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Aug 07, 2014

Global infrastructure spend to hit $9-trillion by 2025 – report

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Global capital project and infrastructure spending is expected to grow to more than $9-trillion a year by 2025, up from $4-trillion in 2012, with nearly $78-trillion likely to be spent on capital projects and infrastructure globally between now and 2025, a new report by professional services firm PwC has revealed.

The ‘Capital project and infrastructure spending: Outlook to 2025’ report analysed infrastructure spending across the 49 world economies that accounted for 90% of global economic output.

It covered five industry sectors – extraction, utilities, manufacturing, transport and social – and forecast their impact on seven major world economic regions, namely Western Europe, Latin America, Asia-Pacific, Middle East, sub-Saharan Africa, the Former Soviet Union and Central and Eastern Europe. 

GLOBAL BOOM
The report found that between 2011 and 2012, the global infrastructure market rebounded from the global financial crisis and would continue to grow between 6% and 7% yearly to 2025.

It further revealed that the recovery would be geographically uneven and led mainly by Asia, as spending overall shifted from West to East.

The Asia-Pacific market would represent nearly 60% of all global infrastructure spending by 2025, driven mainly by China’s growth, while Western Europe’s share would shrink to less than 10% from twice as much just a few years ago.

Long-term underlying trends in demographics, technology, natural resources, urbanisation and shifting economic power would continue to have an enormous effect on which areas of spending would grow.

These paradigm shifts, together with a return to global growth were projected to drive significant spend for infrastructure worldwide for decades to come.

PwC capital projects and infrastructure for Africa head Jonathan Cawood said that, without the burden of recovering from a financial crisis, emerging markets such as China and others in Asia would see much faster growth in infrastructure spending.

The pace of urbanisation was also on the increase, with the biggest shift in urbanised populations likely in China, India, Ghana, Nigeria and the Philippines.

“Megacities in both emerging and developed markets – reflecting shifting economic and demographic trends – would create enormous need for new infrastructure. These shifts will leave a lasting, fundamental imprint on infrastructure development for decades to come.

“As economies develop, the types of infrastructure investment needed evolves, but not every country makes infrastructure spending a priority. If you don’t invest when your economy is growing, you may find yourself very quickly at a point where your runways, roads, ports and rail lines are choked,” Cawood cautioned.

SUB-SAHARAN SPEND
Overall infrastructure spending in sub-Saharan Africa was projected to grow by 10% a year over the next decade – exceeding $180-billion by 2025 – while maintaining its 2% share of the global infrastructure market.

Nigeria and South Africa dominated the infrastructure market, but other countries such as Ethiopia, Ghana, Kenya, Mozambique and Tanzania were also poised for growth.

Moreover, substantial increases in spending in the basic manufacturing sector were expected in sub-Saharan Africa, while yearly spend in the chemicals, metals and fuels sector was forecast to increase across the seven major African economies to $16-billion, up from about $6-billion in 2012.

SOUTH AFRICAN EXPENDITURE
PwC said the financial crisis of 2008 had not had a major effect on South Africa’s infrastructure spend.

From an estimated $7-billion in 2001, investment in infrastructure grew relatively consistently to reach $22-billion by 2012.

Transportation investment was also expected to grow rapidly in South Africa over the coming decade, in particular in the road and rail subsectors.

Transportation investment would likely grow to just short of $9-billion by 2025.

Infrastructure spending overall was forecast to reach around $60-billion by 2025 for South Africa, having grown by 10% a year on average.

However, South Africa was likely to lose a share of regional spending relative to Nigeria, whose fiscal position and oil revenues would likely enable it to outperform South Africa over the coming decade.

Overall infrastructure spending in Nigeria was expected to grow from $23-billion in 2013 to $77-billion in 2025, while a more investor-friendly environment for oil investment was also likely to boost this projection further.

UTILITY INFRASTRUCTURE
In contrast to Asia-Pacific’s success, investment in Western economies had been constrained by the legacy of banking crises, fiscal austerity and a shallow economic recovery.

Spend on capital projects and infrastructure was shifting to the emerging economies, particularly Asia, which were projected to increase from 28% in 2012 to 39% in 2018 and 47% by 2025.

The report also showed that spending on utility infrastructure was expected to be significantly stronger in countries that needed to upgrade deficient energy, water and sanitation services, and in economies that were rapidly urbanising, such as China, Ghana and Nigeria.

The greatest growth of spending for utilities was expected in sub-Saharan Africa, where a yearly rate of 10.4% between now and 2025 was forecast.

“Spending for electricity production and distribution is expected to rise from $15-billion in 2012 to $55-billion [in 13 years], while expenditures for improvements in water and sanitation services are forecasted to increase from $3.3-billion in 2012 to about $10-billion by 2025,” read the report.

Meanwhile, the extractive sector, driven by oil and gas, as well as non-oil and gas industries, would grow at a yearly rate of 5%.

Oil and gas extraction activity and infrastructure spending were expected to vary across countries and regions. Extraction spending in sub-Saharan Africa was projected to increase at 8% a year over the next decade, with the bulk of spending likely to take place in South Africa and Tanzania.

DEMOGRAPHIC DRIVERS
Demographic shifts would also play a major role in determining the type of social infrastructure a country required.

Ageing populations, especially in Eastern Europe and Japan, would necessitate more healthcare facilities, while emerging markets were projected to increase investments in healthcare and education for their young people.

“The yearly growth rate for social infrastructure spending is expected to be particularly strong – about 12% in sub-Saharan African where both schools and healthcare facilities will be in high demand,” it noted.

In addition, climate-related disasters were driving growth in preventative infrastructure spend and in post-disaster recovery. Climate change was also spurring investments in water resources, renewable energy and clean technologies.

Cawood added that resources and consumer market potential, coupled with trade, economic and political reforms, increasing urbanisation and shifts in demographics, would drive the majority of investment in Africa.

“It is crucial for policymakers, citizens and businesses to understand the factors that unlock infrastructure investment and development and to act responsibly and strategically within a long-term vision to create the right conditions for success.”

Edited by: Tracy Hancock
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