Investing in Infrastructure

by Terence Jeyaretnam

A recent McKinsey report found that $57 trillion (USD) is needed in global infrastructure investments by 2030. This represents over 1 trillion more per year over the next eighteen years than what is currently planned, but more importantly, over a 60% increase in infrastructure spending over this period compared to the spend over the past eighteen years. “Even then, this amount would not be sufficient to address major backlogs and deficiencies in infrastructure maintenance and renewal or meet the broader development goals of emerging economies”, says the report.

This story of underinvestment is not dissimilar to our position in Australia. Infrastructure Australia, in its June 2011 report to the Council of Australian Governments Communicating the Imperative for Action noted that “In short, there is a sense that our infrastructure networks are barely adequate for current needs, and that they are beginning to impose significant, long-term costs”.

The drivers for the growing infrastructure deficit, from my reading, are stemming from a range of factors, with the main ones being: underinvestment in both maintenance of existing infrastructure and in new infrastructure; a growing disconnect between the importance of infrastructure to the community and its willingness to pay; population growth; economic conditions and productivity; the adequacy of existing infrastructure under changing climate scenarios; and political leadership, especially in bipartisan approaches to longer-term societal needs.

Infrastructure is a critical aspect of sustainable development because of its inextricable ties with areas of primary concern—public health, environmental systems, air and water quality, and economic productivity. Infrastructure can determine how people can satisfy basic needs such as shelter, transportation, sanitation and clean air and water, which in turn has an impact on material and energy flows through societies. Infrastructure can either provide for those needs in a sustainable or unsustainable manner.

Given the scale of the task ahead, the underachievement over the past two decades in infrastructure can only be viewed as an opportunity. This lag has allowed us to understand the significant impacts of climate change on infrastructure, which requires a fundamental shift in infrastructure planning. Through the good work of such institutions such as the Australian Green Infrastructure Council, we also have a much better appreciation of how to deliver infrastructure solutions that are environmentally acceptable both from a construction and operational point of view. We must now have the courage to be decisive on policy, and foresighted in investment for the longer-term to create shared value for funders, governments and the community, in bridging this infrastructure deficit.

Sources: Infrastructure Productivity: How to save $1 trillion a year,
McKinsey Global Institute, McKinsey Infrastructure Practice, January 2013 and
Communicating the Imperative for Action
Infrastructure Australia,  June 2011

Terence Jeyaretnam is a Director of Net Balance (terence@netbalance.com), 
one of the world’s leading sustainability advisory firms.
Terence is based in Melbourne.

Twitter: TerenceJey

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