U.S. infrastructure in rough shape, you say? Bridges collapsing and highways congested? Financing and investment lacking? We’re not alone.
In fact, with the exception of China, the world is failing to keep up with the growing demand for freight and passenger infrastructure projects. The problem is most acute in emerging markets, where economic and population growth exceeds global averages, but also is a growing concern in the developed world, particularly the U.S. and Europe.
The world needs to fund and build infrastructure projects worth $42 trillion by 2030, according to a new report by CG/LA, a Washington, D.C.-based infrastructure consulting firm. The Organization for Economic Cooperation and Development puts the demand substantially higher, at $60 trillion.
But the world is unlikely to be able to finance and manage construction of even half that amount in that timeframe, CG/LA says in the report. “We won’t be able to increase spending that fast,” said Norman Anderson, president and CEO. “I think we will be able to invest about $24 million from now to 2030. There’s no evidence we can satisfy the demand going forward unless we can increase the quality of the infrastructure pipeline.”
The CG/LA report says three global regions have the capacity to sustain infrastructure investment: China, the EU 27 and “perhaps” the United States. Only China is moving ahead aggressively, while most other emerging markets have high growth rates but a weak project generation capacity, resulting in infrastructure investment that constantly lags projections.
The report, “The Global Infrastructure Marketplace: The Next 20 Years,” says the lag in investment in emerging markets portends a crisis in numerous sectors, especially ports and logistics. Opportunities are greater, it says, for modernizing existing ports and infrastructure to increase throughput, rather than building new ports. The study sees serious bottlenecks in power generation as soon as 2015. Water and wastewater investment continues to lag, presenting the world with a business opportunity and a potential public health catastrophe.
If the world cannot find ways to invest more than $24 trillion in needed projects in the next 20 years, “weaker emerging market countries will fall further and further behind as they struggle to create project pipelines, and as financial and engineering firms focus their efforts — and resources — on larger, more reliable markets,” the report says. “It also means that underinvestment will persist in sectors serving marginal populations in emerging markets.”
Anderson, who presented the report’s findings at CG/LA’s 4th Annual Global Infrastructure Leadership Forum in New York this month, said the investment shortfall results from a lack of effective public leadership in mobilizing the knowhow and funds to implement needed projects. “The private sector needs to help the public sector get up and running,” he said.
Although the private sector has capable leadership and can participate in public-private partnerships where there is an identifiable revenue flow and return, however, it has little stomach for risk in projects where the return isn’t clear.
The lack of public sector leadership is particularly acute in the United States. CG/LA asked infrastructure experts around the world to rate the leadership capabilities of their countries in infrastructure. “The U.S. does not rate well,” Anderson said.
As a result, public sector infrastructure spending in the U.S. fell from 3 percent of GDP in 1980 to the 1.3 percent range by 2009. In 1980, approximately 70 percent of investment in infrastructure derived from the federal government, but by 2009, that figure had been reversed, with states funding the bulk of investment.
By 2010, 46 states were operating at a deficit, making it unlikely they can shoulder the burden. CG/LA questioned whether the Obama administration wants to facilitate infrastructure development or whether there is an ideological bias against investment. To remedy this, CG/LA called for creation of a National Infrastructure Bank.
Among the so-called BRIC countries of Brazil, Russia, India and China, Anderson said only China has a strong public investment sector. India and Brazil have weak public sectors but strong private sector leadership, although the Brazilian planning sector is getting better.
“It takes a long time to build up public sector leadership,” he said. “Russia has huge potential, but very low performance.”
Indonesia, he said, also is moving in the right direction. Among small countries, Singapore is one of the few making significant investments.
The shortfall in infrastructure investment is occurring as global economies transition from those based on low-tech, cheap and plentiful liquids to that of high technology and innovation. The shift is significant because it requires the creation of new business and finance models; is raising the average technical component in infrastructure project costs from an average of 7 percent to about 30 percent; and is driving the emergence of dynamic new players.
The report illustrates the significance of the shift by comparing Brazil and China. Brazil is a land of abundant commodities — grains, minerals and petroleum — where inexpensive liquids such as ethanol are powering nearly a decade of economic growth. China, facing a decided lack of abundance, is throwing intellectual power behind an “electron revolution in infrastructure,” including electric cars, batteries, wind power and new smart grid technology.
“China,” the report says, “is combining manufacturing and brainpower, while Brazil is in danger of losing its place in the infrastructure revolution.”
Contact Peter T. Leach at email@example.com.