and reduce income disparities,” says Bernie
Sheahan, Global Director for Infrastructure and
Natural Resources at the International Finance
Corporation (IFC). “Analytical work shows that,
on average, a 10% increase in the stock of
infrastructure contributes to 1% growth in the
long term.” Sheahan says that infrastructure has
contributed about half of the recent acceleration
in growth in sub-Saharan Africa. In China real
income by 2007 was about 6% higher than it
would have been had its inter-urban expressway
network not been built. According to an estimate
by consultants Wendell Cox and Jean Love, the US
interstate highway system has returned more than
US$6 in productivity for each dollar it cost.
Infrastructure investment in the transport,
energy, water telecommunication and social
sectors (schools, hospitals and prisons) presents
advantages for Governments, corporations and
investors alike, particularly in the current economic
climate. It is needed both in developing countries,
where good infrastructure has yet to be built, and
in developed nations, where older infrastructures
are screaming for a facelift. Hence there are
boundless opportunities for private companies,
from engineering, procurement and construction
(EPC) to real estate to financial services.
DUAL IMPACT
Additionally, infrastructure investment has
both a direct and an indirect effect on growth,
contributing to job creation in the short-term
and, by smoothing out wrinkles in supply chains,
to increased economic efficiency in the long
run. And though it requires public funds, it
doesn’t have to burden Governments as much
as social assistance programmes, especially
when done via public-private partnerships (PPPs).
Finally, in today’s low interest-rate environment,
infrastructure projects can attract institutional
investors. “They offer long-term, stable cash flow,
and many of these sectors are regulated, so entry
barriers are high,” says Stefano Gatti, Associate
Professor in the Department of Finance at Bocconi
University in Italy.
The overall numbers are staggering. According
to the World Bank, low and middle-income
countries alone should invest an additional US$1
trillion to US$1.5 trillion in infrastructure annually
until 2020. “There is definitely a lot of demand in
Latin America and the Caribbean,” says Olga Lucia
de Narvaez, lead investment officer at the InterAmerican Investment Corporation. “The region
should increase investment by at least 2% of GDP
over the next several years, about US$150 billion
to US$250 billion per year.”
The Asia Development Bank estimates that,
between 2010 and 2020, the Asia Pacific region
will require nearly US$8 trillion in infrastructure
investment, while the African Development Bank
says that sub-Saharan Africa requires US$50
billion dollars a year more than it gets now. As
for the developed world, the American Society
for Civil Engineers calculates that the US should
invest US$3.6 trillion by 2020, while the European
Commission puts infrastructure needs across the
European Union at more than US$2 trillion over
the next five years.
These figures can over whelm public
administrations. “The balance sheets of European
Governments are managed under the stability
pact, so the room available for public spending
is limited,” says Gatti. P.D Rwelamila, Professor
of Project Management at the University of
South Africa, concurs: “There is an enormous
demand for infrastructure across the African
SCENARIOS FOR GLOBAL INFRSTRUCTURE INVESTMENT
NEEDS VERSUS PUBLIC SECTOR FUNDING SOURCES – TO 2030
Total need
Through 2030
US$57 trillion
US$57 trillion
US$57 trillion
Government
Spending
3% of GDP
2% of GDP
3.5% of GDP
Total gap
US$8.4 trillion
US$24.6 trillion
Zero
Annual gap
US$500 billion
US$1.5 trillion
Zero
Source: OECD; McKinsey & Co; Global Insight
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