Study: Global infrastructure spend to surge in 2009

This year governments will spend 2.9% of world GDP on infrastructure, or an additional $280 billion, according to consultancy CG/LA. Norman Anderson, the firm’s CEO, also predicts that in 2009 the US will move toward a more Spanish-style model of infrastructure financing.

This year the world will spend 2.9 percent of its GDP on infrastructure spending, up from 2.2 percent in 2008, according to infrastructure projections for 2009 compiled by Washington DC-based consultancy CG/LA Infrastructure.

Norman Anderson

The firm arrived at the figure by examining fiscal stimulus packages already announced by countries worldwide and inputting their respective infrastructure portions into a global infrastructure spending model it has developed, CG/LA chief executive officer Norman Anderson told InfrastructureInvestor.

“The announcements are remarkably the same in that they are all 1 percent for the infrastructure piece,” Anderson said. Still, CG/LA predicts that the world overall will fall short of a 1 percent GDP spend on infrastructure since not all announced infrastructure stimulus plans will be carried out.

“The real issue is: who is going to be able to do it? Most developed countries are going to be able to do it. The US, the EU27 and China all can spent that money and make it happen, but countries like Mexico, Turkey and Egypt are countries that I would say are probably less likely to be able to do it,” Anderson added.

As a result, CG/LA predicts that the .7 percent increase, which it estimates to be equivalent to an additional $280 billion, will be led by developed countries, while developing country infrastructure investment will remain flat. Anderson cites China, which last November unveiled plans to spend $586 billion on infrastructure investment over the next two years, as a notable exception to this trend.

In the US, CG/LA foresees that the US will carry out about $190 billion in infrastructure spending. It also predicts that President-Elect Obama’s proposed infrastructure bank will be created. Anderson believes that it would have to be at least $300 million in size in order to make a meaningful impact on US infrastructure. This would be five times larger than the $60 million infrastructure bank plan unveiled by Senator Chris Dodd (D-CT) in August 2007.

Anderson also predicts that, due to the global financial crisis, the US will begin to transition toward a more Spanish-style infrastructure financing model. In Spain, large engineering and construction firms with significant balance sheets, such as ACS and Ferrovial, originate, build, operate and take equity stakes in national infrastructure projects.

The existing infrastructure financing model in the US involves governments selling bonds to hire infrastructure developers that provide construction services but do not take equity in or operate the projects they help bring to fruition. This model, which Anderson estimates to be sixty years old, is nearing extinction as financial players will increasingly join forces with large engineering and construction firms to create a more Spanish-style way of delivering infrastructure.

Several large US engineering and construction firms, such as the Fluor Corporation, already have dedicated resources to take equity in projects that they deliver.  Anderson believes that their investment has been “insignificant to date” and will need more incentives from the government before it becomes a leading force in US infrastructure financing.