What is 'Infrastructure'
Infrastructure is the basic physical systems of a business or nation; transportation, communication, sewage, water and electric systems are all examples of infrastructure. These systems tend to be high-cost investments; however, they are vital to a country's economic development and prosperity. Projects related to infrastructure improvements may be funded publicly, privately or through public-private partnerships.
BREAKING DOWN 'Infrastructure'Applicable to large- and small-scale organizational frameworks, infrastructure can include a variety of systems and structures as long as there are physical components required. For example, the electrical grid across a city, state or country is infrastructure based on the equipment involved and the intent to provide a service to the areas it supports. Similarly, the physical cabling and components making up the data network of a company operating within a specific location are also infrastructure for the business in question, as they are necessary to support business operations.
Many technical systems are often referred to as infrastructure, such as networking equipment and servers, due to the critical function they provide within certain business environments. Without the information technology (IT) infrastructure, many businesses struggle to share and move data in a way that promotes efficiency within the workplace. If IT infrastructure fails, many business functions cannot be performed.
Along with the aforementioned sectors, infrastructure includes waste disposal services, such as garbage pickup and local dumps. Certain administrative functions, often covered through various government agencies, are also considered part of the infrastructure. Educational and health care facilities may also be included, along with certain research and development functions and necessary training facilities.
Private Investment in Public Infrastructure
Sometimes private companies choose to invest in a country's infrastructure development as part of a business expansion effort. For example, an energy company might build pipelines and railways in a country where it wants to refine petroleum. This investment can benefit both the company and the country.
For example, in 2005, Skyway Concession Company, LLC (SCC) entered into a 99-year lease with the City of Chicago for the operation and maintenance of the Chicago Skyway Bridge. As part of the agreement, SCC retains all rights to the toll and concession revenues generated by bridge, while the city benefits from a $1.83 billion cash infusion and is no longer responsible for maintaining the bridge.
Individuals may also choose to fund improvements to certain pieces of public infrastructure. For example, an individual may fund improvements to hospitals, schools or local law enforcement efforts.
Infrastructure as an Asset Class
Infrastructure is also an asset class that tends to be less volatile than equities over the long term and generally provides a higher yield. As a result, some companies and individuals like to invest in infrastructure funds for the defensive characteristics, such as funds involved in transportation or water infrastructure.