ASIA INVESTMENT OPPORTUNITIES IN INFRASTRUCTURE...Infrastructure development trends in China will continue to shift toward more locally and quality-of-life oriented projects as the

ASIA INVESTMENT OPPORTUNITIES IN INFRASTRUCTURE:RISK/REWARD ANALYSIS

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Asia Investment Opportunities In Infrastructure: Risk/Reward Analysis

Published by: BMI Research

Asia Investment Opportunities in Infrastructure: Risk/Reward Analysis

© Business Monitor International Ltd Page 2

CONTENTS

Asia Infrastructure RRI: Frontier Markets Offer High Rewards and High Risks ....................................... 3

South Asian, Mekong Markets To Be Top Performers................................................................................................................................................. 5 Expansionary Infrastructure Investment Supporting Philippines' Rewards ................................................................................................................ 5 China Has Sizable Rewards, But Formidable Challenges........................................................................................................................................... 6 Financial, Political Risks Weigh On Sri Lanka's Score ............................................................................................................................................... 6

China - Q1 2018 .............................................................................................................................................. 10

Five-Year Forecast Scenario (CHINA 2018-2022) .............................................................................................................................................. 11 Infrastructure Risk Reward Index (CHINA 2017-2017) ....................................................................................................................................... 11

India - Q1 2018 ............................................................................................................................................... 12

Five-Year Forecast Scenario (INDIA 2018-2022) ............................................................................................................................................... 12 Infrastructure Risk Reward Index (INDIA 2017-2017) ........................................................................................................................................ 13

South Korea - Q1 2018 .................................................................................................................................. 14

Infrastructure - Construction Industry Forecasts (SOUTH KOREA 2016-2026) ................................................................................................. 15 Risk/Reward Index .................................................................................................................................................................................................... 15

Infrastructure Risk Reward Index (SOUTH KOREA 2017-2017) ........................................................................................................................ 15

Australia - Q1 2018 ........................................................................................................................................ 16

Infrastructure - Construction Industry Forecasts (AUSTRALIA 2017-2023) ....................................................................................................... 16 Infrastructure Risk Reward Index (AUSTRALIA 2017-2017) ............................................................................................................................... 17

Infrastructure ................................................................................................................................................. 18

Industry Forecast Methodology ................................................................................................................................................................................ 18 Sector-Specific Methodology..................................................................................................................................................................................... 19 Infrastructure Risk Reward Index ............................................................................................................................................................................. 22



Asia Infrastructure RRI: Frontier Markets Offer High Rewards and High Risks

BMI View: Infrastructure RRI scores across Asia were largely unchanged this quarter as there were few

major shifts in investment trends or government policies. Emerging and frontier markets in South and

South East Asia continue to offer the highest rewards alongside notable risks.

A Diverse Range of Risks

Asia Pacific - Infrastructure Reward/Index Heat Map

Scores out of 100, Higher Score = More Attractive Market. Source: BMI Infrastructure Risk Reward Index.

Main Regional Features and Latest Updates

Our Infrastructure Risk/Reward scores for the majority of the 21 markets in our Asia coverage

were unchanged this quarter, with the notable exceptions of China, whose score fell by two



points, Indonesia, whose score rose by three points, and Sri Lanka, whose score fell by two

points.

The developed, urbanised markets of Singapore, Malaysia, Hong Kong and Australia continue to

hold the top four positions in our Asian Infrastructure Risk/Rewards Index (RRI). Growth

opportunities in these markets are more favourable than in other developed markets, while they

have fewer operating risks than their emerging-market counterparts.

Emerging markets in South Asia and the Mekong region, including Vietnam, India, Pakistan and

Bangladesh have among the highest Rewards scores, owing to the positive growth outlook in

their construction industries, supportive government policies and stable economic expansion.

China, which accounts for more than half of Asia's construction industry value, receives above-

average - but not stellar - scores this quarter. Growth in China's construction industry is

gradually decelerating while the country's restrictive business environment drags down its

overall score.

Risk/Reward Tradeoffs

Asia Pacific Infrastructure - Risk/Reward Index




South Asian, Mekong Markets To Be Top Performers

The emerging and frontier construction markets of South Asia and the Mekong region will continue to be

among the top performers in the region, largely thanks to their strong industry growth outlook and sizable

infrastructure investment plans. In addition to these markets growing from a low base, they are also focal

points in China's 'Belt & Road' initiative, which will bring investment in ports and other transport

projects. Bangladesh, Pakistan, India and Vietnam all sit squarely in the 'high-risk, high-reward' quadrants

of our RRI, indicating that investors will need to be adequately prepared for risks in these markets, which

range from political turmoil to poor contract enforceability. Bangladesh and Pakistan in particular are

among the least-developed countries in the region, and face pertinent security and terrorism risks which

could threaten high-value infrastructure projects.

Emerging Markets Offer Greatest Rewards

Asia - Infrastructure Industry Rewards Scores

Scores out of 100. Higher score = lower risk. Source: BMI Infrastructure Risk/Reward Index

Expansionary Infrastructure Investment Supporting Philippines' Rewards

Continued support for infrastructure development in the Philippines, coming from both President Rodrigo

Duterte and foreign investors, has helped bolster the market's position as one of the top performers in

South East Asia. The Philippines, like many other emerging markets in the region, scores highly on the

Rewards components but lags in the Risks components. The Duterte government has pledged to improve

the speed of project implementation by streamlining bureaucracy and courting investment from China,

which has helped improve components of the country's Industry Risks scores in recent quarters. Of



particular note this quarter is the country's 'Project Pipelines' score, which rose to the back of the

government's largest-ever infrastructure budget (see 'Largest-Ever Infrastructure Budget Supports

Positive Outlook', September 18).

China Has Sizable Rewards, But Formidable Challenges

China dominates Asia's regional infrastructure industry with a domestic market worth more than

USD700bn and extensive investments in projects across South and South East Asia. Despite the country's

above-average Rewards score this quarter, we highlight that China's restrictive business environment acts

as a significant drag on its overall RRI score. China scores extremely poorly for the Competitive Index

component, reflecting that the vast majority of infrastructure contracts are awarded to domestic or state-

owned firms. Similarly, China receives mediocre scores in the Legal Environment and Long-Term

Political Risk categories, which are products of persistent corruption and questionable contract

enforceability.

High Rewards, Significant Risks

Philippines - Industry Rewards and Risks Component Scores

Scores out of 100. Higher score = lower risk. Source: BMI Infrastructure Risk/Reward Index

Financial, Political Risks Weigh On Sri Lanka's Score

Sri Lanka, despite being one of the largest recipients of Chinese infrastructure investment and having

significant growth potential, receives below-average scores across all components of the RRI this quarter.

Situated next to India and along key shipping routes in the Indian Ocean, Sri Lanka has geographic

advantages in becoming a regional transport and logistics hub, but projects - many of which have been



financed by China - have fallen short of expectations. The multibillion-dollar Hambantota Port and

accompanying Mattala Rajapaksa Airport have both failed to meet traffic projections, leaving the Sri

Lankan government with mounting debts. Efforts to renegotiate debts to China resulted in political and

public backlash against a plan for state-owned China Merchants Group to take a majority stake in the

Hambantota Port, reflecting the heightened political and operational risks facing projects in Sri Lanka.

Asia Pacific Infrastructure Risk/Reward Index

Rewards and Risks Scores




Asia Pacific Infrastructure Rewards

Industry and Country Rewards Scores




Asia Pacific Infrastructure Risks

Industry and Country Risks Scores




China - Q1 2018

BMI View: Over the next five years, China's infrastructure industry will continue to shift noticeably

toward local and quality-of-life oriented projects, with the government's development objectives and PPP

pipeline reflecting a strong emphasis on environmental protection and social infrastructure. This

contributes to a slowing growth outlook for Asia's largest construction market.

Forecast & Industry Developments

We forecast that China's construction industry will grow by 5.2% in real terms in 2018 and at an

annual average of 4.7% between 2018 and 2022. Although the government's commitment to

infrastructure development remains strong, we note that its attempts to curb public debt and rein

in excessive investment means that overall growth will slow relative to previous years.

Infrastructure development trends in China will continue to shift toward more locally and

quality-of-life oriented projects as the government's investment priorities shift away from

national-scale megaprojects that have dominated the project pipeline over the previous decade.

The ongoing PPP programme reflects this shift with its sizable focus on social infrastructure,

rural development and environmental protection initiatives.

Within the transport sector, we highlight that China is home to the world's largest number of

ongoing metro and urban transit projects. Dozens of cities across the country are in the midst of

expanding or building new transit systems as municipal government seek to use them to reduce

traffic congestion and air pollution, support growing populations and drive real estate

investment.

Chinese construction companies will continue their efforts at expanding globally in line with

Beijing's Belt and Road initiative. However, we also highlight that projects in Belt and Road

markets will run into increasing difficulties in 2018, posing a downside risk to the construction

firms' revenue projections.



Five-Year Forecast Scenario (CHINA 2018-2022)

2017f 2018f 2019f 2020f 2021f 2022f

Construction industry value, CNYbn 5,282.87 5,651.45 6,060.45 6,501.21 6,931.87 7,412.54

Construction Industry Value, Real Growth, % y-o-y 5.08 5.18 5.09 4.97 4.22 4.23

Construction Industry Value, % of GDP 6.5 6.4 6.3 6.3 6.2 6.1

f = BMI forecast. Source: National Bureau of Statistics, BMI

Infrastructure Risk/Reward Index

We have overhauled our Infrastructure Risk/Reward Index (RRI) methodology to more

accurately capture the different elements that impact the overall investment attractiveness of a

country's infrastructure sector. We have increased the number and variety of indicators that make

up the final index score and we have re-assessed the weightings of the Reward and Risk

indicators to ensure the most accurate reflection of the Risk/Reward environment is reflected

through our matrix.

China's RRI score of 60.5 this quarter reflects its high Rewards score, a product of its immense

market size, balanced against an average Risks score. Despite the country's construction industry

being the largest in the world, numerous regulatory restrictions pose challenges for would-be

private investors.

Infrastructure Risk Reward Index (CHINA 2017-2017)

Risk/Reward

Index Rewards Industry Rewards

Country Rewards Risks

Industry Risks

Country Risks

China 60.5 63.0 67.6 56.0 56.8 41.4 72.1

Source: BMI



India - Q1 2018

BMI View: In 2018, India's construction industry will have largely recovered from the impact of

demonetisation and we forecast real growth in the sector to reach 6.1%. Robust growth means the market

remains on track to overtake Japan as Asia's largest construction industry by 2023.

Forecast And Latest Updates

We expect that the negative impact of the 2016 demonetisation policy on India's construction

industry will have largely subsided by 2018, with real growth returning to 6.1%. Demonetisation

had an adverse effect on construction activity as it left many workers unable to be paid in cash,

delaying work on both large and small projects.

We have revised our transport, energy and utilities infrastructure forecasts using more-accurate

data from the Department of Economic Affairs. Within the transport sector, we highlight the

largest change being that the roads segment now accounts for a significantly larger component of

the overall transport sector value.

Government-led and privately funded infrastructure projects, which stretch from national

highways to urban utilities, will continue to be primary drivers of growth in India's infrastructure

industry. By state, the value of ongoing and planned projects is correlated with state population.

Five-Year Forecast Scenario (INDIA 2018-2022)

2017f 2018f 2019f 2020f 2021f 2022f

Construction industry value, INRbn 11,433.38 12,587.80 13,917.56 15,423.70 17,035.10 18,757.38

Construction Industry Value, Real Growth, % y-

o-y 4.94 6.10 6.56 6.82 6.45 6.11

Construction Industry Value, % of GDP 6.7 6.7 6.7 6.7 6.7 6.6

f = BMI forecast. Source: Reserve Bank of India, BMI




We have overhauled our Infrastructure Risk/Reward Index (RRI) methodology to more

accurately capture the different elements that impact the overall investment attractiveness of a

country's infrastructure sector. We have increased the number and variety of indicators that make

up the final index score and we have re-assessed the weightings of the Reward and Risk

indicators to ensure the most accurate reflection of the Risk/Reward environment is reflected

through our matrix.

India scores 55.8 on our Asia-Pacific Infrastructure RRI, ranking 14th out of 21 markets in the

region. India's high industry rewards score reflects the country's large construction industry and

its high growth rates, but its overall performance is undermined by low risks scores are

indicative of significant regulatory, political and economic challenges investors face in the

market.

Infrastructure Risk Reward Index (INDIA 2017-2017)

Risk/Reward Index Rewards Industry Rewards


Industry Risks

Country Risks

India 55.8 67.5 78.5 51.0 38.3 20.0 56.7

Source: BMI



South Korea - Q1 2018

BMI View: Ongoing projects across the various sectors will lend support to the economy, with the

residential sector being a key area of growth. We forecast South Korea's construction sector to grow by

5.3% in 2018.


We believe that the government's housing measures will weigh on the sector over the coming

months and forecast South Korea's infrastructure sector to expand by 4.3% in 2018 (compared to

an estimated 7.1% in 2017) amid the tapering off of projects related to the PyeongChang

Olympics.

South Korea's transport system is already fairly well-developed and we believe that the

government is likely to shift its focus to maintaining its existing transport network instead of

expanding it. This suggests that the transport infrastructure sector is likely to provide a limited

degree of support over the coming years, informing our expectations for the sector's share of

infrastructure spending to decline gradually over the coming years.

President Moon Jae-in has taken assertive action with regards to energy policy since assuming

office in May 2017, and taken significant steps to shift South Korea away from nuclear and coal-

fired power sources, informing our forecast for the sector's share of total infrastructure to

increase only slightly from an estimated 26.9% in 2017 to 28.2% in 2026. This is likely to come

from gas-fired plants as South Korea seeks to meet demand in years where no new nuclear

capacity comes online.

We expect the government's property curbs to gradually weigh on the growth of the residential

sector, and maintain our forecast for the residential and non-residential sector to expand by 5.4%

in 2018, marking a slowdown from an estimated 8.6% in 2017.



Infrastructure - Construction Industry Forecasts (SOUTH KOREA 2016-2026)

2016 2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f

Cons-truction industry value, KRWbn 84,681 92,359

98,935

104,165

108,675

112,342

116,178

120,193

124,392

128,785

133,380

Cons-truction Industry Value, Real Growth,

% y-o-y 10.53 7.55 5.27 3.29 2.33 1.37 1.42 1.46 1.49 1.53 1.57

Cons-truction Industry Value, % of GDP 5.2 5.4 5.5 5.5 5.4 5.3 5.2 5.1 5.0 4.9 4.8

e/f = BMI estimate/forecast. Source: National sources, BMI

Risk/Reward Index

We have overhauled our Infrastructure Risk/Reward Index (RRI) methodology to more accurately capture

the different elements that impact the overall investment attractiveness of a country's infrastructure sector.

We have increased the number and variety of indicators that make up the final index score and re-

assessed the weightings of the Reward and Risk indicators to ensure the most accurate reflection of the

environment is reflected through our matrix.

Infrastructure Risk Reward Index (SOUTH KOREA 2017-2017)

Risk/Reward

Index Rewards Industry Rewards


Industry Risks

Country Risks

South Korea 64.3 53.8 51.3 57.5 80.2 76.5 83.9

Source: BMI



Australia - Q1 2018

BMI View: The Australian government continues to seek to develop the country's infrastructure system,

and we also maintain our expectations for the transport segment to be the outperformer over the coming

years. We forecast headline growth in the construction sector to expand by 1.2% in 2017, before picking

up to 3.0% by the end of 2020.


We forecast Australia's construction sector to grow by 1.2% in 2017, before rising to 3.0% by

the end of 2020.

We continue to expect the transport infrastructure segment to outperform over the coming years.

For example, works on Western Australia's Metronet public transport programme are set to

begin as soon as 2019, with the Western Australian state government allocating a budget of

AUD1.34bn over the next four years for the programme, which involves expanding the Perth

suburban rail network. The initial schemes under the programme are the AUD535.8mn Thornlie-

Cockburn rail link, scheduled to be completed in 2023, and an AUD520.2mn (USD416.69mn)

extension of the Joondalup line to Yanchep. The 17.5km Thorn lie-Cockburn line has been

allocated AUD423mn (USD339.96mn) while AUD440.8mn (USD354.27mn) has been allocated

to a 14km extension of the Joondalup line to Yanchep.

The Australian government will also continue to seek to move away from traditional sources

such as coal, and as more investments are encouraged to go into the renewable sector, we expect

it to contribute a growing share of the country's energy mix over the coming years.

Infrastructure - Construction Industry Forecasts (AUSTRALIA 2017-2023)

2017f 2018f 2019f 2020f 2021f 2022f 2023f

Construction Industry Value, Real Growth, % y-o-y 1.24 1.99 3.41 3.01 3.04 3.26 3.24

Construction Industry Value, % of GDP 8.4 8.3 8.4 8.5 8.6 8.6 8.7

Construction industry value, AUDbn 147.21 153.44 162.67 171.95 181.83 192.66 204.10

f= BMI forecast. Source: National sources, BMI



Risk/Reward Index

Australia sits at the fourth place on our Asia Infrastructure Risk/Reward Index and occupies the

eighth position globally.

The country's score balances strong Industry and Country Risk factors with above-average

construction industry growth.

Infrastructure Risk Reward Index (AUSTRALIA 2017-2017)

Risk/Reward Index Rewards Industry Rewards


Industry Risks

Country Risks

67.9 55.3 51.6 61.0 86.8 93.4 80.2

Scores out of 100, Higher score = more attractive market. Source: BMI



Infrastructure

Industry Forecast Methodology

BMI's Industry forecasts are generated using the best-practice techniques of time-series modelling and

causal/econometric modelling. The precise form of model we use varies from industry to industry, in each

case being determined, as per standard practice, by the prevailing features of the industry data being

examined.

Common to our analysis of every industry, is the use of vector autoregressions. Vector autoregressions

allow us to forecast a variable using more than the variable's own history as explanatory information. For

example, when forecasting oil prices, we can include information about oil consumption, supply and

capacity.

When forecasting for some of our industry sub-component variables, however, using a variable's own

history is often the most desirable method of analysis. Such single-variable analysis is called univariate

modelling. We use the most common and versatile form of univariate models: the autoregressive moving

average model (ARMA).

In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data

quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a

basis for analysis and forecasting.

We mainly use OLS estimators and in order to avoid relying on subjective views and encourage the use of

objective views, we use a 'general-to-specific' method. BMI mainly uses a linear model, but simple non-

linear models, such as the log-linear model, are used when necessary. During periods of 'industry shock',

for example poor weather conditions impeding agricultural output, dummy variables are used to

determine the level of impact.

Effective forecasting depends on appropriately selected regression models. We select the best

model according to various different criteria and tests, including but not exclusive to:

R2 tests explanatory power; adjusted R2 takes degree of freedom into account

Testing the directional movement and magnitude of coefficients

Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value)

All results are assessed to alleviate issues related to auto-correlation and multi-collinearity

BMI uses the selected best model to perform forecasting.



It must be remembered that human intervention plays a necessary and desirable role in all of our industry

forecasting. Experience, expertise and knowledge of industry data and trends ensure that analysts spot

structural breaks, anomalous data, turning points and seasonal features where a purely mechanical

forecasting process would not.

Sector-Specific Methodology

Construction Industry

Construction Industry Value

Our data is derived from GDP by output figures from each country's national statistics office (or

equivalent). Specifically, it measures the output of the construction industry over the reported 12-month

period in nominal values (ie domestic currency terms). As it is derived from GDP data, it is a measure of

value added within the industry (ie the additional contribution of the construction industry over other

industries, such as cement production). Consequently, it does not measure the nominal value of all inputs

used in the construction industry, which, for most states would increase the overall figure by 50-60%.

Furthermore, it is important to note that the data does not provide an indication of the total value of a

country's buildings, only the construction sector's output in a given year.

This data is used because it is reported by virtually all countries and can therefore be used for

comparative purposes.

Construction Industry Value Real Growth

Our data and forecasts for real construction measures the real increase in output (rather than nominal

growth, which would also incorporate inflationary increases). In short, it is an inflation-adjusted value of

the output of the construction industry y-o-y. Consequently, real growth will be lower than the nominal

growth of our 'construction value' indicator, except in instances where deflation is present in the industry.

Data for this is sourced from the constant values for construction value added, using the same sources

noted above. We use officially calculated data to accurately account for inflation specific to the

construction industry.

Construction Industry, % Of GDP/Construction Value (USD)

These are derived indicators. We use BMI's Country Risk team's GDP and exchange rate forecasts to

calculate these indicators.



Capital Investment

Total Capital Investment

Our data is derived from GDP by expenditure data from each country's national statistics office (or

equivalent). It is a measure of total capital formation (excluding stock build) over the reported 12-month

period. Total capital formation is a measure of the net additions to a country's capital stock, so takes into

account depreciation as well as new capital. In this context, capital refers to structures, equipment,

vehicles etc. As such, it is a broader definition than construction or infrastructure, but is used by BMI as a

proxy for a country's commitment to development.

Capital Investment (USD), % Of GDP, Per Capita

These are derived indicators. We use our Country Risk team's population, GDP and exchange rate

forecasts to calculate them. As a rule of thumb, we believe an appropriate level of capital expenditure is

20% of GDP, although in rapidly developing emerging markets it may, and arguably should, account for

up to 30%.

Government Capital Expenditure

This is obtained from government budgetary data and covers all non-current spending (ie spending on

transfers, salaries to government employees, etc). Due to the absence of global standards for reporting

budgetary expenditure, this measure is not as comparable as construction/capital investment.

Government Capital Expenditure, USDbn, % Of Total Spending

These are derived indicators.

Construction Sector Employment

Total Construction Employment

This data is sourced from either the national statistics office or the International Labor Organization

(ILO). It includes all those employed within the sector.

Construction Employment, % y-o-y; % Of Total Labour Force

These are derived indicators.

Average Wage In Construction Sector

This data is sourced from either the national statistics office or the ILO.



Infrastructure Data Sub-Sectors

BMI's Infrastructure data examines the industry from the top down and bottom up in order to calculate the

industry value of infrastructure and its sub-sectors. We use a combination of historic data as reported by

the central banks, national statistics agencies and other official data sources, and BMI's Infrastructure Key

Projects Database tool.

Where possible we source historic data for the relative portion of either infrastructure spend or value

generated by the various sub-sectors we classify as infrastructure. We seek to segment official

infrastructure data into pre-set categories classified by us, across all countries, in order to optimise the

ability to compare industry value across the sub-sectors of infrastructure. We then apply ratios to the

infrastructure subsector value in order to derive the value. Real growth is calculated using the official

construction inflation rate.

In those instances where historic data is not available, we use a top down and bottom up approach

incorporating full use of BMI's Infrastructure Key Projects Database, in most cases dating back to 2005.

This allows us to calculate historical ratios between general infrastructure industry value and its sub-

sectors, which we then use for forecasting. Our Key Projects Database is not exhaustive, but it is

comprehensive enough to provide a solid starting point for our calculations.

The top down approach uses data proxies. We have separated countries into three tiers. Each tier

comprises a group of countries on a similar economic development trajectory and with similar patterns in

terms of infrastructure spending, levels of infrastructure development and sector maturity. This enables us

to confirm and overcome any deficiencies of infrastructure-specific data by applying an average group

ratio (calculated from the countries for which official data exists) to the countries for which data is

limited.

Tier I - Developed States. Common characteristics include:

o Mature infrastructure markets;

o Investments typically target maintenance of existing assets or highly advanced projects at the

top of the value chain;

o Infrastructure as percent of total construction averages around 30%.

o Tier I countries: Canada, Germany, Greece, UK, US, France, Hong Kong, Taiwan,

Singapore, Israel, Japan, Australia.



Tier II - Core Emerging Markets. Common characteristics include

o The most rapidly growing emerging markets, where infrastructure investments are a government

priority;

o Significant scope for new infrastructure facilities from very basic levels (eg highways, heavy

rail) to more high value projects (renewables, urban transport);

o Infrastructure as percent of total construction averages around 45% and above.

o Tier II countries: Colombia, Malaysia, Mexico, South Korea, Peru, Philippines, Turkey,

Vietnam, Poland, Hungary, South Africa, Nigeria, Russia, China, India, Brazil, Indonesia.

Tier III - Emerging Europe. Common characteristics include:

o Regional socioeconomic trajectories;

o Development defined by recent or pending accession to European structures such as the EU.

Infrastructure development to a large degree dictated by EU development goals and financed

through vehicles such as the PHARE and ISPA programmes, and institutions such as the EBRD

and EIB;

o Infrastructure as percentage of total construction averages between 30% and 40%.

o Tier III countries: Czech Republic, Romania, Bulgaria, Slovakia, Slovenia, Estonia, Latvia,

Lithuania, Croatia, Ukraine.

This methodology has enabled us to calculate infrastructure industry values for states where this was not

previously possibly. Furthermore, it has enabled us to create comparable indicators.

The top down hypothesis-led approach has been used solely to calculate the infrastructure industry value

as a percentage of total construction. For all sub-sector calculations we apply the bottom-up approach, ie

calculating the ratios from our Key Projects Database where data was not otherwise available.

Infrastructure Risk Reward Index

Our Infrastructure Risk/Reward Index (RRI) quantifies and ranks a country's attractiveness within the

context of the Infrastructure industry, based on the balance between the Risks and Rewards of entering

and operating in different countries.

We combine industry-specific characteristics with broader economic, political and operational market

characteristics. We weight these inputs in terms of their importance to investor decision making in a given

Industry. The result is a nuanced and accurate reflection of the realities facing investors in terms of: 1) the



balance between opportunities and risk; and 2) between sector-specific and broader market traits. This

enables users of the Index to assess a market's attractiveness in a regional and global context.

The index uses a combination of our proprietary forecasts and analyst assessment of the regulatory

climate. As regulations evolve and forecasts change, so the Index scores change providing a highly

dynamic and forward-looking result.

The Infrastructure Risk Reward Index universe comprises 105 countries.

Benefits of using BMI's Infrastructure RRI:

Global Rankings: One global table, ranking all the countries in BMI's universe for Infrastructure

from least (closest to zero) to most attractive (closest to 100).

Accessibility: Easily accessible, top down view of the global, regional or sub-regional

Risk/Reward profile.

Comparability: Identical methodology across 105 countries for Infrastructure allows users to

build lists of countries they wish to compare, beyond the confines of a global or regional

grouping.

Scoring: Scores out of 100 with a wide distribution, provide nuanced investment comparisons.

The higher the score, the more favourable the country profile.

Quantifiable: Quantifies the Rewards and Risks of doing business in the Infrastructure sector in

different countries around the world and helps identify specific flashpoints in the overall

business environment.

Comprehensive: Comprehensive set of indicators, assessing industry-specific risks and rewards

alongside political, economic and operating risks.

Entry Point: A starting point to assess the outlook for the Infrastructure sector, from which users

can dive into more granular forecasts and analysis to gain a deeper understanding of the market.

Balanced: Multi-indicator structure prevents outliers and extremes from distorting final scores

and rankings.

Methodology is a combination of proprietary BMI forecasts, analyst insights and globally

acceptable benchmark indicators (example: World Bank's Doing Business Scores, Transparency

International's Corruption Perceptions Index).



Weightings Of Categories And Indicators


Source: BMI Research

The RRI matrix divides into two distinct Categories:

Rewards: Evaluation of an Industry's size and growth potential (Industry Rewards), and also macro

industry and/or country characteristics that directly impact the size of business opportunities (Country

Rewards).

Risks: Evaluation of micro, industry-specific characteristics, crucial for an industry to develop to its

potential (Industry Risks) and a quantifiable assessment of the country's political, economic and

operational profile (Country Risks).

Our matrix is deliberately overweight on Rewards (60% of the final RRI score for a market) and within

that, the Industry Rewards segment (60% of final Rewards score). This is to reflect the fact that when it

comes to long term investment potential, industry size and growth potential carry the most weight in

indicating opportunities, with other structural factors (demographic, labour statistics and infrastructure

availability ) weighing in, but to a slightly lesser extent. In addition, our focus and expertise in Emerging

and Frontier Markets has dictated this bias towards industry size and growth to ensure we are able to

identify opportunities in countries where regulatory frameworks are not as developed and industry sizes

not as big (in USD terms) as in developed markets, but where we know there is a strong desire to invest.

Documents

ASIA INVESTMENT OPPORTUNITIES IN INFRASTRUCTURE...Infrastructure development trends in China will continue to shift toward more locally and quality-of-life oriented projects as the