Rapid-growth markets forecast: Autumn 2012

Infrastructure supporting continued growth

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Rapid urban expansion in many RGMs has highlighted the urgent need for new transport, housing, health care and energy networks. Addressing these problems will demand a huge construction program and a further boost to growth rates.

Infrastructure investment programs may help increase trade, and make it easier to find new markets for exports to replace slack demand in developed economies.

Re-launching RGM growth through infrastructure investment

Alongside more relaxed monetary and fiscal policies, large infrastructure investment programs are looming in China, India, Brazil, Indonesia and Colombia.

Spending on roads and railways, ports and airports, and other such programs can:

  • Facilitate trade
  • Make it easier to find new markets for exports
  • Reduce the costs of doing business for companies in both domestic and overseas markets

For example, Colombia’s ability to benefit from the global commodity boom was restricted by poor infrastructure. Now a four-lane highway is being built to the country’s main port, which will improve access to markets overseas, including to other RGMs. Indonesian exporters are also likely to see benefits from improvements in infrastructure.

Designing, building and sometimes financing such projects offers interesting opportunities, mainly for domestic contractors. International suppliers of technology equipment such as air traffic control systems and railway signaling may be able to compete for contracts, but are likely to be best-placed for success when committed to local manufacture.

Infrastructure needs are great across RGMs, but progress is being made

According to the infrastructure scores given by the World Economic Forum’s Global Competitiveness Report 2011–2012 for each of our 25 RGMs, Hong Kong and Korea rank highly for infrastructure.

The Middle East region has used commodity revenues well to fund infrastructure construction. The UAE, Saudi Arabia and Qatar have jumped up the rankings in recent years.

However, Brazil, China, India and Russia rank some way off the top 50. Political instability has been a key constraint on infrastructure spending over the last decade in India, Thailand, Colombia, Argentina and Nigeria.

Colombia is now taking advantage of greater political stability to drive infrastructure projects forward.

In India, the Government recently announced a broad set of reforms designed to tackle the rising budget deficit and rectify some of the economy’s structural deficiencies, but the economy has a history of underachievement when it comes to targets. FDI is an important source of infrastructure financing, and India has recently announced plans to allow greater foreign participation in the economy.

In China, Indonesia, Malaysia and Thailand, governments are attempting to offset the global slowdown with higher public spending, much of it directed toward infrastructure. This is good news, but the spending must be sustained by subsequent political regimes in coming decades.

While public spending on infrastructure is very high in China, the authorities need to find ways to encourage more private investment. The Brazilian Government is keen to push infrastructure development forward, and the upcoming World Cup and Olympic Games will help this. However, the economy is ranked 107th in the world for infrastructure, so it has some way still to go.


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