Dresden in shock: Collapse of the Carola Bridge demands billions for infrastructure!

Dresden in shock: Collapse of the Carola Bridge demands billions for infrastructure!

On the night of September 10th to 11th, 2024, a 100-meter-long section of the Carola Bridge in Dresden fell into the Elbe. Fortunately, there were no injuries in this dramatic incident, which brought the issue of German infrastructure maintenance into focus, as a tram passed over the section in question shortly before the collapse. Professor Steffen Marx from the Technical University of Dresden drew attention to the years of neglect in maintenance, which has made a significant contribution to such incidents. The collapse highlights the high demand for infrastructure to catch up, which is also underlined by the demands for 600 billion euros in investments formulated in a study by the German Economic Institute and the Institute for Macroeconomics and Economic Research.

The urgent investment needs extend across various areas, especially transport infrastructure, which alone costs around 127 billion euros. Germany is one of the worst performers among European countries when it comes to infrastructure spending. In view of the challenges, politicians have put together a long-term investment package of 500 billion euros for infrastructure projects over the next twelve years. This is seen as a measure to overcome the serious investment backlog and ensure economic competitiveness.

Infrastructure investment growth trend

Oliver Schneider from Wellington Management sees a clear growth trend for infrastructure investment over the next 10 to 20 years. His outlook is underpinned by the growing number of inquiries from interest groups for various infrastructure projects, such as the renovation of the rail network and digitalization. Peter Brodehser from DWS also expects increasing investor interest in infrastructure, as it is seen as a stable anchor in the portfolio. Infrastructure investments not only offer inflation protection but also stable returns, making them attractive to many investors.

According to economist Lars Feld, Germany's future investment needs could be between 400 and 600 billion euros, with large sums particularly needed for highways, railways and energy infrastructure in the coming years. Over 57 billion euros are needed for the federal road infrastructure alone from 2025 to 2028, while 63 billion euros are needed for rail and up to 270 billion euros for energy infrastructure as part of the energy transition. The current investment rate by the federal, state and local governments is only 2.6 percent of real gross domestic product and is therefore around one percentage point below the OECD average.

Role of private investors and future strategies

In order to cover the investment needs, Lars Feld calls for the involvement of private investors through infrastructure funds. The professor at the University of Freiburg and advisor to Finance Minister Christian Lindner points out that government investments are not enough to secure the existing stock. Hans Joachim Reinke, CEO of Union Investment, emphasizes that a functioning infrastructure is crucial for prosperity in Germany and calls for financing to be made more broadly. There are currently infrastructure companies organized under private law in which the state has a stake, such as Autobahn GmbH. Feld suggests giving these companies more skills to develop attractive business models.

In this context, the establishment of a new network infrastructure company in the energy sector could be crucial in order to pool state holdings in the transmission system operators and to work more effectively. Increasing geopolitical uncertainties and volatile capital markets could also lead to an increase in infrastructure investments in the coming years. Average EBITDA growth for infrastructure sectors is estimated at 10.2 percent for the period 2023 to 2026, which should also further increase the appeal of this asset class.