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More must be done to address these issues below, and better ensure that the world has the infrastructure it needs.
Bankable Project Pipelines
The cost of inaction in terms of lives, money, and social disruption can be enormous. Between 1998 and 2017, for example, climate-related natural catastrophes cost disaster-hit countries an estimated $2.2 trillion, according to research commissioned by the UN Office for Disaster Risk Reduction. And dealing with COVID-19 has proven far more challenging in a place like the US which has less than three hospital beds per 1,000 people than it is in a place like South Korea with more than 12 beds per 1,000 people. Meanwhile, cyberattacks on critical infrastructure including power grids in Ukraine and the SWIFT global payments system have been devastating. A greater focus on resilience is necessary in order to better handle disruption.
Infrastructure that shuts down in an emergency or does not adapt to new realities can inhibit disaster response, cripple social cohesion, and stifle economic growth - and the cost to maintain infrastructure not built to accommodate a changing world can be prohibitive.
The massive global shocks affecting infrastructure, whether in the form of climate change, the COVID-19 pandemic, or the cyberattacks being launched by state- and non-state actors, demand building in greater resilience - both during crises and in more stable periods.
The World Bank estimated in a 2019 report that low- and middle-income countries can reap $4.2 trillion in net economic benefits by investing in more resilient infrastructure - with $4 in benefit for each $1 invested. These benefits can not only be obtained through avoiding costly repairs, but also by minimizing disruptions to the daily lives of millions of people. “Room for the River,” spearheaded by the Dutch government and implemented in several countries around the world including the Philippines, is one example of a related initiative.
Building new infrastructure with sustainability and resiliency in mind - and retrofitting and applying new operating models to existing infrastructure - can result in wide-ranging benefits. The Dutch government reimagines water management infrastructure in a way that enables natural landscape features to act as “natural water sponges” and lessen the damage of flooding - which is now expected to increase in severity due to the worsening effects of climate change.
Ultimately, building infrastructure that can withstand massive shocks will be an important part of developing more sustainable and inclusive economies as the world recovers from COVID-19.
The global pipeline of infrastructure projects that can attract adequate financing is weak. There is a general lack of bankable project pipelines (or programmed series of infrastructure projects), which are critical for drawing in essential private investment.
The global infrastructure investment gap, or the difference between what is needed to build new infrastructure every year and what is actually being committed, is projected to reach $800 billion by 2040, according to the Global Infrastructure Outlook, a tool developed by the Global Infrastructure Hub and Oxford Economics. While this issue is not necessarily new, it has become far more urgent due to increasingly strained public finances and continually mounting infrastructure demands.
In the US alone, for example, the infrastructure investment gap is projected to grow from about $116 billion in 2020 to roughly $207 billion by 2040, according to the Global Infrastructure Outlook. Some of the obstacles to project bankability include a lack of skills and capacity, mismatched expectations for risk, and a lack of proper government planning.
The G20 Eminent Persons Group on Global Financial Governance, established in 2017 to help promote economic stability, has proposed a raft of related measures, including asking governments to refocus efforts on building capacity and developing “human capital” (the attributes that can make people valuable to a company or a country), creating government-owned national investment platforms to mobilize development partners, and forming regional investment platforms that can facilitate multinational mega-projects.
Public and private entities have been working together with governments to help improve the viability of project pipelines. These efforts range from creating national and regional project preparation facilities (which provide technical assistance for the structuring, financing, and execution of infrastructure projects), to initiatives like the WEF’s National Infrastructure Acceleration project - which takes a multi-stakeholder approach to helping governments deliver infrastructure.
Potentially, increased attention to improving infrastructure project pipelines will boost the ability of governments to deliver infrastructure - and in turn boost social development and standards of living.
Private Capital in Infrastructure
Finding private sources of financing to meet the United Nations’ Sustainable Development Goals, including the goal of developing reliable and sustainable infrastructure, has been a priority at least since 2015 - when the UN released its Addis Ababa Action Agenda emphasizing the importance of blending public with private capital to fund development. The role of private capital has been both crucial and controversial.
Private financing has steadily flowed into public infrastructure projects; according to the World Bank, in developing economies alone there was nearly $1.8 trillion in private sector investment made in infrastructure between 1990 and the first half of 2018. However, after experiencing high-profile failures, many countries that had once enthusiastically embraced the public-private financing model dismantled or seriously reconsidered their programs.
In Southern Europe, for example, governments that drew private co-financing for infrastructure over the past decade later got stuck with the bill when the infrastructure failed to generate sufficient revenue, according to a podcast published in 2018 by Wharton finance professor Joao Gomes.
The scrutiny placed on private sector involvement in financing and managing public infrastructure as a result of such failures has mirrored a rising suspicion of globalization and multinational corporations more generally.
Many scandals have also illustrated the dangers of poor oversight and regulation of public-private partnership schemes.
Many governments, traditionally tasked with financing infrastructure, are dealing with growing liabilities ranging from high social-security and healthcare-related costs in countries with ageing populations, to costs related to providing education and jobs in countries with young, rapidly growing populations.
In 2018, the United Kingdom did away with public-private partnerships, for example, following the collapse of construction firm Carillion - which resulted in project delays and hundreds of millions of pounds in costs for taxpayers. Similar issues are causing a re-evaluation of programs even in countries where the model had been deemed successful, including Australia and Canada, and are forcing countries more generally to reconsider public-private partnerships as a means to alleviate pressure on stretched public finances. As a result, private financing will almost certainly be required in order to close yawning infrastructure development gaps without also sacrificing crucial government programs.
Winning greater public buy-in to the concept of public-private partnership programs will therefore be crucial.
Corruption and Infrastructure
Skill Building for Infrastructure
Corruption continues to be a significant barrier to efforts to close a global infrastructure investment gap that is expected to reach $435 billion a year by 2040 in terms of road transportation and $164 billion a year in terms of energy systems, according to the Global Infrastructure Hub. As much as one-fifth of global construction costs are wasted on the payment of bribes.
According to research published in the journal Transportation Research Part A: Policy and Practice in 2018, between 2009 and 2014 corruption inflated the price of infrastructure projects by an average of between 30% and 35% in high-corruption-risk regions of Europe.
According to a report published by the U4 Anti-Corruption Resource Centre, the number of construction costs lost to bribe payments varies between 5% and 20% (or even higher) globally. While the high cost of corruption makes it difficult for infrastructure to be developed in new markets, initiatives aimed at addressing this issue are being developed. For example, the WEF’s Partnering Against Corruption Initiative (PACI) works with business leaders, other international organizations, and governments to address corruption, transparency, and emerging-market risks.
A multi-stakeholder approach is needed in order to tackle corruption, and significantly bring down the cost of infrastructure projects by enabling developers to more efficiently allocate capital and deliver services quickly, safely, and cheaply. For countries like Mexico, a great deal is at stake; according to a PACI report published in 2017 detailing the “Building Foundations of Trust and Integrity” project, when corruption takes resources from the public purse, basic services are not provided for the general population and instead are funneled to corrupt officials and businesses.
One example of PACI’s work in the field is the “Building Foundations of Trust and Integrity” project, which examined how developing trust for public-private cooperation could help address corruption in Latin America - using Mexico as a case study. The project convened workshops and meetings in Mexico and engaged with international business leaders, and made recommendations including the development of a digital tool for sharing corruption-related news and data.
According to the report, once a system is corrupted in this way it perpetuates inequality, leading to decreased trust and even more corruption in a vicious cycle.
Delivering infrastructure may be vital for economic growth and improving standards of living, but it is being hindered by a talent shortage. There is a lack of necessary technical expertise in both developed and developing markets.
According to a report published by the African Development Bank in 2018, most pension funds in Africa lack the technical skills to assess complicated infrastructure projects, for example, and public-private partnership agreements are often poorly structured and drafted due to a lack of relevant skills among government employees.
The gap between the investment in infrastructure that the world needs, and what is actually being invested, is projected to grow from about $500 billion per year in 2020 to $800 billion just twenty years later; much of that lag results from a lack of appropriate skills in both developed and developing economies. In developed economies, companies are finding it challenging to attract talent, in particular to the engineering and construction field.
Companies that develop infrastructure are often perceived as innovation laggards in a world where tech and finance have become more prominent. According to a report published in 2017 by the construction company Kier Group in the United Kingdom, construction, development, and related services are all having trouble attracting people to fields perceived as muddy, manual, male dominated, poorly paid, and non-academic.
To help developing economies build the skills base they need to work with international partners and deliver infrastructure projects, programs have been developed recently including the Africa Infrastructure Fellowship Programme, which is led by the WEF, the Global Infrastructure Hub, which was created by the G20, and Meridiam, which trains African civil servants on public procurement best practices.
In developed economies, the private sector has taken the lead. In response, AECOM, one of the world’s largest engineering firms, created its “Skills 2030” manifesto to try to help spur industry-wide change, disrupt traditional management and training practices, and attract the engineers it needs for the future.
The company, said in a report published in 2018 that one quarter of the “civil infrastructure decision makers” in North America that it surveyed cited skills and talent shortages as obstacles to progress, and one fifth of those surveyed said difficulty finding the right talent caused major delays.
Infrastructure, Technology and Innovation
The Risk of Mismatching Risk
The adoption of emerging technologies in infrastructure development lags behind other sectors. Better integrating new technology into infrastructure development could not only result in more badly-needed infrastructure, but also in more sustainable and efficient infrastructure.
More actively embracing new technologies is not only a way to potentially improve existing infrastructure, but also a key potential means of closing an infrastructure investment gap expected to reach $22 billion in India, $100 billion in China, and $162 billion in the US by the year 2030, according to the Global Infrastructure Hub.
Drone deliveries could take vehicles and related emissions off the road, autonomous vehicles could boost road capacity, and more digital tracking of road use could help to better predict the need for new infrastructure, according to a report published by the McKinsey Global Institute in 2016.
Due to the economic and political importance of infrastructure projects, and related sensitivities, developers and investors are often hesitant to incorporate emerging technology into their planning. As a result, the engineering and construction industry remains among the least digitally transformed, leading to project delays, poor design, environmental damage, and ballooning costs.
This is happening even as emerging technologies have the potential to transform entire infrastructure systems through the use of advanced materials, robotics, 3D printing, the Internet of Things (which strings devices and appliances together via an internet connection), and data analytics. Examples of the impact of technology on construction include China-based Broad Sustainable Building’s construction of a 57-story tower in just 19 days in 2014 - in part by using advanced prefabrication techniques.
Building Information Modeling (BIM) is another example of helpful innovation, thanks to the way it enables developers to create data-based, digital 3D models of projects so that architects, engineers, and contractors can simultaneously collaborate. This potentially increases efficiency and quality, while reducing errors, delays, and costs.
However, new regulatory and business models will need to be created in order to pave the way for new technologies, while the general thinking about infrastructure development should shift to more strongly emphasize connectivity between mobility and utility systems, and between living and work spaces (particularly in urban environments).
Differing risk expectations between the public and private sectors prevent infrastructure investment from flowing. The need for proper risk allocation has become increasingly important, in light of the increased scrutiny placed on public-private partnerships due to high-profile failures that have soured public opinion in some countries.
While providing minimum revenue guarantees had been an effective way to draw private sector partners to related infrastructure projects in South Korea, those guarantees created a heavy fiscal burden for the government. As a result, the guarantees were dropped for public-private partnerships in that country in 2009 (albeit while leaving in place existing guarantees worth about $3 billion), according to the report.
Attracting more private capital to projects via public-private partnerships is one of the most heavily-promoted means of closing an infrastructure funding gap that is expected to grow from $500 billion annually in 2020 to $800 billion annually by 2040, according to the Global Infrastructure Outlook, a tool developed by the Global Infrastructure Hub and Oxford Economics.
However, many investors are wary of committing to projects due to what they see as mismatched risk sharing. In Asia, more than 400 million people are still living without electricity, and about 1.5 billion go without basic sanitation, according to a report published in early 2019 by the Asian Development Bank and the Korea Development Institute.
Even in countries in Southeast Asia energetically promoting public-private partnerships for building infrastructure, like the Philippines, the pace has been sluggish due in part to a lack of public-sector capacity for assessing risk sharing and incentives, according to the Asian Development Bank and Korea Development Institute report.
The Asian Development Bank and Korea Development Institute report analyzed 41 public-private partnerships in the information and communication technology sector in “developing Asia” between 1991 and 2015, for example, and found that one quarter had been cancelled. While the sources of project failures often extend beyond just risk allocation, spreading risk exposure correctly is crucial.
Both the public and private sector tend to believe risk allocation is slanted in the other party’s favor, and so building trust and encouraging transparency could go a long way towards better implementing risk-sharing arrangements.
Infrastructure as a Geopolitical Tool
Funding large-scale projects have become a powerful means to spread global influence. By early 2019, China’s Belt and Road initiative, unveiled roughly five years earlier, had spawned projects including a $3 billion railway between Budapest and Belgrade, several nuclear reactors in Pakistan, and a $2 billion industrial park in Kenya, according to the think tank Bruegel.
Some analysts see the initiative as an unsettling extension of China’s rising power, according to a report published by the Council on Foreign Relations. The report noted that more than 60 countries, accounting for two-thirds of the global population, had signed on to Belt and Road projects or had expressed an interest in doing so by early 2019, and it cited estimates that China may spend $1.3 trillion on the initiative by 2027.
The report detailed a significant potential return on that investment in the form of an increased ability to shape international norms and institutions and to generally assert China’s interests more aggressively on the global stage. However, there has been some pushback; an analysis published by Bruegel in 2019 flagged particularly negative public perception of the initiative in several countries that are home to Belt and Road projects, including Poland and Ukraine.
Interference with the ability of firms from overseas to participate in infrastructure-building can also be wielded as a geopolitical tool. The US, for example, has sought in recent years to discourage other countries from selecting China-based Huawei to build important telecommunications infrastructure.
The US has argued that equipment supplied by Huawei, which is a leader in terms of the technology and intellectual property required to deploy next-generation 5G networks, represents a security threat - though the company has denied that.
The US campaign has managed to help dissuade governments in Australia and New Zealand from pushing ahead with projects that use Huawei gear, though Germany has signaled an openness to deploy technology from the company, and the United Kingdom has reportedly approved the use of Huawei products in non-core parts of its 5G infrastructure.
The wrangling over infrastructure vendors can have far-reaching geoeconomic effects; after Canada arrested a senior Huawei executive in 2018 at the behest of the US for allegedly violating sanctions against Iran, China banned imports of Canadian canola and potentially eliminated a significant portion of Canada’s global exports of the seed that totaled $8.6 billion in 2018.
Global infrastructure consists of the physical networks and facilities fundamental to the functioning of a modern industrial nation. Infrastructure is essential for economic development. Sustainable infrastructure is critical for addressing development challenges in emerging markets.
It can boost health, wealth, access to education, and public safety - and help prepare for global crises like pandemics. But for decades now, related investment has been stifled by shortages of skilled professionals, mismatched risk expectations, corruption, a lack of genuinely bankable projects, and disagreement on the proper role of private capital.
More must be done to address these issues, and better ensure that the world has the infrastructure it needs.
As of 2018, Singapore was ranked number one in the world in regard to infrastructure quality. Between 2017 and 2018, valued at about 12 billion U.S. dollars, infrastructure projects in South East Asia were valued to be the highest in the world. The United Kingdom was the leading country in infrastructure projects within that same time frame, closely followed by Canada with an estimated 63.3 billion U.S. dollars worth of infrastructure projects.
GENEVA, 29 March 2022 – Representatives from over 100 countries moved closer to finalizing the Principles for Resilient Infrastructure, which set a new global standard for strengthening infrastructure systems and critical services such as energy, digital, transport, water, waste, and others.
The Principles for Resilient Infrastructure provide a global framework, key actions, and guidance to enable a range of stakeholders to improve infrastructure resilience and contribute to positive economic, social, and environmental outcomes. They can be used and implemented by governments, donors, investors, owners, regulators, operators, designers and contractors, service providers, international organizations, and others.
Access to basic infrastructure services is critical for creating economic opportunities and bringing social services to the poor. Globally, 840 million people live more than 2 kilometers from all-weather roads, 1 billion people lack electricity, and 4 billion people lack Internet access. Achieving the Sustainable Development Goals will only be possible if we close these infrastructure gaps, by ensuring:
Rural roads and safe transport for access to health and education facilities;
Electrification of clinics, schools, and households in rural areas to improve digital connectivity;
Improved road safety and clean cooking to reduce mortality and morbidity;
Digital and other skills are needed for implementing infrastructure investments.