North America is projected to spend around $180 billion on public works projects annually for the next 20 years and Asia may spend more than double that, according to a new study. For more information, read the following article from Money Morning:
A wave of government bailouts around the world and a sharp deterioration in existing infrastructure could lead to as much as $35 trillion in public works spending over the next 20 years, according to a new study by CIBC World Markets.
The study, released last week, says that many of the countries that balanced their budgets over the past 10 years did so by skimping on the construction costs for new public assets and the maintenance of existing buildings and roads, CIBC reported.
"The global economy is running a major infrastructure deficit as the cost of decades of under-investment is now surfacing," said Benjamin Tal, the analyst who authored the study.
Canada, for example, has eliminated an enormous budget deficit left over from the 1980s, but built up an infrastructure deficit of $120 billion in the process.
Governments have come to realize that they are better off spending a modest amount each year on infrastructure upkeep, rather than spending substantially more in one lump sum to replace outdated projects, Tal said.
According to the CIBC forecasts:
- North America will spend $180 billion on infrastructure each year.
- Europe will spend $205 billion.
- Asia will spend $400 billion.
- And $10 billion will be invested in Africa annually.
- Stimulus plans will figure heavily into the global infrastructure boom.
Asia leans on infrastructure
China, Japan, Malaysia and Singapore have all unveiled stimulus packages that focus on shifting their respective economies away from dependence on foreign exports and creating jobs at home, mainly through public works projects.
In total, Asian economies have pledged more than $680 billion to economic stimulus since the onset of the financial crisis.
Singapore recently spawned $13.8 billion (S$20.5 billion) stimulus package to offset rising unemployment and prevent a political backlash against its ruling People’s Action Party government.
Singapore’s economy, like others throughout Asia, is overly reliant on exports, which have all but evaporated with the onset of the global economic crisis. Analysts estimate that the city-state’s unemployment rate—currently at a level of 2.2 percent—could double, or even triple, by 2010.
Approximately $13 billion (S$20 billion) of Singapore’s stimulus will go towards financing public works projects, with the remainder being used to provide tax rebates.
Malaysia, meanwhile, recently unveiled its second stimulus package in three months.
Bothered by the financial crisis, the country offered up a $1.9 billion plan in November primarily focused on public works and infrastructure.
The majority of the money was put toward:
- Building of low and medium-cost houses.
- Upgrading and repairing police stations and army camps.
- Constructing roads, bridges, schools, and hospitals.
- And rural and agricultural development.
However, at just 1 percent of gross domestic product (GDP), the stimulus was criticized as being too small. Now the government is reportedly taking steps to expand it.
The second stimulus package will be about $2.7 billion, according to the Malaysian National News Agency.
Of course, none of these packages hold a candle to China’s enormous $586 billion stimulus plan. If Malaysia’s first stimulus plan was an example of an insufficient, or moderate, attempt to bolster the economy, China’s is just the opposite.
At a staggering 20 percent of China’s gross domestic product, China’s stimulus package is the model of an aggressive and substantial stimulus package. It boasts a vast infrastructure spending program that would cover 10 areas, including the construction of new railways, as well as projects aimed at environmental protection and technological innovation.
About $54 billion (370 billion yuan), or 11 percent, of the $586 billion spending package has been allocated towards rural infrastructure projects to create jobs.
Plans for China’s road system alone are unprecedented with 12 major routes under construction across the country from north to south and east to west, The Wall Street Journal reported. The system will stretch 53,000 miles by 2020, topping the 47,000 miles of roadways in the United States.
In addition to all of that spending, China is already looking to expand its stimulus package to help stem the rising tide of unemployment.
China currently spends about 9 percent of its GDP on infrastructure, versus 5 percent in Europe and 2.4 percent in the United States. Over the next 10 years, China will spend $200 billion on infrastructure development alone, according to the CIBC.
U.S. and Europe look to improve infrastructure marks
Of course the United States and Europe will be ramping up their infrastructure spending over the next decade as well.
In 2005 America’s civil engineers gave the nation’s infrastructure a "D" grade, and they estimated that it would take $1.6 trillion over five years for proper upgrades.
It’s taken a full-blown financial crisis and 8 percent unemployment, but the government is finally beginning to open the spigot to infrastructure spending.
"We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together," President Obama said in his inaugural address.
About one-third of President Barack Obama’s $825 billion stimulus package will go to infrastructure with $30 billion allocated for roads and $10 billion for mass transit and railways.
President Obama has also proposed spending $150 billion "over the next 10 years to catalyze private efforts to build a clean energy future." The new administration also proposes to increase the amount of electricity that comes from renewable resources from 10 percent in 2012 to 25 percent by 2025, according to Wall Street 24/7.
On top of that, upgrading the nation’s aging power grid could cost in excess of $880 billion, according to a November 2008 report from the Brattle Group.
Infrastructure development won’t come cheap in Europe, either. The International Energy Agency estimates that it would cost the European Union (EU) at least $650 billion to upgrade Europe’s power grid.
And in addition to more reliable grids, the EU is seeking greater energy independence. The continent relies on Russia for a quarter of its gas supply. And as last month’s dustup with the Ukraine demonstrated Russia is a less than reliable supplier.
The European Commission yesterday (Tuesday) unveiled a $4.5 billion (€3.5 billion) plan to invest in its gas and electricity interconnections, offshore wind technology, and carbon capture and storage to enhance its energy security, PennEnergy reported.
"Energy infrastructure will play a crucial role, reducing dependence and increasing competitiveness," said the commission.
Similarly, the European Parliament has set out a blueprint for future EU energy policy that includes mandatory emergency action plans in case of gas supply shortages, more grid interconnections among EU member states, a specific roadmap for investments in nuclear energy, and new climate targets to be achieved by 2050.
Citing the recent gas supply crisis between Ukraine and Russia, the report calls on the European Commission to propose revision of a gas supply directive before the end of this year, which should include" mandatory and effective national and EU emergency action plans."
It also challenges EU policymakers to improve energy efficiency by 35 percent and convert 60 percent of the region’s total energy consumption to renewable sources.
No budget outlines were offered by the report.
The United States will spend $150 billion annually over the next 10 years and Europe will look to invest about $300 billion a year, according the CIBC report.
This article has been reposted from Money Morning. You can view the article on Money Morning’s investment news website here.