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Asia Leads Infrastructure Spending

This Thursday, July 24, 2014 photo shows construction cranes at the Brickell City Centre project in downtown Miami. (AP Photo/Lynne Sladky)
This Thursday, July 24, 2014 photo shows construction cranes at the Brickell City Centre project in downtown Miami. (AP Photo/Lynne Sladky)

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Joe DeCapua

A new report says global spending for capital projects and infrastructure will top nine-trillion-dollars a year by 2025. That’s up from four-trillion in 2012. Asian countries, especially China, are expected to lead the way.

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The spending projections are contained in a new report from PwC with assistance from Oxford Economics. The report analyzes infrastructure spending in 49 of the world’s largest economies. They account for 90-percent of the global economic output.

The Outlook to 2025 report focuses on five sectors: Extraction industries, utilities, transport, manufacturing and social, which includes city infrastructure. The findings say emerging markets, mostly China and other Asian countries, will see much faster growth in infrastructure spending. One reason is because the region did not have the burden of recovering from a financial crisis.” Another is big demand in China.

Europe has recovered slowly from the economic crisis, which has constrained infrastructure spending. And spending in North America is a distant second to Asia.

PwC’s main role for its clients centers on audit and assurance, tax and consulting services. Jonathan Cawood, head of the firm’s Capital Projects and Infrastructure for Africa, says, “Africa’s share of the global pie is two-percent. But it’s certainly growing quite significantly. And I think also we’re seeing a significant uptick in spending across the region.”

He listed the continent’s leaders in infrastructure spending.

“South Africa specifically has been dominant over the last few decades, but we see Nigeria catching up very quickly. And probably in the next two to three years will overtake South Africa. And then the eastern corridor – Kenya the gateway into Tanzania, Ethiopia, Uganda and the resource-rich countries around there – is also experiencing significant growth,” he said.

Nigeria’s spending is forecast to grow from $23-billion in 2013 to $77-billion in 2025. Overall Infrastructure spending in Sub-Saharan Africa is forecast to grow by 10-percent a year over the next 10 years. If the forecast holds true the amount would be more than $180-billion.

Cawood said where that money is spent could be affected by climate change.

“Certainly when one looks at fragile power, transport and water and city infrastructure often Africa is more exposed – so particularly along the East Coast. A country like Mozambique is exposed to regular flooding and with that comes disease and power outages and transportation going down. And I think when one looks at hydro power there are big questions around the key river basins in Africa and whether the water level and volumes are going to be sustainable,” he said.

That sustainability could be hindered by more frequent droughts and floods – some of the effects of climate change.

Infrastructure spending could also be affected by rapid urbanization. The PwC report projects the “biggest shifts” in urbanized populations will be in China, India, Ghana, Nigeria and the Philippines. Cawood said urbanization and demographic shifts will have implications for Africa’s cities.

 

“Most of them are growing very rapidly – often in a fairly unstructured way. Most of them are pretty gridlocked and over-subscribed in terms of basic services, whether it be housing, transport, ITC, water, power.”

The report said demographic shifts will leave “a lasting, fundamental imprint on infrastructure development for decades to come.”

Africa will probably need some outside help in infrastructure development. China’s infrastructure spending includes major investments in Africa. Cawood described it as “formidable.”

“It by far dwarfs any other source of investment and many of the projects in Africa are being delivered by Chinese funders and construction firms. Often led by the state-owned entities.”

Cawood said driving most of the investment in Africa will be resource and consumer market potential, along with trade and economic and political reforms. He added, “It’s crucial for policymakers, citizens and businesses to understand the factors that unlock infrastructure and development….and then act responsibly and strategically.” 

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