The UN suggests there will be an increase in the global population of 1.5 billion people over the next 20 years, largely within emerging markets, so there is an even more pressing need to start addressing the situation now.
Infrastructure can be split into four broad areas:
- Transportation: Rail, road, air, airports, maritime and ports
- Telecommunications: Fixed line networks, broadband networks, mobile networks and satellite networks
- Energy: Including electricity generation, transmission, distribution, storage; oil and gas, upstream activities, refining, conversion, transportation; and distribution and storage, as well as coal mines, nuclear facilities, renewable assets, etc.
- Water and sanitisation: Assets such as water treatment facilities and distribution networks, waste water collection and treatment, sanitisation, irrigation, and potentially broader waste collection and treatment.
The above sectors cover ‘hard’ infrastructure, but there are also further social areas, such as schools, hospitals, care homes and social housing.
A GDP BOOST
If done well, infrastructure spending can help boost demand in the near term, but more importantly, the improvements help to meet longer-term needs. The International Monetary Fund (IMF) suggests that for advanced economies, an increase in the GDP value of public investment spending by just a percentage point has the potential to raise output by 0.4 percent in the same year, and by 1.5 percent four years later. The impact is greater when growth is weak.
An example might be the New Suez Canal which has added a new 35km-long second shipping lane and expansion of a 37km-long section in the existing canal. The enlarged capacity now allows ships to sail in both directions at the same time over much of the canal’s length. Ship waiting time has been reduced from 11 hours to around three hours and increased the canal’s capacity from 49 to 97 ships a day. The $8bn project took one year to complete and involved 400 private companies and 25,000 workers.
Not all projects might meet both short- and longer-term needs of the broader community. The Three Gorges Dam in China is the world’s largest hydro project, however longer-term benefits are harder to assess by the physical impact it had on the region - it displaced more than 1.2m people and, due to its reservoir length of over 500km, 13 cities, 140 towns and 1,350 villages were flooded. The overall project was plagued by corruption, spiralling costs and environmental impacts.
In the UK, we are familiar with the endless battle over increased runway capacity around London, which in itself leads to long, expensive delays.The latest decision for Heathrow has prompted the resignation of a high profile MP and further protests and delays seem likely. The UK Government is also likely to take time weighing the long-term economic benefits and the opportunity and social costs of HS2.