Emerging markets' infrastructure spend to leap to $21,7tn over next decade - study

18th January 2008 By: Olivia Soraya Spadavecchia

A report by Morgan Stanley Research has forecast an emerging markets' (EMs) infrastructure spend of $21,7-trillion over the next decade, with Asia responsible for 67% of this staggering figure.

Across the EMs of Africa, Asia, Eastern Europe, Latin America and the Middle East, a boom in infrastructure building was under way across all sectors including power, rail, water, property, ports and airports.

Both government and the private sector were "deploying unprecedented amounts of capital to upgrade the emerging world" and at the forefront of this cash injection were India and China, Morgan Stanley said in its report.

It stated that the two countries would dominate the spending, with China accounting for 43% (some $8,9-trillion) and India 13% (about $2,7-trillion) of the total forecast EM infrastructure spending for the next ten years, from 2008 to 2017, respectively.

Russia comprised 10% (about $2-trillion) of the total spend, Brazil 5% (about $1-trillion) the Middle East represented 4% of which the United Arab Emirates was expected to spend $210-billion and Saudi Arabia $489-billion, and South Africa accounted for 1% of the spend which equated to $293-billion.

Morgan Stanley explained that demand for infrastructure was increasingly driven by urbanisation, the move to the market economy and demand from the developed world for EM exports and additional capacity for their transportation.

The report indicated that the overwhelming majority of urban population growth in recent years had been in the emerging world.

In 1975, the United Nations estimated that only three cities had a population of more than ten-million people: Tokyo, New York and Mexico City. By 2005, this figure had risen to 20 and, by 2015, the organisation projected the total would be 22. Of these, 18 would be in the emerging world and only four in the developed world.

Morgan Stanley said that this notable growth in urban populations in the emerging world translated into continued and ever-increasing demand for basic infrastructure, basic services and transport.

And the EM countries stand in good stead to meet this demand, according to the report. It said that robust gross domestic product growth and supportive balance of payments positions had provided the funding to build infrastructure in most EM countries - taking into consideration varying delivery capabilities.

"Private funding, in conventional project finance form, as well as innovative dedicated infrastructure funds are heavily engaged. A surge in market listings of owners, operators and contractors to build EM infrastructure assets is also under way," Morgan Stanley stated.

It estimated that the number of listed EM infrastructure-related entities had risen from 87 to 152, which reflected a 75% increase, over the last five years, with a total market capitalisation rising from $87-billion to $502-billion.

"As this universe of investable EM assets continues to expand, we expect substantial private capital to flow to the sector. If we add resources from global and local development banks and other multilateral institutions to the mix, there is, in our view, a powerful combination of government, multilateral and private sector money coming together to fund this massive infrastructure transformation," Morgan Stanley declared.