The Global Challenge at Home

I read an interesting study entitled, “Bridging Infrastructure Gaps: Has The World Made Progress?” put out by the McKinsey Global Institute.

The report states that today, the world invests $9.5 trillion, or nearly 14 percent of global GDP in infrastructure and real estate. Ailing infrastructure assets, rising populations and the demands of economic development are driving countries’ desire to channel more funding into transport, power and other systems that catalyze recovery and growth.

Unfortunately that is not enough. About $3.7 trillion of investment in economic infrastructure alone is needed every year from now until 2035 to support economies – roads, railways, ports, airports, power, water and telecoms.

There is also a $5.5 trillion spending gap globally between now and 2035, with regional variations. The gap is greatest in China, 8.3 percent of GDP. The United States is further down the list at 2.3 percent of GDP, but that is a significant amount.

The report states that the United States has yet to match the level of investment that prevailed before the financial crisis. And there is significant room to improve the effectiveness and efficiency of how infrastructure investment is spent. 

Up to 38 percent of global infrastructure investment is not spent effectively because of bottlenecks, lack of innovation and market failures. Fact-based project selection, streamlined delivery and the optimization of operations and maintenance of existing infrastructure can close this gap, reducing spending by more than $1 trillion a year for the same amount of infrastructure delivered.

Improving productivity in the construction sector alone could unleash an additional $1.6 trillion in value. Leaders of the Global Infrastructure Initiative community are engaged in a continuing conversation about searching for new financing streams for infrastructure and capital projects.

The report concludes that although there has been strong recognition of the urgent need for investment for many years, being aware of the problem is not enough. There needs to be national and collective global efforts to channel abundant liquidity into much-needed infrastructure.

Countries that fail to act today could be placing future growth, economic development and productivity on the line.