Bridging Global Infrastructure Gaps

30 June 2016

Infrastructure-related spending, in the broadest definition including oil and gas as well as real estate, totalled US$ 9.5 trillion in 2015. Some 2.5 US$ trillion are presently invested annually in the transportation, power, water, and telecom systems on which businesses and populations depend.

A report titled “Bridging Global Infrastructure Gaps” of June 2016 by McKinsey & Company provides a perspective based on the recent infrastructure spending data and an up-to-date evaluation of the world’s needs and projected investment shortfalls. It also offers refined recommendations for bridging those gaps through nuanced recommendations for the sector and the latest thought on infrastructure financing. Presently, US$ 3.7 trillion a year of investment in economic infrastructure networks is needed through 2035 – roads, railways, ports, airports, power, water, and telecoms— in order to keep pace with projected GDP growth.

Efficient and effective investment is critical for closing the infrastructure gap

According to McKinsey, there is significant room to improve the effectiveness and efficiency of how infrastructure investment is spent. Up to 38% of global infrastructure investment is not spent effectively because of bottlenecks, lack of innovation, and market failures. Fact-based project selection, streamlined delivery, and the optimization of operations and maintenance of existing infrastructure can close this gap, reducing spending by more than US$ 1 trillion a year for the same amount of infrastructure delivered.

Better Infrastructure Governance to mobilise institutional investors

Against that background, the report suggests that infrastructure governance has to overcome a series of challenges that prohibit effective spending and mobilisation of the resources in the need. It explores a variety of different financing tools, such as Public Private Partnerships, sophisticated project pipelines and removing regulatory and investment framework impediments to improve access to finance, to overcome the roots for slow productivity and to mobilise institutional investors.