most “Infra bonds” are tax friendly. The interest is added to the income and taxed according to the investor’s income tax bracket. Income tax deduction can be the result.

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This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions.

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