Infrastructure – A growth market
Urbanisation is a challenge for the global infrastructure
There are currently about 7.6 billion people on Earth, a number that is growing by 10,000 every hour.* Every one of these people is looking for prospects in life: work, education, and prosperity. That is why so many people move to cities, which hold out the promise of satisfying these basic desires. The result is one of the biggest challenges of our time – the consistent development and expansion of infrastructure.
In 1980, only 39% of the world’s inhabitants lived in cities, since then this percentage has risen to more than half of the world’s population.* Every week cities around the world grow by 1.5 million people, with a total of two billion by 2050 predicted by the United Nations.* The consequence of this urbanisation: urban agglomerations with millions of people. Whereas in 1960 there were just over one hundred cities with a million inhabitants, today there are almost five times that number; among them 37 megacities with over ten million inhabitants, of which the eight largest are in Asia.*
Infrastructure - The Backbone of our society
Everyone needs infrastructure. It is the backbone of our daily supply. Bringing us clean water. Providing modern transportation routes so that goods and people can be transported quickly, efficiently, and as ecologically as possible. Supplying sustain-able energy. Allowing ever-faster communication technologies. Underlying a social system that supports our health and secures the future through education.
The latest study by the twenty largest economies (G20) on investment requirements in the infrastructure sector (Global Infrastructure Outlook) assumes that the cost of providing modern infrastructure capable of keeping pace with the forecast global economic and demographic changes will add up to 94 trillion US dollars between 2007 and 2040.* Because of their often strained budgetary situ-ations, most nations’ state institutions are overwhelmed by the task of meeting this immense need for investment.
Infrastructure deficits hold back growth
Cities offer work and educational opportunities. Middle classes emerge, consumption becomes affordable. So 85% of global GDP is now generated in cities.* The World Bank has observed that only countries that go through the urbanisation process have been or are able to attain medium-income status.
At the same time, one of the greatest challenges of our time is emerging: infrastructure development, which has to keep up with the phenomenal growth in population numbers and economic output.
Because: if there is no suitable infrastructure, the backbone of today’s society is already missing. And tomorrow at the latest, it will be the prospects for the future that are missing.
Capital demand meets a need for stable, predictable income
Governments around the world have recognised this discrepancy and are working to involve private financiers, frequently as part of Public Private Partnerships (PPP). These intentions have met with much interest among investors due to the current situation on the international capital markets: low interest rates, high national debts, simmering political conflicts. That is because infrastructure investments promise stable, predictable earnings that are uncorrelated to other asset classes. They come with calculable risks, thus fulfilling the principal requirements of large pools of capital such as insurance companies, pension funds, and foundations. The financing of infrastructure projects by private and institutional investors will therefore continue to grow in importance.
Asia - The new global powerhouse
China and India will become the world’s largest economic powers by 2050.*
35% of global economic output is currently generated in Asia. In 2050 this figure will be 52 per cent.*
8 out of 10 of the fastest growing countries in 2017 are in Asia.*
One third of the world’s energy is consumed in Asia. In 2050 it will be 50% of the global total.*
6 out of 10 global citizens live in Asia today. In 2017 there are 4.5 billion of them.*
Asia is reaching the limits of ist infrastructure capacity
Asia is growing irresistably. The continent’s economy more than twice as strong as the rest of the world. Its population faster than that of any other continent. And industrialisation, a process that took almost two centuries in the Western world, is currently happening in fast-forward. For some time, people have referred to the 21st century as the ‘Asian Century’.
Yet Asia is also facing great challenges: it has reached the limits of what its infrastructure can support and urgently needs to invest more in expanding its infrastructure.
Confronted with this enormous capital requirement, even public finances across Asia are unable to cope with the urgently needed expansion of infrastructure for energy, supply, disposal, social facilities, transport and telecommunications. As a result, governments in many Asian countries have undergone a paradigm shift in recent years.
Asian economies are thus increasingly moving away from exclusive reliance on govern-ment funding and towards greater use of alternative financing solutions. Private-sector investors are being integrated systematically. Furthermore, increasing numbers of Asian states are moving away from the protectionist policies aimed at shielding domestic markets to a market-oriented economic policy open to the world, with investment incen-tives, tax breaks and simpler imports.
Asian infrastructure: the investment opportunity for growth-oriented investors
Asia’s infrastructure market now combines one of humanity’s oldest business models with one of the fastest growing economic regions in the world, making it currently one of the most attractive growth markets for investors.
They not only participate in the unabated positive economic performance of emerging Asian markets, which was again confirmed, with higher growth forecasts, in the latest economic outlook by the Asian Development Bank. In addition, they profit from the original advantages generally associated with infrastructure investments, which as a diversifica-tion solution contribute to stabilising a portfolio by reducing volatility and the risk of loss, increasing potential returns, and boosting the sustainable cash flow from the portfolio at the same time.