Investment in infrastructure will continue to grow globally, but gaps will persist

4 October 2019 (Last Updated October 21st, 2019 12:50)

According to the World Economic Forum, worldwide investment in infrastructure is expected to be US$79 trillion by 2040. However, the actual global investment need is closer to US$97 trillion.

Investment in infrastructure will continue to grow globally, but gaps will persist

There is a widespread consensus among governments and businesses that improving infrastructure is imperative for economic growth, despite this, countries on average continue to underinvest.

Closing the $18 trillion gap

According to the World Economic Forum, worldwide investment in infrastructure is expected to be US$79 trillion by 2040. However, the actual global investment need is closer to US$97 trillion. To close this US$18 trillion gap, average annual global infrastructure investment would need to increase by around 23% a year. This gap is mostly attributed to insufficient investment in the road and electricity sectors.

The US and Europe

Although infrastructure gaps are typically highest in developing countries, advanced economies are not immune. US President Donald Trump and Democratic congressional leaders have agreed to produce a US$2 trillion US infrastructure plan. Regardless of President Trump’s infrastructure programme, basic services in the US are not in good shape. But the US is not the only place in dire need of repair to its roads, bridges and other infrastructure. Euro-area governments have also been running down their public infrastructure since 2010 by failing to invest enough to make up for wear and tear and sales of assets (buildings, roads, bridges, etc.) to private individuals, funds, or businesses. The European Investment Bank (EIB) estimates suggest that economic infrastructure investment needs for energy, transport, water and sanitation, and telecoms are as much as EUR688 billion (US$767 billion) a year.

Africa

Despite having some of the fastest-growing economies in the world, Sub-Sahara Africa remains among the least competitive regions globally, mainly due to poor infrastructure. The East African Community has reported that it needs more than US$100 billion over the next four years to plug its infrastructure gap, which has kept the cost of doing business in the region high.

Of this amount, US$78 billion over the next 10 years would be invested in railways, roads and energy projects to ease transportation and boost manufacturing. The World Bank estimates that weak infrastructure costs Africa an estimated 2% of GDP annually while hampering intra-regional trade and Foreign Direct Investment (FDI).

The global pace of growth from 2014 to 2018

Although the pace of growth in infrastructure investment is below that required to close the infrastructure gap, GlobalData forecasts there will be an acceleration in infrastructure investment growth in the coming five years (2019–2023), compared to that recorded in 2014–2018.

According to GlobalData, in the past five years, the value of global infrastructure construction grew by 3.2% on an annual average basis in real terms. This was led by Asia (North-East Asia grew at 5.4% and South and South East Asia grew at 6.8%) which has a massive population and is hungry for railways, roads and power stations.

At the other end of the spectrum, Latin America’s sluggish economic growth over the past five years has slowed infrastructure investment across critical sectors such as transport, energy, telecommunications, water and sewerage.

A significant decline in commodity prices in 2014 meant that many countries in the region were unable to raise their investment in infrastructure development. At the same time, major corruption scandals, including the Lavo Jato (Car Wash) in Brazil, had a substantial negative effect on the overall construction industry.

Over the past year, in some markets, megaprojects were sacrificed as populist candidates turned existing projects into political platforms.
For example, Mexico’s new President, Andrés Manuel López Obrador,
froze a US$13 billion airport project that was already under construction.

In other cases, fiscal prudence and concerns about project transparency have led to the cancellation of key projects. In the Middle East and North Africa, project finance has not been immune to the impact of lower oil prices. Tightening fiscal positions across the region are contributing, in some cases, to project delays, rationalisation or even cancellations.

 

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Global Infrastructure Outlook to 2023