Infrastructure Creates Investment Opportunities
Falling investment activity has led to inadequate infrastructure. Increased spending is required to keep pace with economic growth, particularly in transportation and energy & water.
Our Supertrend "Infrastructure – Closing the Gap" looks at the status quo and identifies areas of opportunity.
The US Environmental Protection Agency estimates that 1 trillion gallons of water are wasted in the US every year due to leakage – enough to supply water for 11 million households. And according to the TomTom Traffic Index 2017, traffic congestion is up by 23% since 2008. These are just two examples that illustrate that infrastructure is often outdated or insufficient. Falling public infrastructure spending has opened up major infrastructure gaps around the world. The McKinsey Global Institute (MGI) estimates that the world needs to invest nearly 49 trillion dollars annually in infrastructure through 2030 to keep pace with projected economic growth.
Transportation, Energy & Water Take First Priority
According to MGI, transport and energy & water need investments most urgently. Investments in transport infrastructure are focused on roads, railroads, ports and airports. While repairs and upgrades are necessary in mature markets, developing markets need to expand their infrastructure in transportation. In its latest Transport Outlook, the OECD expects air passenger growth to increase by 3%-6% annually over the next 15 years and motorized mobility to double between 2015 and 2050. As a result, CO2 emissions could rise by 60% by 2050. To cope with this increase, infrastructure must become more efficient and sustainable.
Within energy & water, the strongest growth is in renewable energy. According to Bloomberg New Energy Finance, renewable energy will account for around three quarters of investments in new power generation technology until 2040. Since it is a more volatile source of energy, additional investments are required in the transmission and grid infrastructure, storage systems or supply and demand balance.
Public Funding Conditions Remain Ideal
While many countries have high government debt, public funding conditions to make such investments now are ideal given that global yields remain low. In addition, investing in infrastructure is one of the most effective tools to foster economic growth and job creation. This year’s G-20 summit in Argentina will address private investments in infrastructure – one of the key topics on the agenda is "mobilize private resources to reduce the infrastructure deficit."