infrastructure

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

By Nicholas Watson of bne

Europe may be in the doldrums, but some large infrastructure projects, crucially backed by multilateral lenders and export credit agencies, look set to give Emerging Europe’s economies a fillip over the next couple of years.

“The outlook for infrastructure projects is better, definitely we’ve seen a better start in 2013 and that will continue in 2014,” says Werner Weihs-Raabl, head of infrastructure finance at Erste Bank Group. “Romania and Croatia, for example, are building realistic projects; a few years ago it was rather castles in the sky.” Read more

Fernando Núñez Fábrega, Panama’s foreign minister, is on a trip to Britain this week. The point of the visit is to sign his country’s 25th double taxation treaty. But he is likely to find people more interested in his views on Chinese plans to build a rival to Panama’s canal in another Central American nation. So, before he left, beyondbrics asked him what he thought. Read more