In a report issued today, Citi highlights the opportunity for both the private and public sector to increase global investment in infrastructure. Despite ageing infrastructure in developed markets, and a desperate need for infrastructure in emerging markets, declining percentages of GDP are being spent on infrastructure globally.
With global economic growth remaining sluggish and the monetary policies of near-zero interest rates and QE running out of steam, infrastructure investment offers a form of fiscal stimulus which could boost growth, create jobs, provide attractive returns for investors in this yield-starved environment, and simultaneously perform a valuable social good. In examining historic spend across the asset class, Citi estimates that every 1% increase in infrastructure investment is associated with a 1.2% increase in GDP growth.
The Citi GPS report, entitled “Infrastructure for Growth: The Dawn of a New Multi-Trillion Dollar Asset Class,” estimates a global need for infrastructure spending of $59 trillion over the next 15 years, presenting an immense opportunity for private sector investment. Along with identifying a source of long-term stable cash flows and income for investors, the report also addresses the pressing social need for global infrastructure investment particularly in emerging markets, as millions globally are living without electricity or clean drinking water.
“Policy makers are running out of monetary levers to pull,” says report lead author Jason Channell, Managing Director, Citi Research. “It’s incumbent on the private sector to help facilitate infrastructure spending, which can boost growth by both short term demand effects, and longer term supply effects. We need to bridge the gap between private capital wanting to invest, what cash-strapped governments can feasibly afford, and the desperate need for a global improvement in infrastructure, by creating a new and liquid global asset class.”
Despite virtually unanimous support for infrastructure improvement, the report details a myriad of challenges preventing the roughly $200 trillion global equity and credit markets from filling this need. The main hindrance is a lack of bankable projects, a mismatch of risk perceptions and an immature, fragmented and relatively disorganized industry.
To address this, Citi calls for making infrastructure a more accessible asset class—one that allows investment within a liquid and transparent market—and the need for a central source of data to anchor it. Citi also highlights key themes, projects and opportunities available in markets including The United States, China, United Kingdom, India and Brazil across the four major subcategories of water, energy, telecoms and transportation.
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