Transport infrastructure faces new challenges

26.05.2010 (15:22) | Emirates Business

The findings are a result of the second volume of the 'Transportation & Logistics 2030' series published by PricewaterhouseCoopers, in cooperation with the Supply Chain Management Institute (SMI) of the European Business School (EBS).

Most of the experts surveyed predict that shortages in transport infrastructure will remain until 2030.

"The trend towards globalisation is unlikely to reverse. Indeed, it may even accelerate. The OECD projects that world trade will grow six per cent in 2010. Global trade in goods and services is likely to rise more than threefold to $27 trillion (Dh99.1 trn) in 2030. Half of the increase is expected to come from emerging economies, mainly from the next generation of economic powerhouses, China, India and Brazil," the report said.

According to the report, the quantity of goods needed to serve the world's rapidly growing global population will increase over the next 20 years. And the demand for transport infrastructure is unlikely to be fully met.

By 2030, it is estimated that more than $41trn will be required on a global level for infrastructure development and maintenance over the next two decades. This requires a significant increase in infrastructure spending over the next 20 years, since actual global spending comprises only $1trn annually. In order to meet rising demand, investments will need to pick up the pace in coming years.

Many landmark projects can be found in emerging markets. Russia intends to construct 20,000 kilometres of new railway lines by 2030, representing an increase of 24 per cent. India has started a national highway building programme to expand the expressway system by around 20,000 miles in 2009, while China's aggressive infrastructure spending will account for 80 per cent of total infrastructure spending in the East Asia between 2006 and 2010, with annual investments of $350 billion. Egypt's transport infrastructure stimulus plan aims at setting up basic infrastructure in major cities beyond Cairo. In April 2010, Abu Dhabi announced its Economic Vision Plan 2030, in which $82.9bn is earmarked for transport infrastructure investments. The Brazilian government has also announced a new Growth Acceleration Programme (PAC 2) that will provide $880bn in infrastructure and public projects as the second phase of the economic stimulus programme to be invested between 2011 and 2014.

According to the OECD, new road construction requirements vary between $200bn-$300bn each year. New railways construction requirements account for another $50-60bn each year, driven mainly by needs in the Bric countries, plus Indonesia. China in particular has made a significant commitment to investing in major rail-building programmes, including high-speed rail.

"At present, industrialised countries look likely to continue to keep a leading position in terms of transport infrastructure provision. While many emerging countries are recording record levels of investment in transport infrastructure, they are unlikely to bridge the existing gap completely by 2030," the report said.

While urban areas are likely to receive the bulk of future projects, as investors "follow the money" and focus on faster growing cities and megacities, governments need to offer incentives to ensure that rural areas remain connected.

The expert panel also offered some insights into how infrastructure gaps could be overcome. For example, one view held that in many developed markets, existing capacity is not sufficiently exploited. If this deficit were overcome, only a relatively small additional investment would be needed. Another saw the need for innovative new business models which rethink transportation. Improvements in technology (such as high-speed or high-capacity transport modes) were also cited as ways in which the gap might be bridged by 2030.

Logistics service providers should be prepared to continue to operate in imperfect transport infrastructure systems and will need to adapt their business models to the prevailing infrastructure provision.

Flexibility and scenario planning will be key to analysing and forecasting future infrastructure facilities, not only for logistics service providers, but also for all supply chain players, transport infrastructure operators, users and owners.

According to the OECD, over the period from 2010 to 2030, $220bn-$290bn per annum will be required globally for infrastructure construction including maintenance and replacements. For roads, the largest part of infrastructure requirements arises from the need to maintain, upgrade and replace existing roads.

According to the report, concerns around financing will be paramount at all levels of infrastructure, local, national or international. At the local level, funding is likely to remain a key responsibility of public authorities and local officials will need to be sensitive to the needs of voters. Governments will be in charge of transport infrastructure procurement, but they will focus on contributions from the key beneficiaries of new infrastructure.

Klaus-Dieter Ruske, partner and global transportation and logistics leader at PricewaterhouseCoopers, said: "Gaps in financing are a paramount concern for all levels of infrastructure, local, national or international. The challenge for both the public as well as the private sector will be to identify ways of co-operation and to create the best win-win situation. Demand will be managed through regulatory measures, such as toll roads and congestion pricing, by matching demand and supply at it most efficient point."

Governments, in industrialised as well as emerging countries, are facing enormous challenges in attributing sufficient capital to transport infrastructure investment.

Therefore, respondents think that the financing of maintaining existing infrastructure will be more difficult than attracting investment in new infrastructure.

Transport infrastructure is one of the critical success factors for a country's or a region's competitiveness, with the potential to accelerate economic growth and investment opportunities. Competitive advantages will also be realised by taking full advantage of the potential of logistics clusters, where industry, academia and government collaborate closely.

The report also points out that awareness about sustainability and climate change is omnipresent since the effects of transport infrastructure and transport networks on the environment are profound.

These impacts should be assessed from a holistic, long-term perspective, particularly in light of the fact that respondents think environmental costs will become an integral part of assessing the full cost of a transport infrastructure project.

Furthermore, they expect that by 2030, transport infrastructure operators will participate in the emission trading system by obtaining pollution permits, indicated by a probability of occurrence of 78 per cent.
Joseph George

www.business24-7.ae