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Major Economic Powers Must Ramp Up Infrastructure Spending – Study

With a number of large asset and wealth managers becoming more involved in the infrastructure investment arena, a new report from a fund management house explains the reason why. Growth, it says, will have to be dramatic for countries to solve energy, transport and other needs.
UK- based Aberdeen
Investments has underscored the reasons why
infrastructure-related asset management is a strong trend by
predicting that the world’s largest economies will need to spend
around $64 trillion on physical infrastructure by 2050 to keep
modern economies moving.
The spending target must be met by the middle of this century.
The rise equals 1.7 per cent of global gross domestic product per
annum and is almost two-thirds higher than the $39 billion
spent on infrastructure investment between 2000 and 2024.
Aberdeen looked at 47 countries, modelling how their economies’
infrastructure needs would change by 2050 based on a range of
factors including productivity, demographic change and
urbanisation. It then calculated the cost of meeting those
infrastructure needs.
Several firms, such as BlackRock and Vontobel (see an example
about the latter firm here) have
made a point about intensifying their focus on infrastructure
investment. Infrastructure covers a wide range of activities.
There is often (but by no means always) an association with
government. Roads, railways, ports, docks, airports, student
accommodation, sports facilities, power stations and grids tend
to be built either by states, or the state regulates the pricing
at the retail end, as well as dealing with matters such as
compulsory purchases and planning. (See an analysis
here.)
“Physical infrastructure – such as road and rail, power
generation and utilities – is a ‘keystone’ within the
building blocks of growth. Good infrastructure cuts the cost of
doing business, for example by lowering the cost of producing
goods and moving them around the country,” Robert Gilhooly,
senior emerging markets economist at Aberdeen, said. “But the
sums needed just to ‘keep the lights on and wheels turning’ are
enormous. We expect that the private sector will be increasingly
required to help finance these infrastructure needs, as
governments are squeezed by high debt levels and geopolitical
pressures to spend more on defence.”
Emerging markets account for $43 trillion of the total required
spend, reflecting their greater development needs and faster
economic growth. Developed markets, the report said, must spend
$21 trillion. Transportation and power generation make up the
bulk of physical investment needs.
The study said that investment in global road networks, which
need to expand by 7 million kilometres, remains the single
largest infrastructure expense. This expansion, alongside
substantial maintenance costs of existing roads, is likely to
total $28 trillion, little changed vs the prior 25 years (only
$1.7 trillion more).
Power is the area requiring the next biggest new investment
injection. Rising power needs, the electrification of transport,
and the pivot towards renewable energy, mean that global power
generation capacity will need to rise from 8,000 Gigawatts (GW)
to over 21,000 GW (+165 per cent) by the middle of this century,
at a cost of $27 trillion. This is almost $20 trillion more than
the cost over the prior 25 years and could be pushed higher still
by power-hungry new technologies, such as artificial intelligence
data centres, the report said.