A $57 Trillion Bill for Infrastructure Is Coming Due | American Funds

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Investment Insights: The Long View

August 2015

A $57 Trillion Bill for Infrastructure Is Coming Due

“What I think we will see — and this is one of the positive structural outlooks for China — is that probably 10–15 million people, at least, every year will be moving into cities. So that’s a pretty meaningful demand-construction outlook.”

— Andrew Dougherty

Andrew H. Dougherty China Affairs Specialist Beijing office 11 years of experience (as of 12/31/15)
The world faces a massive construction project just to keep up with projected growth

Global Investment (Trillions), 2013–2030

Source: Exhibit from Infrastructure Productivity: How to Save $1 Trillion a Year, January 2013, McKinsey Global Institute, www.mckinsey.com/mgi, © McKinsey & Company. All rights reserved. Reprinted by permission. McKinsey calculated the estimate of
$57 trillion, or 3.5% of global gross domestic product, for global infrastructure need through 2030 by compiling projections of demand in the different infrastructure categories shown. The estimate for telecom covers only those members of the Organisation for Economic Co-operation and Development, plus Brazil, China and India. The estimated investment amounts, expressed in constant 2010 dollars, may not sum due to rounding. The constant dollar is an adjusted value of currency used to compare dollar values from one period to another.

Some countries need infrastructure that simply meets basic human needs, such as safe drinking water. Another may want to modernize its transportation network, and still others may be trying to lay the groundwork for future global competitiveness by building a national broadband network. But around the world, about $57 trillion needs to be spent by 2030 to keep up with the projected growth of global gross domestic product. Roads and power account for about half of projected spending.

Indeed, building and repairing roads and power grids are the two areas with the greatest need for new investment, followed by water provision and telecom networks. Much of the money needs to be spent in developing countries. In 2012, for example, only 34% of rural Africans lived within two kilometers of an all-weather road, only 25% had electricity and only 61% had access to water sources that were protected from external contamination. The infrastructure needs in Africa are especially daunting.

There are, of course, many countries with multibillion-dollar projects underway. Perhaps the most ambitious are in China, where such megaprojects include the world’s largest bridge and the longest underwater tunnel. In Panama, improvements that will double the capacity of the canal are expected to be completed in 2016. The bill for such projects can be daunting. But without the necessary infrastructure, economies struggle to meet their full economic and human potential.

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