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Infrastructure is the physical systems - the roads,
power transmission lines and towers, airports, dams, buses, subways, rail links,
ports and bridges, power plants, water delivery systems, hospitals, sewage
treatment, etc. - that are the building blocks, the Legos, that fuel a
countries, a cities or a community's economical,
social and financial development.
There is an undeniable, an unarguable connection
between the quality of a countries economic competitiveness and its
infrastructure. Yet study after study shows the global economy running an
infrastructure deficit of anywhere from US$ 40 trillion to $70 trillion.
Booz Allen Hamilton, in a 2007 report, estimated that
investment needed to "modernize obsolescent systems and meet
expanding demand" for infrastructure worldwide between 2005 and 2030
was around US$ 41 trillion.
Infrastructure spending geographically:
- Middle East $0.9 trillion
- Africa $1.1 trillion
- US/Canada $6.5 trillion
- South America/Latin America $7.4 trillion
- Europe $9.1 trillion
- Asia/Oceania $15.8 trillion
Infrastructure spending by sector:
- Water and wastewater $22.6 trillion
- Power $9.0 trillion
- Road and rail $7.8 trillion
- Airports/seaports $1.6 trillion
CIBC World Markets, in 2009, quoted estimates of up to
$35 trillion in public works spending over the period from 2010-2030.
The Organization for Economic Co-operation and
Development (OECD) estimated total new spending over the next 20 years could
be as high as to $71 trillion.
"Increased mobility is a driver which is key in
both developed and in emerging markets: In developed markets, big parts of
the transportation networks were planned and built decades ago and no longer
meet the requirements of increasing numbers of commuters. Enhancements and
improvements hence take the lion's share of transportation infrastructure in
developed markets. In emerging markets, an ever-increasing number of people can
afford cars - car sales in China for example recently surpassed US car sales.
As a result, significant developments in the transportation infrastructure
are needed." Credit
Suisse Group AG
The World Economic Forum's Positive Infrastructure
Report finds that the world faces a global infrastructure deficit of $2
trillion per year over the next 20 years.
According to a prediction made by Norman Anderson,
chief executive of Washington DC-based CG/LA Infrastructure, the OECD's
estimated $71 trillion of needed infrastructure Deloitte & Touche LLP.
spending thorough 2030 is likely to be met with only $24tn
spend by the world's leading economies - a shortfall falling somewhere between
$16 to $47 trillion.
Infrastructure, like everything, has a lifespan, in
many areas infrastructure is simply too old.
"The drought of 2006 in London, the worst in a
century, will be remembered for the dirty little secret it exposed. Hundreds
of thousands of liters of water -- enough to fill 10 million bathtubs -- were
leaking every day from the city's old and rotted pipes, some of which dated
back to the Victorian era.
Around the same time, 3,000 miles away, a blackout in
the New York City borough of Queens left nearly 100,000 people without
electricity for nine days. Local officials were at a loss to explain the
failure. Customers later learned that this borough, with more than 2 million
residents and 15 percent population growth since 2000, gets its electricity
through utility feeder cables that are 30 to 60 years old. These narrow and
corroding conductors were not only unable to keep up with rising demand; they
had also made it difficult for engineers to diagnose the breakdown.
Cairo, Los Angeles, Beijing, Paris, Moscow, Mumbai,
Tokyo, Washington, Sao Paulo: Each major city has
its own story of electricity, transportation, or water systems in crisis.
Although the circumstances vary from one urban area to the next, they all
have one thing in common: The critical infrastructure that is taken for
granted by both their citizens and their government leaders is
technologically outdated, woefully inadequate, increasingly fragile, or all
of the above. In some cities, the quality of water, power, and transportation
infrastructure is noticeably declining. In others, it was never very good to
begin with. And few cities have enough of it to meet future needs." Lights! Water!
Motion!, strategy-business.com
The American Society of Civil Engineers (ASCE) 2009
Report Card for America's Infrastructure graded the U.S. infrastructure
with a "D."
The Society has recently published three Failure to Act
reports, studies on surface
transportation and water
were released in 2011:
"ASCE's economic report on surface transportation,
released in July 2011, found that our deteriorating infrastructure will cost
the American economy more than 876,000 jobs and suppress the growth of our GDP
by $897 billion by the year 2020.
We are facing a funding gap of about $94 billion a year
with our current spending levels.
Our nation's drinking water and wastewater
infrastructure is aging and overburdened, and that investment is not keeping
up with the need. However, a modest increase in investment in drinking water,
wastewater, and wet weather water quality measures can prevent future
economic losses.
Making this small investment in infrastructure will:
- Protect $416B in GDP
- Protect almost 700,000 jobs
- Avoid personal income losses of $541B"
The ASCE report on electricity
infrastructure was released in April of 2012:
"Based on current investment trends, the national electricity
infrastructure gap is estimated to be $107B by 2020, or just over $11B per
year. By 2020, shortfalls in grid investments are expected to account for
almost 90% of the investment gap with nearly $95B in additional dollars
needed to modernize the grid.
Closing the electricity investment gap would lead to
fewer brownouts and blackouts and save US businesses $126 billion, prevent
the loss of 529,000 jobs and $656 billion in personal income losses for
American families."
The air and sea ports report will be released in the
fall of 2012 - a final Failure to Act summary report will be released winter
2012/13.
Conclusion
Global deficit hawks are driving forward with their
austerity programs, they don't get it - private firms, despite having piles
of cash, will not let go of the purse strings if we fail to make adequate
infrastructure investments.
In the US, the impact of economic growth of
infrastructure spending worth one percent of GDP is more than double the
impact of tax cuts (because consumers might spend tax cuts on imported goods
or increase their savings).
The road not taken... "Fiscal stimuli programmes around the world structured in response to the
financial and economic crisis of 2008-2009 provide an unprecedented
opportunity to address this infrastructure deficit." World Economic
Forum's Positive Infrastructure Report
The global infrastructure deficit, the road not yet
taken, and the investment opportunities presented, should be on all our radar
screens. Are they on yours?
If not, maybe they should be.
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