The four regional economic hubs in the CEE/CIS region — Russia, Kazakhstan, Turkey and Poland — are facing a combined infrastructure gap of $1.307 trillion over the next 23 years, according to new research published by the Global Infrastructure Hub, a G20 initiative.
The global need for infrastructure investment will reach $94 trillion by 2040, with a further $3.5 trillion needed to meet the United Nations’ Sustainable Development Goals for electricity and water, finds the study carried out by Oxford Economics.
It compares an infrastructure investment forecast to 2040 based on investment trends to date with projected infrastructure needs of 50 countries worldwide. This reveals that overall global infrastructure investment needs will be $94 trillion, or 19%, higher than expected investment between 2016 and 2040, representing an average gap of $3.7 trillion per year.
Within the “node” countries of the CEE/CIS region — the four largest economies that have become trading centres and magnets for investment for their respective sub regions — the steepest gap is in Russia. The anticipated $1.1 trillion worth of investment in Russia over the next 23 years is dwarfed by the $1.8 trillion needed, leaving a gap of $727bn.
Previously a World Bank report warned that Russia’s investment needs are “staggering”. According to the World Bank, public expenditure on infrastructure amounted to less than 1.0% of GDP per year in 2012-2014, compared to investment needs of around $1 trillion or 75% of Russia’s 2015 GDP. “Depreciation of capital stock, particularly in transport, energy, public utilities, and social infrastructure, is the main driver of the need for major infrastructure investment,” says the January 2017 report. It stresses that “inadequate infrastructure poses major challenges to economic growth”, dragging down firms’ profits because higher transport costs, as well as limiting labour mobility and the population’s access to services.
Turkey, the second most populous country in the region, has an investment gap of $405bn, according to the just-published Global Investment Hub study. Expected investment also falls well short of investment need in Poland and Kazakhstan, by $91bn and $84bn respectively.
This is despite the fact that both countries are investing billions of dollars into roads, railways, ports and airports. Ongoing projects include the construction of a third airport in Turkey’s largest city Istanbul, tunnels under the Bosphorus and the construction of new railways including a high-speed line between Edirne and Kars.
Overall, Turkey plans to spur spending of about TRY100bn (€25.6bn) on rail projects, new highways, hospital developments, airports, shipping, student dorm facilities, electric energy and urban regeneration. over the next 10 years, Prime Minister Binali Yildirim said in an interview with Bloomberg in April.
Kazakhstan’s government is also investing heavily to close its infrastructure gap, spurred on by the wish to benefit from the country’s location on the land bridge between China and Europe. Investments in the country include a series of railway construction projects to create an east-west rail corridor from the Chinese border to the Caspian Sea.
Only three other countries from the CEE/CIS region — Azerbaijan, Croatia and Romania — are covered by the study. They too will see investment fall short of need, though by smaller amounts; $11bn each in Croatia and Romania and $8bn in Azerbaijan.
Within the last decade, global infrastructure spending has remained relatively steady in relation to global GDP at around 3%. Infrastructure investment also remained more or less flat in the years of the international economic crisis, rising above the usual level of around 12% of total investment, as other investments declined.
Looking forward, the largest investment need to 2040 will be in Asia, which will require over 50% of global investment in infrastructure during this period. However, according to the report, the continent is forecast to have a relatively small investment gap compared to, for example, Africa or the Americas, indicating that spending plans are expected to cover almost all of the need in future. In China, for example, $28trn worth of investments are needed by 2040, only slightly more than the $26bn the country plans to spend.
The Americas and Africa, meanwhile, have smaller spending needs but are expected to have proportionally much larger gaps, at 32% and 28% of investment need respectively.
China will account for around 30% of global infrastructure needs, and is one of four countries also including the US, India and Japan, which will make up over half of total global needs.
In terms of sector, electricity and roads together account for more than two-thirds of global investment needs, as well as dominating investment spending patters over the last 10 years, the report says.
The widest gap between need and trend is in the roads sector, where investment needs are 31% higher than would be delivered under current trends. For ports the gap is 32%, and for airports 26%.