This year, the Three Seas Initiative's (3SI) Summit and Business Forum took place in Riga, Latvia. During the two days of the Business Forum, we had the chance to hear exciting and eye-opening discussions on the most pressing challenges impacting the present and the future of the 3SI region.

The Investment panel focused on the investment opportunities of the region – this time, in the context of the war in Ukraine and how it has affected the flow of investment.

On the stage, among other speakers, we saw Joe Philipsz, Head of The Three Seas Investment Fund at Amber Infrastructure Group. We had an exclusive opportunity to interview Mr. Philipsz about the topics discussed on the stage, what challenges should be paid more attention to, and lessons learned.

Joe, one of the main topics of this year's event was the war in Ukraine and its impact on the 3SI region. How do you think the war has affected the investment landscape in the region?

The macroeconomic impact of the war added to the macroeconomic impact of the hangover from the COVID-19 pandemic has led to quite a challenging economic situation. This has clearly impacted business and investment confidence. The impact of the pandemic was already causing issues, but now we have significant issues and uncertainty from the war in Ukraine as well.

This uncertainty makes it a bit more of an existential crisis for investors. It will take time for investors and others to not just adjust to the new environment but to work out both the impact on existing investments and the outlook for new investments. The geographical proximity of the war to Central and Eastern Europe is an added concern for some investors, particularly those investors based outside Europe.

To take an example, I personally believe that Poland, which has a border with Ukraine, is no less investable today than France. Both Poland and France face similar issues due to the war in Ukraine and the pandemic. But for an investor in Australia, France looks safer, while Poland’s proximity to Ukraine raises concerns.

It will take time for the majority of investors to work out what they want to do, and I believe that there'll be a number of investors who won't invest in CEE until the war in Ukraine is over.

But if there were no war in Ukraine right now, which topics would have been in focus during the Forum?

I think one of the major questions would still be energy transition. There are two key questions here. First, the use of gas as a transition fuel as the region moves away from coal. And second, the role of nuclear generation in achieving net zero. Both of these questions are subject to significant political debate.

It appears to me that building new gas assets in Central and Eastern Europe is unavoidable. The question is how to do this in a way that delivers net zero through the use of hydrogen and carbon capture. This debate needs to be resolved, we need to find a way to make this energy transition happen.

Another thing that needs to be discussed is the same old argument about investment in road and rail infrastructure. Particularly roads – for example, the EU is slowing down its investment in road building. Now, that's fine for Germany, which is known for its quality roads and highways. But what about Romania? This seems a little unfair – there's virtually no significant highway infrastructure in Romania, but does it mean that they can't have one funded partially by the EU? Again, the debate is an important one to resolve.

There should be a debate around what is and what is not appropriate to invest in Central and Eastern Europe. Otherwise, there is the risk that the infrastructure that is needed in the region is not built.

How does your organization, Amber Infrastructure Group, address this challenge?

The fundamentals in approaching infrastructure-related questions do not change. Good infrastructure investments are substantially insulated from economic shocks, despite valuations and competition for assets being impacted in the short term. So, our approach to investment has not changed – we continue to invest in infrastructure projects and search for new investment opportunities.

This is good to know. Now, speaking of investments – which country(-ies) from the 3SI region is making the greatest advancements when it comes to attracting investment?

I can't name any specific countries, but what I have observed is that there's a generally increased understanding that the need for infrastructure investment far exceeds the public capital available, such as from governments and the EU. We've started to realize that private capital investments should also be encouraged.

So, what I'm saying is that there's not enough EU money for all the necessary infrastructure projects, and I think there's a growing realization that private capital is part of the solution. This is already the case in Western and Northern Europe, where private capital is extensively utilized to deliver high-quality infrastructure projects.

If you had more time available, what other topics would you have brought up during your panel and why?

The topic of who the appropriate owners of infrastructure assets should be is an important one.  

When you look at the infrastructure market, a significant portion of the capital that's invested in strategic infrastructure assets is actually yours and mine. It's the money we put aside every month in our pension or other long-term savings.  

Surprisingly, in the 3SI region, most pension funds don't invest in infrastructure. In the meantime, in Western Europe, Northern Europe, Australia, and North America, a significant amount of pension fund money goes into infrastructure investment.

I think the debate about who should own the core infrastructure assets is a crucial one. I believe that pension funds are appropriate owners. The question is – what should we do to encourage pension funds in the region to invest in infrastructure?

If there's one thing you'd want viewers to take from this year's Investment panel, what is it?

The countries from the Three Seas Region are EU member states, and it's surprising that it's greatly overlooked by investors. There is significant opportunity in this region, and governments should actively encourage investment in the region’s infrastructure by the private sector.

Infrastructure investors have started to look beyond Western Europe for new investment opportunities as returns have declined, partially as a result of the weight of capital seeking such opportunities.

Some investors are beginning to invest in infrastructure in economies such as Vietnam, Indonesia, Thailand, and the Philippines – all good places to invest as their economies continue to grow. However, many investors are “leap-frogging” the Three Seas Region, which consists of EU member states. This is, in my view, both a missed opportunity and a matter of concern for the region. We should be doing everything to demonstrate why the region, with its strong economic outlook, is a good place for investment.

Why do you think investors overlook this region?

It’s hard to be certain as to the reasons. Part of it might simply be that the perception of the region is out of date in the minds of investors from Western Europe. I think that the view of the region among many investors is ten years out of date.

Over the course of the last 30 years, EU member states from Central Eastern Europe have developed and become modern, forward-looking, high-growth (compared to the rest of Europe) economies.

What's more, the lingua franca of Central and Eastern Europe is English. This means that these economies have not only the ability to work together but also the ability to do business with the world. This opens up their ability to trade internationally but also to accept investment from international investors.

This was very insightful, thank you!