Global infrastructure investment need to reach $97 trillion by 2040
A ground-breaking new report by the G20’s Global Infrastructure Hub (GI Hub) outlines infrastructure investment needs globally and individually for 50 countries and seven sectors to 2040.
The report, Global Infrastructure Outlook, reveals the cost of providing infrastructure to support global economic growth and to start to close infrastructure gaps is forecast to reach US$94 trillion by 2040, with a further $3.5 trillion needed to meet the UN Sustainable Development Goals (SDGs) for universal household access to drinking water and electricity by 2030, bringing the total to $97 trillion.
Outlook, which can be accessed through an online tool, also reveals that $18 trillion – almost 19% – of the $97 trillion, will be unfunded if current spending trends continue.
Every year $3.7 trillion will need to be invested in infrastructure to meet the demands of an accelerating global population, the equivalent of the total annual GDP of Germany, the world’s fourth largest economy. And in order to meet the water and electricity SDGs, the investment need forecast increases by an additional $236 billion per year until 2030, when the goals are due to be met.
This is not just a major challenge for emerging countries that need to create new infrastructure, but also for advanced countries that have ageing systems that have to be replaced.
The United States will have the largest gap in infrastructure spending, at $3.8 trillion, while China will have the greatest demand, at $28 trillion, representing a massive 30% of global infrastructure investment needs.
The ultimate achievement of the SDGs by 2030 is reliant on the provision of quality infrastructure. On current trends, investment will fall substantially short of meeting SDGs for water and electricity.
Outlook also shows:
By 2040, the global population will grow by almost two billion people – a 25% increase. Rural to urban migration continues with the urban population growing by 46%, triggering massive demand for infrastructure support.
The world’s greatest infrastructure needs will be in Asia, which will require $52 trillion by 2040 to meet demand.
Meeting the SDGs for electricity and clean water provision will require $3.5 trillion more than is currently needed to close infrastructure investment gaps.
Closing the global investment gap will require annual infrastructure investment to increase from the current level of 3% of global GDP to 3.5%. Meeting SDGs will require this to increase further to 3.7% between now and 2030.
The road and electricity sectors require the greatest spending as the global population becomes increasingly urbanised.
Outlook is a world leading project that includes a detailed analysis and online tool. It is the result of an intensive study of 50 countries and 7 industry sectors by the GI Hub and Oxford Economics, the leader in global forecasting and quantitative analysis.
“Outlook is a comprehensive and detailed analysis of infrastructure investment need. It gives the new country and sector spending data that governments and funding organisations have been calling for,” says Global Infrastructure Hub CEO Chris Heathcote.
“Outlook tells us three key things, how much each country needs to spend on infrastructure to 2040, where that need is for each infrastructure sector, and what their gap is, based on their current spending trends.
“Most significantly it advises governments and the private sector on where the greatest needs are, and how much should be spent to provide infrastructure for communities in the future.
“We believe this information will be key to governments, and indeed those organisations that fund, plan and build infrastructure projects into the future – and providing sustainable cities with social and economic benefits for all.”
The Outlook report and online tool can be found at: outlook.gihub.org
Regional infrastructure needs: Africa
Africa regional spending needs
Under our current trends scenario, the total infrastructure investment forecast for Africa to 2040 is projected to be $4.3 trillion, or $174 billion per year. If African economies were able to raise their performance to match that of their best performing peers the total investment need would be $6.0 trillion, or $240 billion per year – a difference of almost 40 percent.
Since 2007, we estimate that 38 percent of infrastructure investment in Africa has been directed towards the electricity sector, with 20 percent going to water. Given the low proportion of the population with access to electricity, water and sanitation services (as discussed in section four), the focus on these infrastructure sectors is perhaps unsurprising. While the proportion of investment going to electricity is similar to the world average, the share of investment dedicated to water infrastructure is more than twice the world average.
The flip side of a strong focus on utilities infrastructure is that Africa dedicates a below average proportion of investment to the transport sector: this accounted for 27 percent of the total between 2007 and 2015, compared to the world average of 45 percent. The difference is particularly striking for rail, which receives just three percent of infrastructure investment in Africa, compared to the world average of 12 percent.
The distribution of infrastructure spending is expected to remain broadly similar under both of the forecast scenarios, although the transport sector assumes greater prominence under the investment need scenario.
In dollar terms, electricity is forecast to receive around $1.6 trillion of investment between 2016 and 2040 under current trends, with water, roads and telecoms each receiving between $700 billion and $900 billion. The gap between the current trends and investment need scenarios is proportionately largest for roads, where the investment need forecast is almost twice the current trends forecast.
Total infrastructure investment in Africa was equivalent to 4.3 percent of GDP between 2007 and 2015. The continent will need to maintain investment at around this proportion of GDP to accommodate economic and population growth to 2040. This rises to 5.9 percent under the investment need scenario. While this will clearly be challenging, our analysis suggests that since 2007 Ethiopia, Morocco, Tanzania and Angola have all achieved infrastructure investment levels of 5.5 percent of GDP or more.
Country spending needs
The nine African countries in our study account for just over 60 percent of the continent’s GDP. By far the largest infrastructure market in Africa is Nigeria, which is estimated to have contributed 16 percent of investment between 2007 and 2015. Other large African infrastructure markets included in our study include South Africa, Morocco, Ethiopia and Egypt, which have each contributed between six and 11 percent of Africa’s infrastructure investment since 2007.
Our forecasts of the value of total infrastructure investment needs for each country are presented below. A small gap between the current trends and investment need scenario indicates that a country is already performing well, given its economic and demographic characteristics, while a large gap between the two scenarios suggests that a country lags behind its best performing peers.
On this basis, our analysis suggests that Morocco and Kenya are performing relatively strongly amongst the African economies in our study: the investment need forecast is no more than 21 percent higher than the current trends forecast for each of these countries.
In contrast, the gap is much greater for Egypt, South Africa and Tanzania, where the investment need forecast is just over 50 percent higher than the current trends forecast. For Angola, Ethiopia, Nigeria and Senegal the investment need is around one-third greater than would be delivered under current trends.
The infrastructure investment forecasts for Egypt, Nigeria and South Africa appear the most affordable out of the African countries in our sample, and amount to no more than 3.2 percent of GDP in the current trends scenario, or no more than 4.9 percent of GDP under the investment needs scenario.
In contrast infrastructure investment needs under the higher scenario represent the largest share of GDP for Ethiopia (17 percent), Tanzania (12 percent) and Senegal and Angola (both eight percent). For all of these countries except Ethiopia, this investment need would represent a noticeable uplift over the investment achieved in recent years (the strong past trend for Ethiopia reflects exceptionally strong spending in the electricity and water sectors).
For the roads sector our model suggests that the need to increase spending is common to most countries, with the exception of Kenya and Ethiopia. In the case of the latter, data from the International Road Federation and World Bank suggest that investment was extremely strong between 2007 and 2015. Indeed, the World Bank report that Ethiopia increased the length of its road network by 70 percent between 2005 and 2012. Given this recent focus on road development, Ethiopia is assessed to meet its road infrastructure needs through a continuation of current trends.
A tendency to under-invest in transport infrastructure is also in evidence for most countries in the rail sector, where only Egypt and Morocco are estimated to meet their future needs under current trends. A similar picture emerges for airports, although in this case Angola, Egypt and Ethiopia are the only countries on track to meet their needs under current trends. While the latter has seen improvements to its airport infrastructure over the last decade, spending is estimated to have been the lowest amongst all African economies in our sample as a proportion of GDP. Nonetheless, given the country’s stage of development (it has the lowest value of GDP per head amongst all countries in this study), maintaining current investment trends should be sufficient to meet airport infrastructure needs throughout the forecast period.
Ports investment is estimated to have been substantially higher in Nigeria than in other African countries since 2007, boosted by the government’s Port Reform Programme, which proved successful in attracting private investment to address limitations in the country’s ports sector. While Tanzania has a number of large ports, data from the Tanzania Port Authority suggest extremely low levels of investment. Despite this, Tanzania manages to out-perform higher-spending countries such as Nigeria and Angola on the WEF ports infrastructure performance measure. This may reflect that the available data do not fully capture investment in Tanzania’s ports, and our modelling implies that a continuation of low levels of investment should be sufficient to meet the country’s future ports needs.
Finally, within the telecoms sector, African countries are divided into two groups. South Africa, Angola, Morocco, Egypt and Nigeria are estimated to have investment needs of less than one percent of GDP. In contrast, Senegal, Kenya, Tanzania and Ethiopia are estimated to need to spend 2.5 to 3.5 percent of GDP developing their telecoms networks. For most countries in the latter group, the quality adjustment step within our model increases the forecast under the investment need scenario, suggesting that past investment has failed to deliver the expected infrastructure outcomes (measured in terms of connections per head), and a higher level of spending will therefore be needed to meet future needs.
Download: Global Infrastructure Outlook | Infrastructure investment needs 50 countries, 7 sectors to 2040 (PDF, 8.32 MB)
Outlook is the result of a year-long research partnership with Oxford Economics. The Global Infrastructure Hub acknowledges the contribution of peer reviewers: the International Monetary Fund, the European Bank for Reconstruction and Development, the Inter-American Development Bank, the Australian Treasury, University of Cape Town, and the Brattle Group.