Tripling of EM infra spend seen in next 20 years

According to a new study from RBS, demand for infrastructure spending in emerging markets will be $19trn over the next 20 years, compared with the $7trn that has been spent over the last 20 years. At $10.5trn, China alone is forecast to account for 55% of this requirement.

The world’s emerging markets need infrastructure spending of almost $1 trillion per year for the next 20 years, according to a new survey – “The Roots of Growth: Projecting EM Infrastructure demand to 2030” – released by Royal Bank of Scotland (RBS) and Cambridge University today. This represents a near tripling of spending compared with the actual amount spent in these markets over the last two decades.

China alone is forecast to need $10.5 trillion of infrastructure spending over the next 20 years, accounting for 55 percent of the emerging markets total. India has the second-highest level of demand at $3.8 trillion, or 20 percent of the total. While Asia is the driver of emerging markets infrastructure demand, strong demand is also forecast from Latin America and Africa.

The only region where spending is expected to stabilise over the next 20 years is Central and Eastern Europe, where significant amounts were already spent as a result of market liberalisation and EU accession and where population sizes are remaining steady or declining.

If China is the country driving most of the demand, then energy is the sector, with a $12.7 trillion need. Roads is second at $4.2 trillion, and mobile telecoms third at $2.0 trillion. 

But demand for infrastructure spending is one side of the equation: can it be matched by supply of capital? The authors of the report believe that it can. They say that the resilience of emerging markets in the face of shocks to the world economy have led to investors taking comfort in what they now see as a much more stable investing environment.

Timothy Ash, an author of the report and head of emerging markets research at RBS, said that Asia had demonstrated it could withstand “brutal stress tests”. He pointed out that Asian growth dipped around one percent in the wake of Lehman Brothers’ collapse, but quickly recovered the lost ground. He said that growth was also being sustained in Latin America and Africa.