Failing Infrastructure Costs Dozens Their Lives in Italy

Failing Infrastructure Costs Dozens Their Lives in Italy

 

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Successful investing requires distancing oneself from emotion and from political biases, letting the data do the talking while attempting to be as objective as possible in assessing the potential risks versus rewards. This week I am failing miserably at this.

This week my second home since 2012, Genoa, Italy, made headlines around the world for the worst of all possible reasons. At least 39 people died because a bridge I have traveled across countless times crumbled. Many of those who were on the bridge fell 150 feet to their death and those below the bridge when it collapsed, I cannot even imagine what they experienced. When I think of what it will be like to see that pile of rubble when I return, I alternate between wanting to throw up and scream at the top of my lungs at those who I hold responsible. This should never have happened. The loss of life was thankfully less than it could have been given that a good portion of the city’s residents had already fled the heat during the August holiday period.

Today politicians in Italy are doing what politicians all over the world do after a tragedy, engaging in a public covering of their own backsides while angrily pronouncing that those at fault will be discovered and held accountable. The same old song as it were.

Here is the situation as I know it, which I am sharing as it helps to understand the challenges with infrastructure investment, something that the U.S. is failing at as well.

The Morandi bridge was completed in 1967 and along with much of the surrounding toll roads, (the route from the A10 onto the A26 and the first part of the A7) is operated by Autostrade per l’Italia which is 88% owned by Atlantia (ATASF:OTC), a company that also manages highways in India, Brazil, and Chile, airports in France and Italy, and jointly controls a Spanish toll-road operator. Atlantia is in turn effectively controlled by the Benetton family, the largest shareholder at over 30% of the outstanding shares through the SPV (Special Purpose Vehicle) Sintonia. An oddity of the Italian markets is that often you will have a publicly traded company’s traded shares represent only a non-controlling stake in the company, with the control remaining in the hands of one or more of the wealthier families. While the shares are publicly traded, investors have no real say in the public entity’s governance.

It turns out that the bridge’s designer, Riccardo Morandi may have been a brilliant architect, but not so great of a civil engineer. This bridge has had problems from the beginning and has required much more maintenance expenditures than is typical. This is where things get ugly. For years and years many qualified engineers have been warning of the bridge’s imminent collapse. It’s operator, Autostrade per l’Italia, has proposed alternatives to reduce stress, meaning traffic, on what was known to be a faulty bridge. All efforts were to no avail.

Enter the awkward coalition between the 5-Star Movement, (Movimento 5 Stelle) and Lega. Two political parties that joined forces to gain a controlling majority in Italy, but whose positions often are at extreme odds. Forza Italia, the Democrats and most importantly Lega have all been in favor of La Gronda. La Gronda is Genovese (Genoa’s regional dialect) for eves, such as you would have on a house. La Gronda was a project that was to connect the port at Voltri directly to the A26. Voltri is the container terminal where those big metal containers you see go to/from ships to/from (mostly) trucks and then get onto the A7. The 5-Star Movement has been vehemently opposed to La Gronda, calling it “La favoletta,” the big fairy tale, with a formal “No Gronda” campaign in 2013. La Gronda was one of the biggest conflicts between the two parties.

Previously policy statements concerning Genoa (Genova in Italian) and La Gronda were on the 5-Star Movement’s website. That was changed quickly immediately following the bridge’s collapse, but thanks to the beauty of the internet being forever, archived versions of those pages can be found. One such copy can be viewed here. There is a lovely video of Beppe Grillo, (the founder of the 5-Star Movement) railing against La Gonda in 2009 on YouTube. The start of this video has a charming little Italian girl carrying one of the “No Gronda” flags. Pretty sure her parents aren’t feeling so great these days. If you enjoy reading from irate Italians, I also recommend searching for #NoGronda on Twitter. Very few nations can do rage quite like Italy. So far Lega is wisely keeping quiet as 5-Star hangs themselves scrambles, yelling and screaming about how they were never really against La Gronda. I’m telling you, this stuff would make Pinocchio squirm.

This week Atlantia (the owner of the operating company for the bridge) is handling the situation so poorly that I’m nearly speechless – not an easy task as anyone who knows me can attest. The press releases on the company’s website as of August 16thought to be an utter embarrassment to the management team and the Benetton family and a business school case study in precisely what not to do when tragedy strikes. Alitalia shares fell 22% in Milan on Thursday, their worst-ever decline. The company has lost around $6.2 billion in market cap since the bridge collapsed. This is likely only going to make the recovery process longer and more painful.

Italy, a nation with the eighth largest economy in the world, has had public spending account for around half of the nation’s GDP over the past decade yet its infrastructure spending has been well below that of its neighbors. Take a look at a topographical map of Italy and one of France, then look at the infrastructure spending of the two. Argh! Italy is pretty much all mountains and valleys so roads are all about bridges and tunnels. France is a pancake in comparison yet they spend more on all those flat roads! Taking into account the percent of GDP that the government spends, clearly this isn’t an issue of a government not having enough funds, the question has been where is it spending?

Infographic: Italy Has Notably Cut Investment In Infrastructure | Statista You will find more infographics at Statista

The challenge is that infrastructure is basically the IT department of government. Rarely does anyone from the C suite walk down to the IT department of a company to say, “Good job, no hackers were successful today and all our tech ran smoothly.” Politicians get reelected by making people happy. Maintenance of existing bridges and roads doesn’t make for great photo ops and is often met with resistance by the electorate – NoGronda!

Think this kind of thing can’t happen in the USA? Think again. In August 2007, the I-35W Mississippi River Bridge in Minneapolis collasped, killing 13 and injuring 45. A decade later, things haven’t improved.

Infographic: Thousands Of American Bridges Are Falling Apart | Statista You will find more infographics at Statista

 

What happened in Italy, yes it did happen here and could happen again.

Infographic: Could The Genoa Disaster Happen In The U.S.? | Statista You will find more infographics at Statista

 

It isn’t just our bridges that are endangering the nation. Our airports, dams, schools, sewer treatment facilities, energy grid, waterways, levees, ports, parks, roads, drinking water, and hazardous waste facilities are all in need of investment with the nation’s infrastructure getting a D+ in 2017 from the American Society of Civil Engineers.

Hopefully, the current administration and/or those in Congress will use this tragedy to focus on America’s infrastructure needs. We’ve heard a lot of talk out of the current Administration about just this, and I hope this serves as a catalyst for the country. A weak infrastructure is a significant headwind to the economy while a modern and robust one becomes a tailwind. This is an area of great opportunity for those in D.C. to do what is necessary, for investors when we see this issue get the attention it deserves, which is the basis for our Rebuilding America index, and for Americans who would reap benefits across many aspects of our lives including less time wasted commuting to and from work or in air travel, less wear and tear on our cars, and lower prices for the things we buy thanks to reduced transportation costs.

Personally, it would be really nice to be able to drive around my other home base in San Diego, California without regularly blowing tires and soaking my car seats with coffee thanks to the ubiquitous craterlike potholes.

 

An Italian Blond Day and Champagne

An Italian Blond Day and Champagne

Ever had one of those days when you realize that the Universe is having a bit of fun at your expense and taking the opportunity to make sure you don’t get overly confident? That was my Friday. I’d recently returned to Genova, Italy, where I spend a good deal of my time and was working through my usual jetlag, awkwardness getting back into the language and in particular, the Italian driving sensibilities. Italians can be best described as private anarchists and public communists, which manifests itself into a set of driving norms that leave me seriously contemplating the use of a paintball gun while driving to better express my appreciation for those around me.

My Friday morning consisted of a series of, “I cannot believe I just did that,” exercises which I’m positive is the Universe’s way of hinting that maybe, just maybe, there is something to that whole blond thing.  I made myself coffee three times, losing my cup every time. Still not sure where the other two cups ended up as my cleaning lady inevitably finds them all and discretely puts them in the dishwasher. I’ve seen her sideways glances and slight head shakes which I’m fairly certain mean she thinks I’m insane, and probably not too bright given my Italian fluency, or lack thereof.

Later in the day I thought things were finally turning around for me, when I made the unfortunate decision to drive myself and a colleague to a meeting. It was a freezing cold day, with lots of wind and rain, so being a true southern Californian I was fully decked out in heavy coat and mittens… and there’s where the trouble began.

Now that I’ve finally mastered the art of the round-about I get frustrated when others foil my attempts to navigate them smoothly. On Friday I was maneuvering my way around a particularly busy one onto the Sopraelevata, (a Genovese version of a raised highway on which one’s max speed is whopping 60km/hr or 37mph) when this woman damn near pushes me into another car on my right by swinging wildly into my lane from the inner most lane in a hurried attempt to make it onto the on-ramp, forcing me to slam on my breaks so as to avoid any collisions.

I was already gunning for bear at my own idiocy that day, so this became the perfect opportunity to vent my frustrations! I jetted onto the Sopraelevata behind her, my colleague and I yelling loudly, fists shaking with heavy scowling and considerable head shaking. The crazy woman in that awful tiny red car had the audacity to shake her bloody finger at us in her rearview mirror! Oh no she didn’t! Now I’m really raging to give her a serious talking to, when all of a sudden my engine revs up wildly slowing me down to a ridiculous 30km/hr or so. My colleague is still ranting, but getting a weird look on his face as he tries to figure out what the hell it is that I’m trying to accomplish. The car continues to slow, with RPM jumping wildly. I’m flailing about, face turning 18 shades of red, trying to figure out what the in the hell is going on. The crazy woman in that puny Punto smoothly pulls away from us and now the cars behind me are honking angrily as I finally realize that in my eagerness to give her the what for, I nicked the manual gear shift on the steering wheel with my mittens, but couldn’t feel it because those things are so damn thick!

I did the only thing anyone could in my position. I fixed my gears, pulled over into the slow lane, head hung feeling more blond than at any other point in my entire life. My colleague’s shoulder started the telltale shake of a man desperately trying to not laugh. I gave him my best scowl, which he didn’t at all buy into and the two of us laughed until our stomachs hurt.

The point of this story? The best way to end a day like that is with a bottle of 1995 Bollinger Champagne. It is incredibly good all on its own or with some pasta. It presents with the nice little bubbles that tempt your tongue, rather than the big ole ones that make you hiccup relentlessly after the first sip. Slide a few glasses into the freezer, put the champagne on ice, take a long hot shower, and my evening was able to repair one hell of an Italian blond day.