Roads, railways, ports, airports, energy, telecommunications… in a word, infrastructure.
The world spends $2.5 trillion every year developing these various infrastructure sectors - but it is still not enough.
The latest study by the McKinsey Global Institute of the consulting firm of the same name looks at the funding gap in the construction of infrastructure needed to keep up with expected growth in the world. It calculates that the world must spend $800 billion more than it already does, bringing the total to $3.3 trillion.
It is a massive investment, with 60% of the total going towards supporting development in emerging economies in a number of infrastructure sectors.
What is new about the study, which builds on the report “Infrastructure productivity: How to save $1 trillion a year” that the institute published in 2013, is its look at the funding needs of each of these sectors.
From 2016 to 2030, it estimates that the world must spend a total of $49.1 trillion. Of this amount, the energy sector ought to receive $14.7 trillion. Building and maintaining new roads instead need $11.4 trillion. Then there is the telecommunications sector for $8.3 trillion and water for $7.5 trillion. For rail transport, $5.1 trillion, airports $1.3 trillion and ports $900 billion.
Analysing the data in relation to the current value of the world's gross domestic product (GDP), the amount that the institute estimates is needed to finance the further development of the energy sector is equivalent to 1.1%, 0.9% for roads, 0.6% for both telecommunications and water, 0.4% for rail and 0.1% for airports and ports.
By another metric, the cost of supporting the development of infrastructure is equal to 3.8% of global GDP.
Notwithstanding the recommendations put forward by the institute, the reality risks to take a different direction. Figures show a possible decline in investment in infrastructure in at least 11 of the Group of 20 (G20) economies since the global financial crisis.
This drop in investment leads to unintended consequences for the development of a country's economy. For example, the lack of funds destined for the transport and energy sectors risks eroding industrial productivity as well as the growth potential of emerging economies. The main issue then becomes the search for financial resources that only in a few cases can be covered by the government. This state of public finances, which is becoming more critical by the day, is found as much in developed as in developing countries, increasing the need for the private sector to play a bigger and more influential role in determining whether a public work gets done or not. This emphasizes the importance of public-private partnerships that the institute sees as the best method to adopt in order to realise mega projects that would otherwise remain on the drawing board.
Should this gap in funding infrastructure continue to grow, it will stunt potential growth and productivity.
In the study, the institute cites other alternatives to raise the necessary funds to finance infrastructure projects, including the sale of public assets and an increase in tolls and tariffs imposed on those who use infrastructure like bridges, highways and subways.
The institute also says savings of up to 40% can be earned from improved ways of building and managing projects. Despite the great strides made in recent years, the highest levels of excellence and efficiency have yet to be reached.
THE MCKINSEY GLOBAL INSTITUTE ESTIMATES $3.3 TRILLION MUST BE SPENT ON INFRASTRUCTURE EVERY YEAR TO KEEP UP WITH GLOBAL GROWTH
BY 2030, $14.17 TRILLION SHOULD BE INVESTED IN ENERGY, $11.4 TRILLION IN MEW ROADS AND $8.3 TRILLION IN TELECOMMUNICATIONS
IF UNDERINVESTMENT IN INFRASTRUCTURE CONTINUES, THE WORLD WILL FALL SHORT BY ROUGHLY 11 PERCENT, OR $350 BILLION A YEAR
SAVINGS OF UP TO 40% CAN BE EARNED FROM IMPROVED WAYS OF BUILDING AND MANAGING PROJECTS