The world needs to invest $11.4tn in roads says McKinsy Global ©123RF
The world needs to invest $11.4tn in roads says McKinsy Global ©123RF

Global infrastructure underspend could harm growth

8 July 2016

There is a global shortfall of $350bn a year in infrastructure spending, a report has said. 

The McKinsey Global Institute (MGI) estimates the world needs to spend a total of $3.3tn a year, or 3.8% of global GDP, if infrastructure is to keep pace with projected economic growth. At current infrastructure spending levels MGI predicts this target will be missed by $350bn a year.

This global underspend triples when compared to UN Sustainable Development Goals (SDGs)

Development of reliable, sustainable and resilient infrastructure “to support economic development and human well-being”, such as full coverage of clean water and all weather roads, are part of the SDGs.

MGI is an international consultancy and research firm. This latest report is an update on a 2013 global infrastructure report.

It said while governments can afford to decrease infrastructure investment in the short term, underspending “could create a drag on growth in the future”.

Between now and 2030 MGI estimates the three areas in need of the largest investment will be power ($17.7tn), roads ($11.4tn) and telecoms (8.3tn). The report also said emerging economies account for 60% of infrastructure spending needs.

“Too many countries – emerging and advanced economies alike – have paid insufficient attention to maintaining and expanding their infrastructure assets,” the report said.  

It added: “Epic traffic jams, bottlenecked ports, blackouts, deteriorating dams and tainted water supplies are clear signs that the world’s infrastructure needs cannot be deferred indefinitely.”

To bridge the spending gap the report said governments need to provide “transparent long term investment paths” to create a pipeline of potential projects for investors to back.

Increasing the volume of infrastructure projects, often seen as a safe long-term investment, will in turn improve the flow of financing, the report said.

Creating international investment frameworks and standardising contracts globally would also improve foreign investment. Cross border financing is particularly important, the report said, because “most demand for infrastructure from 2015 to 2030 will come from middle-income countries”.

The report also said in many countries productivity in the construction industry was not increasing at the same rate as the rest of the economy. Among the problems listed, MGI said ineffective procurement processes and contracts contributed to low productivity in the sector.

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