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Finance Leadership & Development
Unlocking Global Growth
Countries across the G-20 are facing a common set of imminent challenges including rapid population growth, growing international trade, and the urgent need to replace aging infrastructure.
The United Nations projected that the world’s population will increase by a third to 9.5 billion people by 2050. More people means there will be a need for more jobs. However, the International Labour Organization estimates that by 2018 the total number of unemployed globally is expected to increase by an additional 20 million to 220 million people.
The vast majority of this population growth will occur in cities. For the first time in human history more people live in cities than elsewhere. The World Economic Forum estimates that about three-quarters of all infrastructure investment will need to be made in cities over the next 40 years to meet the challenges of this megatrend.
International trade will also make increasing demands on investment. By 2030, according to the Organisation for Economic Co-operation and Development, port container traffic and air freight traffic is projected to more than triple, while air passenger demand will double.
These extraordinary demands add up to a need for $60-70 trillion of infrastructure investment by 2030. But a gap of $15-$25 trillion is projected. Failing to close this gap will mean forfeited jobs, growth, and standards of living. In that context business as usual is not a viable option—we must do everything possible to increase levels of investment.
In its analysis and consultations with stakeholders across four continents, the B-20 Infrastructure and Investment Taskforce found that the largest roadblock by far to increasing private infrastructure investment was the small number of properly assessed investment-ready projects.
The Taskforce found that a key reason for that small number is the variable quality of practices used for analyzing and selecting projects and the processes for regulatory approvals, as well as the procurement of design and construction. For example, average times for the regulatory approval of projects vary across the G-20 from two years to as much as 10 years. We just do not have 10 years to play with.
Consequently, the Taskforce welcomed the G-20’s decision to establish a Global Infrastructure Hub to support G-20 countries’ infrastructure efforts by identifying and promoting leading practices in infrastructure development to attract additional investment—known as the G-20 Global Infrastructure Initiative. Australia’s B-20 Sherpa Robert Milliner is currently working with stakeholders to establish the hub.
In its final report to the G-20 in July, the B-20 recommended that the G-20
- establish a global infrastructure center with a mandate to collect and disseminate leading practice;
- collaborate with key stakeholder organizations on project preparation and capacity building;
- develop and promote appropriate standards; and
- collate and publish relevant data and reports.
These steps will increase the pipeline of investment-ready infrastructure projects and accelerate the development of infrastructure as an asset class. The Taskforce considered that the global infrastructure hub would help G-20 countries enhance their project assessment and prioritization – and that this would help increase the pipeline of investment-ready projects.
The Taskforce also found that another significant roadblock to increased private infrastructure investment is the deficiency in appropriate financial instruments and capital markets. For instance, in Australia self-managed super funds represent a third (and growing) of all superannuation assets yet these funds cannot invest in non-listed infrastructure because of the lack of appropriate instruments. Similarly, many countries in the G-20 cannot access locally denominated capital markets for infrastructure investment.
The global infrastructure hub could also help the G-20 and the private sector to actively promote diversity in the range of infrastructure investment instruments, encourage the development of local infrastructure investment markets, and facilitate stronger cross-border investments to address declining foreign direct investment.
The Taskforce believes that together these recommendations, if implemented, have the potential to contribute 100 million jobs and $6 trillion of economic activity every year. This will go a long way toward securing the 2% additional growth target agreed by G-20 Finance Ministers in Sydney in February 2014, increase quality of life, and put people at the center of economic growth. It will also put us in a better position to manage through the megatrends that will shape our world over the next 40 years.
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