We
all have a stake in the infrastructure surrounding us — the roads, buildings,
power lines, and telephone networks that we rely on daily. How well they're
built and operated is crucial to economic growth and is a key arbiter of an
economy's competitiveness — and yet, virtually every economy faces an array of
infrastructure challenges.
Just
a few examples illustrate some of the pressing issues: South Africa's power
distribution network has an estimated maintenance backlog of $4 billion —
equivalent to half of the country's total investment in electric power
generation and distribution in 2011. The U.S. Department of Transportation
estimates that 15% of the country's roads are in an unacceptable condition and says
that road congestion costs the U.S. an estimated $100 billion per year. In
Jakarta, from 2005-2009, the number of cars rose by 22% annually, while the
distance of usable roads actually declined (PDF). The UN Economic Commission
for Latin America and the Caribbean estimates that investment equivalent to
7.9% of GDP (PDF) is necessary to raise infrastructure in the region to the
standard of developed East Asian countries.
Just
to keep pace with anticipated global GDP growth, the world needs to spend $57
trillion, or on average $3.2 trillion a year, on infrastructure over the next
18 years. That's more than the entire worldwide stock of infrastructure on the
ground today — and nearly 60% more than the world has invested over the past 18
years. Tackling maintenance backlogs, future-proofing infrastructure to cope
with climate change, and meeting development goals such as access to clean
water and all-weather roads to transport goods to markets would cost a great
deal more.
The
bill for all of that looks prohibitive at a time when many governments are
highly indebted and capital is tight. A focus on the huge need for additional
investment and potential difficulties in financing it dominate the debate.
Pessimism rules, but it needn't be that way. There are ways of cutting the bill
down to size and meeting the challenge. The answer lies in improving the way we
plan, build, and operate infrastructure — in other words, we need to boost its
productivity.
We
have analyzed 400 case studies that show that there's plenty of opportunity to
boost infrastructure productivity, and in turn save 40% on the global
infrastructure bill (or $1 trillion a year) and boost global GDP by about 3% by
2030 if reinvesting the savings. There are three routes to getting there:
1.
We need to make better choices about the projects we're investing in. Projects
need to be clearly linked to broader economic and social development, rather
than being vanity exercises. Governments need to evaluate costs and benefits
rigorously and prioritize accordingly. South Korea's Public and Private
Infrastructure Investment Management Center has saved 35% on its infrastructure
budget by rejecting 46% of the projects it reviews, compared with only 3%
previously. Making more strategic choices has the potential to save $200
billion a year worldwide.
2.
We need to streamline delivery. There is huge potential to speed up permits and
land acquisition particularly for new transport infrastructure, to structure
contracts to encourage innovation and cost savings, and to strengthen
collaboration with contractors. This could save up to $400 billion a year and
accelerate the timeline for the completion of projects. For example, in
Australia, the state of New South Wales cut approval times by 11% in just one
year.
3.
Instead of rushing to build new capacity, we need to do more with what's
already on the ground. This, too, has the potential save $400 billion a year.
The United Kingdom, for instance, achieved reductions of 25% in journey times,
and 50% in accidents on the M42 motorway by implementing an intelligent
transportation system solution that directs and controls traffic flow. Smart
grids could help the United States avoid $2-$6 billion a year in power
infrastructure costs.
None
of this is rocket science, but bringing these opportunities to fruition will
require a much less fragmented way of running infrastructure policy. The many
agencies involved in various kinds of infrastructure (roads, power, water,
etc.) at different levels (city, state, country) need much better coordination.
And the public and private sectors need to forge far deeper and broader
partnerships. Most collaboration between the two is around financing and
construction, but the private sector could certainly do much more with planning
and delivery. This isn't an overly radical thought — Chile, the Philippines,
South Africa, South Korea, and Taiwan are all developing frameworks for giving
private players greater roles in project and portfolio planning.
Saving
money with higher infrastructure productivity is a win-win that would be
particularly useful at a time of capital constraints and anemic growth in many
parts of the world. There is every incentive to be smarter about tackling our
infrastructure problems.
Jimmy
Hexter and Jan Mischke
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