Isabel Cyr: Although that term is not well defined, and the definition varies from one organization to the next, if you look at incentives to businesses, you start seeing very precise definitions. For example, when you start looking at the incentive statutes of different jurisdictions, you see that most states will have a definition of what is a more important investment project; some use the word “mega,” some don't, and typically we're talking about $20 million capex and 150 jobs. That, I think, is a good way to define megaprojects because we're talking about 1,000 projects in the U.S. a year. So that gives you a bigger, better sense. And a $20 million capital investment bringing 150 jobs can really change a community’s industrial ecosystem.
Comparing a Megaproject and Smaller Site Selection Project
Fatima Halimi: When we work on a large-scale project, on the client side, there are typically more decision-makers involved. We have to be sure to address the concerns of each decision-maker, so that means more time has to be invested in the project, which can create a longer time frame, as opposed to a regular timeline of six months to a year; a large-scale project could go up to over a year.
On the other end, on the economic developer’s side, they tend to want to accelerate the process for a megaproject, especially when it's socially acceptable in the community. So they will offer fast-track permitting, get us the information faster, and do basically everything in their power to try to make the project happen as quickly as possible. So, on one end there are internal delays, and on the other end, we're trying to make things move faster. At the end of the day, typically, it makes the project time frame a little bit shorter than a typical project.
If a project’s financing is not in place, as can be the case with larger-scale capital investment projects that are heavily leveraged, it may be more difficult to use recurring earnings to finance the project. Isabel Cyr, Director, CAI Global
Cyr: That’s so true, you get a lot more attention from the economic developers when it's a larger-scale project; they'll put more resources toward it. On the client side, more resources do not always translate into a more streamlined process. It can add more time if you have a board member who weighs in on one issue when the rest of the team feels that there is no need to analyze a certain criterion further. If a project’s financing is not in place, as can be the case with larger-scale capital investment projects that are heavily leveraged, it may be more difficult to use recurring earnings to finance the project. You may need more time for that financing. CAI Global has worked on investment projects that have had to add equity and financing partners to gap the difference, including banks, quasi-public institutions and, in one case, competitors of a vertically integrated entity. The largest investment project that I worked on took more than two years to finalize, whereas our average investment projects take six months to eight months.
Incentives and Site Selection Megaprojects
Halimi: Half of mega-incentive packages typically go to manufacturing companies, then about 20 percent to offices and 6 percent to research centers. The rest is split up among the energy sector, retail, and data centers.
Cyr: I think the manufacturing sector just requires a lot of capital investments and creates a lot of jobs. In the past five years, FDI markets tracked 6,750 projects in the U.S. that are over $20 million in capex each, and manufacturing projects represented 35 percent of these. And then, if you dig further into the sectors, the largest is Information and Communications Technology (ICT) with 14 percent, followed by transport equipment manufacturers, life sciences, food and beverage, warehousing, consumer goods, and environmental technologies, all at about 10 percent each. What’s interesting is the consumer goods sector represents double the number of jobs of the other sectors’ projects.
The biggest sub-sector in ICT is the electronics sector, so you can think about Amazon, which worldwide represents a lot of FDI projects. That's the top sector for all FDI projects — big and small — and it happens to also be the top sector for those megaprojects as well. Amazon is the number-one company that's bringing in those projects in the U.S.; however, when you look at the other sectors that are really on the top of the list, we see consumer goods, we see transport equipment, so that's your automotive and your aerospace projects. And then we can't forget that food and life sciences are also very prominent sectors. They bring in a lot of megaprojects, and they create a lot of economic spinoffs within other industries. That's something that's not measured when we look at just the capital investment, the jobs, and the project size. But it is definitely something to take into consideration.
Community Impact of a Megaproject
Cyr: We're working on a food project right now where they are probably going to locate in an area that is currently not ideal in terms of cold-chain logistics. However, one nearby port has been talking for years about adding a cold storage facility in the area. There are a couple of other frozen food producers in the area, and we believe this project is going to be the impetus that will make the cold-storage facility plan make sense for the region. This is going to change the way the next food manufacturer looks at that region, allowing a positive shift in the industrial ecosystem. When you already have the assets, it makes a decision much easier; but when you don’t, a large-scale investment project can bring in smaller investments in the supply chain that benefit a community. We hope that community sees a lot more food projects in the future.
Location Trends in Megaproject Site Selection
Cyr: In terms of the overall number of megaprojects, Texas, California, and Florida are attracting the largest share of the large-scale investment projects. If we look at it from a per capita basis, it's really interesting to see that the data points to South Carolina; Washington, D.C.; and Indiana as attracting more projects per capita than the rest of the U.S. So basically, they're doing a really good job at attracting those projects based on their population size.
Indiana must be benefiting from the fact that they’re well located within the U.S., especially for certain industries that need access to the majority of the U.S. consumer base. South Carolina, along with other Southern States, is doing something a bit unique in terms of attraction strategies. The state has a culture of business-friendliness and is quite successful at leveraging its Southern charm to build strong relationships with foreign investors. The perception that state representatives are willing to handhold an investor throughout the entire implementation process, and their track record of delivering on that promise, may be the key to success in the Southern States. As a Canadian firm, we bring a lot of Canadian projects into the U.S. We know firsthand how important customer care it is to foreign investors.