Infrastructure is a major investment opportunity for the private sector, with $58.6 trillion in needs over the next 15 years, according to a report published last week by Citigroup.
Citi's report, Infrastructure for Growth: The Dawn of a New Multi-Trillion Dollar Asset Class, said global infrastructure spending will need to increase from $2.5 trillion per year to $3.6 trillion from 2016 to 2030 to close a nearly $60 trillion deficit. The report includes water, power, transportation and telecommunications in its study.
Citi laid it an economic argument for boosting infrastructure investments; noting that every 1 percent increase in global infrastructure spending would lead to a 1.2 percent growth in GDP.
Citi said the private sector is well-suited to step in for indebted governments to spend on infrastructure, and the asset class offers clear advantages to investors through. Equity and bond returns have been at historic lows in recent years, and investors are pushing for long-term stable cashflows.
Citi group argues that more spending in any kind of infrastructure-transport, communications, and utilities-can help fuel growth by boosting demand in the near term and supporting supply in the long term. An increase in investment spending can lead to more demand for goods, services and job creation. Longer-term effects will be an increase in productive capacity resulting from better roads, faster trains, bigger ports and more reliable power supplies.
The report noted a paradox regarding infrastructure development across geographies: the biggest needs are in emerging economies, but these are countries that are least able to afford increased spending.
Some of the most important geographies in which investors can look to increase infrastructure spending include the US, UK China and India.
In the US, total infrastructure needs from 2016 to 2025 amount to $3.3 trillion – mostly in surface transportation, which is more than 50 percent unfunded.
In the UK, a “significant backlog of infrastructure projects” has accumulated since the financial crisis. The UK government has committed to invest £100 billion ($122 billion; €112 billion) by 2020-2021 as part of a £239 billion overall project pipeline. Citi said it expects the UK government to increase public infrastructure investment following Brexit, accompanied by the launch of new government infrastructure bonds.
China is one of the largest infrastructure investors in the world, committing an average of 8.5 percent of GDP in recent years. However, in terms of infrastructure quality, it ranks 51 out of 144 countries. Infrastructure needs from 2010 to 2020 have reached $43 trillion. China has highlighted key transport projects like high-speed rail and roads in its previous spending plans.
Between 1999 and 2011, India spent 4.75 percent of its GDP on infrastructure investment. In the country's 12th Five Year Plan, it said that to attain 9 percent real GDP growth, its infrastructure investment must be an average of 10 percent of GDP.