Almost every week, a new infrastructure project is announced in Latin America. Roads, wind farms, hydroelectric dams, rapid transit systems, water and sanitation plants, you name it. How many of these become a reality? Sadly, only a few. The reason: while the region’s ambitions and needs are vast, government budgets are tight (falling commodity prices such as soy and oil don’t help) and the private sector is not playing an important enough role in these projects.
Latin America invests roughly 2 to 3 per cent of its gross domestic product in infrastructure. We need at least double that to reach the region’s infrastructure goals. Part of the solution lies in finding new and better ways to promote private sector participation. There are vast sources of private funding to be leveraged, not to mention technical and managerial expertise. By some accounts, pension funds, an essential source of domestic savings in Latin America, are investing only 1 per cent of their portfolios in infrastructure around the world. Similarly, only 2 per cent of global insurers’ assets are allocated toward infrastructure. Read more
In Nigeria, pensions and infrastructure development are not often mentioned in the same sentence, but this week as Africa’s finance and pension industry leaders gather in Nigeria for the second edition of the World Pension Summit: Africa Special, the focus will be on how the nation’s growing pool of pension funds can be mobilised to drive sustainable development.
Compared with many of its African peers, Nigeria has relatively advanced infrastructure networks that cover extensive areas of the nation’s territory and, thanks to its strong economy, it is better placed than many of its neighbours to increase the share of fiscal resources going to infrastructure. Yet, according to the African Development Bank (AfDB), the nation’s core stock of infrastructure is estimated at only 20-25 per cent of GDP, compared with 70 per cent for other middle income countries of its size, leaving a gaping infrastructure deficit of $300bn. Read more
Connecting the dots between disparate trends can help unearth surprising opportunities in emerging markets. In our view, the impact of infrastructure investment on healthcare is a little-known link with big implications.
India provides a fascinating case study. Last year, the new government led by prime minister Narendra Modi set an ambitious target to increase national highway construction from two kilometres a day to 30 kilometres a day within two years at a cost of five trillion rupees. We believe the biggest impact can be found beyond the obvious. In our view, improvement in healthcare will enjoy a huge boost from the highway campaign because better roads make it much easier – and cheaper – for hundreds of millions of rural workers to access better doctors, clinics and hospitals. Read more
By Anders Heede of BDO
Many emerging markets, especially in sub-Saharan Africa, have seen solid GDP growth in the past decade driven mainly by natural resources. But with falling commodity prices and Chinese demand dwindling, those with overly resource-dependent economies are being caught. Companies seeking to invest in emerging markets should be on the lookout for those countries that have invested in diversifying their economies. That will often mean having Ethiopia on their shortlist. Read more
By Chris Tucker of MBX Systems
“What do you know about shipping product into Brazil?” When I think of the conversations I have had with our appliance customers over the last several years, this question makes a regular appearance. Brazil’s rapidly growing IT market (estimated at $191bn) and developing infrastructure have been appealing to our small and large customers alike, in markets from broadcast media to security. It is easily apparent why this market is so interesting, but it can actually be more taxing than one may think due to multiple factors.
Read on if you are considering shipping product into Brazil and want to know the challenges of selling and deploying your technology there. Read more
A problem in a single electricity transmission line running between India and Bangladesh caused a nationwide blackout in Bangladesh on November 1. The outage lasted nearly 10 hours, making it the country’s worst incidence of power failure since a cyclone knocked out the national grid in 2007.
Insufficient energy production remains a major roadblock to Bangladeshi growth. Apart from such poorly maintained infrastructure, power generation is stifled by ancient land acquisition laws that impede mining and a severe shortage in the production of natural gas; coal and gas account for 70 per cent of energy generated in the country. Read more
As anyone who has tried to drive across Almaty at 6pm knows, Kazakhstan’s financial capital is no sleepy city on the steppe.
Car ownership in Almaty city and the surrounding region has soared on the back of Kazakhstan’s growing oil wealth, rising from 617,000 in 2007 to 936,000 in 2011. At rush hour, police regulate the number of vehicles entering the city and traffic on the glitzy Al-Farabi avenue grinds to a halt.
On Tuesday the Kazakh government will attempt to address the gridlock, launching a roadshow in London for tender to build a ring road around the city. Read more
By Gordon French, HSBC
If Asia’s emerging markets are to avoid the middle income trap, they need to create foundations for the next phase of growth: they need to invest in infrastructure.
In the early stages of development, moving a worker from the land to a factory quadruples their value-added contribution to the economy on average. Much of Asia’s extraordinary growth to date has been underwritten by this one-off transition, but the windfall gains of rapid industrialisation are starting to decline and if the region is to continue on the road to prosperity it needs to find ways to boost productivity and encourage new economic activity. Read more
By Bill Banks of EY
This year I was honored to take part in the Business 20 (B20) summit in Sydney, an event which enabled common views from the international business community to be put forward to G20 leaders this weekend in Brisbane. As a member of the Infrastructure & Investment taskforce, my colleagues and I found that one of the primary barriers to increasing private infrastructure investment has been the small number of properly assessed investment-ready projects. This isn’t due to one single factor, but rather, a range of different issues.
Although robust economic scrutiny is critical to the success of any infrastructure project, there is too often inadequate project selection and prioritization, which is frequently driven by political considerations rather than a sound cost-benefit assessment that would reassure policymakers their investments will deliver maximum impact. We also found there to be weak project preparation and execution capabilities, including inadequate funding arrangements, inappropriate risk allocation, and inefficient procurement policy and procedures, especially in emerging markets. Read more
Many Indian customs are surprising to outsiders – standing to sing the national anthem before any screening at any cinema, for example, or the halwa ceremony that precedes the unveiling of the national budget. The gelatinous, ghee-based dessert was prepared in New Delhi and distributed this week among government employees who have begun printing the most significant document of India’s economic year and will be isolated from their families and other outsiders until it is unveiled on July 10. A little ‘sweet dish’ is the least the government can offer the 100 officials involved in putting the budget together.
That may, however, be one of the only sugary sweet elements in the government’s first budget since Narendra Modi, India’s new prime minister, was voted in with a strong mandate – leaving him with no excuse not to fulfil his campaign promises of reviving growth and embarking on fiscal consolidation. Read more
CDC, the UK government-owned development finance institution, has invested $17m in the South African transport and logistics company Grindrod, backing the development of roads, railways and ports across sub-Saharan Africa that could boost the region’s competitiveness and create jobs.
The investment marks the start of a strategic partnership between Johannesburg-listed Grindrod and CDC, which says it has the appetite to invest over $100m through the alliance as and when suitable projects emerge. Read more
Mexico’s interest in boosting trade ties with China has long been clear, and the country’s historic energy reform is clearly a golden opportunity.
So it should perhaps come as no surprise that Pemex, the state oil company, is negotiating an investment fund to finance Pemex infrastructure projects with China, to be called the Sino-Mex Energy Fund. Read more
To see how China is managing its growing clout over trade and investment around the world, it might help to take a look at how an economic hegemon evolved in the past – Britain’s colonists in eighteenth and nineteenth-century India.
In reality, China is still in the East India Company stage of global economic strategy – opportunistic and pragmatic rather than ideological and intellectually coherent. (It is something of an irony that the one-party autocracy of China is proving itself eclectic while the open-market democracy of the US has been doctrinaire.) And while there are some signs that China’s economic statecraft is moving towards the transparent and plurilateral, most of its policies towards other emerging markets are opaque and self-interested. Read more
The Arena das Dunas World Cup stadium in Natal, in northeast Brazil shimmers in the late afternoon sun. It looks a bit like a giant silver-plated armadillo or, as one local put it, like a spaceship that’s crash-landed in the middle of the city.
President Dilma Rousseff stopped off here this week, en route to the World Economic Forum in Davos, for the stadium’s inauguration. It has come in on budget, according to the government, at around R$400m, so Rousseff was keen to big it up. Read more
Forget the domestic market – look overseas. That seems to be the message from Larsen and Toubro (L&T), India’s largest infrastructure company by sales.
And the slowdown in the domestic economy is not only pushing business abroad but also putting pressure on L&T, as management cut its target for the current fiscal year. Read more
By Richard Dobbs and Fraser Thompson of the McKinsey Global Institute
By 2030, nearly half of the world’s economies could be resource rich countries. It is vital for the future economic prospects of these countries – and to satisfy the world’s need for their resources – that they do better than many have done in the past in translating their sub-soil wealth into long-term prosperity. Read more
For much of their history, the economies of Latin America have been isolated not only from the rest of the world but also form each other. Over the past quarter century, this has changed and the region now has the opportunity to embark on a virtual circle of development. But to realise this potential, governments must still deal with daunting challenges, writes Juan Carlos Echeverry of the Inter-American Development Bank. Read more
By Nicholas Watson of bne
Road construction in the Czech Republic has long been a murky business. But insiders grumble that new depths for the industry have been plumbed following a barrage of criticism aimed at plans to renovate the country’s main D1 motorway and revelations from Prague city that the contract to build the now almost-complete €1.3bn Blanka tunnel complex was legally questionable from the start. Read more
China’s local-government infrastructure initiatives are notoriously poor revenue generators. Toll roads may be the worst offenders.
Provincial debts to fund expressways – China’s motorways, most of which require drivers to pay a toll – have surged by 37 per cent since 2010, according to China’s latest National Audit Office report in June. But just as these loans have mushroomed, they have become harder to finance. Read more
Are Nigeria’s pension funds ready to step up to the plate and help finance the country’s development? Policy makers hope they will grow out of their conservative approach of buying government paper and take advantage of recent changes designed to encourage them into new alternative asset classes, including private equity and infrastructure funds.
“Our pension funds are young,” says Olusegun Aganga, trade and industry minister. “We’ve not had them for a very long time so it is natural that there is a conservative way of looking at things.” But having built up a capital base of around $20bn (from $2bn in 2004), they are ready to do more, the minister hopes. Read more