Bridging global infrastructure gaps

Development of infrastructure has generally had a late start in all countries of the MENA until a decade ago where it is frantically gaining ground. Especially in the GCC, where point in case, is the UAE, from roads, Railways to airports, to telecommunications, it has become home to world class facilities that have supported economic growth. Bridging global infrastructure gaps is one of the numerous handicaps that the MENA countries have first to live with and eventually cope with.

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The MENA is made of Oil and Gas (O&G) big exporting countries such as the GCC, non O&G exporters of the Mashrek and the small to medium exporters of the Maghreb.  Development of infrastructure has generally had a late start in all countries of the MENA until a decade ago where it is frantically gaining ground.  Especially in the GCC, where point in case, is the UAE, from roads, Railways to airports, to telecommunications, it has become home to world class facilities that have supported economic growth. Bridging global infrastructure gaps is one of the numerous handicaps that the MENA countries have first to live with and eventually cope with.

Here is a very short summary of the Status of the GCC’s.

An official person of the UAE was quoted as saying :

“If you want to have a strong economy, you have to have strong infrastructure.”

Dubai Metro

 

  • Roads

In effect, the UAE’s extensive road network not only connects all seven emirates but also links the UAE with neighbouring Oman. Qatar and Saudi Arabia.

  • Railways

Railways up until September 9, 2009 were inexistent in the GCC.

Dubai Metro was inaugurated ion that date and is the first urban train network in the GCC. Doha and Riyadh will soon have a network of their own.

The Etihad Rail project is set to bring rail transport to the entire country spearheading the whole of the GCC in deploying a network from Kuwait City to Muscat with a couple of loops midway of the track.   One is for Riyadh and the other for Doha via Manama.

  • Aviation

Aviation was one of the earliest drivers of non-oil economic growth in the UAE.  Today, the UAE is a global aviation hub.  Doha, Riyadh, Bahrain and Kuwait

  • Ports

The UAE’s unique location has favoured maritime activity to be centred at Dubai.  Port facilities all along the shores of the country, catering for general cargo, container shipping are of international standards.

The other countries of the MENA however are not in such luck but are not that behind the GCC.  The proposed article published today by McKinsey and Company give a fairly good summary of todate infrastructure development worldwide.  Here it is :

Bridging global infrastructure gaps

By Jonathan Woetzel, Nicklas Garemo, Jan Mischke, Martin Hjerpe, and Robert Palter

Global infrastructure systems are straining to meet demand, and the spending trajectory will lead to worsening gaps. But there are solutions to unlock financing and make the sector more productive.

The world today invests some $2.5 trillion a year on transportation, power, water, and telecommunications systems. Yet it’s not enough—and needs are only growing steeper. In a follow-up to its comprehensive 2013 report Infrastructure productivity: How to save $1 trillion a year, the McKinsey Global Institute finds that the world needs to invest an average of $3.3 trillion annually just to support currently expected rates of growth (exhibit). Emerging economies will account for some 60 percent of that need.

Despite glaring gaps and years of debate about the importance of shoring up backbone systems, infrastructure investment has actually declined as a share of GDP in 11 of the G20 economies since the global financial crisis. Cutbacks have occurred in the European Union, the United States, Russia, and Mexico. By contrast, Canada, Turkey, and South Africa increased investment.

If the current trajectory of underinvestment continues, the world will fall short by roughly 11 percent, or $350 billion a year. The size of the gap triples if the additional investment required to meet the new UN Sustainable Development Goals is included.

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Years of chronic underinvestment in critical areas such as transportation, water treatment, and power grids are now catching up with countries around the world. If these gaps continue to grow, they could erode future growth potential and productivity. It is therefore critical to get finance flowing into urgently needed projects.

A great deal of attention has focused on connecting institutional investors with projects that need their capital as well as creating an expanded role for public-private partnerships. But the vast majority of infrastructure will likely continue to be financed by the public and corporate sectors.

Even in the face of fiscal concerns, there is substantial scope to increase public infrastructure investment. Governments can increase funding streams by raising user charges, capturing property value, or selling existing assets and recycling the proceeds for new infrastructure. In addition, public accounting standards could be brought in line with corporate accounting so infrastructure assets are depreciated over their life cycle rather than immediately adding to deficits during construction. This change could reduce pro-cyclical public investment behavior.

Corporate finance makes up about three-quarters of private finance. Unleashing investment in privatized sectors requires regulatory certainty and the ability to charge prices that produce an acceptable risk-adjusted return, as well as enablers like spectrum or land access, permits, and approvals.

 

 

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