Infrastructure around the world is failing. Here’s how to make it more resilient

infrastructure 2019

(Unsplash, 2019)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: John P. Drzik, President, Global Risk and Specialties, Marsh LLC


Persistent underfunding of critical infrastructure worldwide is hampering economic progress, and exposing businesses and communities to significant risks. Existing physical and digital infrastructure are under stress from population growth and face challenges from cyberattacks, extreme weather and climate change. New infrastructure development is increasingly intertwined with rising geopolitical tensions, and given the potential for a global economic downturn, funding could come under further pressure.

This year’s risk perception survey, which underpins the Global Risks Report 2019, highlights the need for a renewed global focus on infrastructure resilience and investment. While respondents’ near-term risk concerns centre around geopolitical conflict, trade relations and cyberattacks, the failure of critical infrastructure and infrastructure investment shortfalls are prominent among longer-term concerns.

The challenge of global infrastructure development and investment

Although there is widespread consensus among governments and businesses on the importance of infrastructure to a growing economy and evolving society, the world on average continues to underinvest. Worldwide investment in infrastructure is expected to be $79 trillion by 2040. However, the actual global investment need is closer to $97 trillion. To close this $18 trillion gap, average annual global infrastructure investment would need to increase by approximately 23% per year.x

Almost three quarters of this global infrastructure investment gap is attributable to the road and electricity sectors, with the remainder in telecommunications, rail, water, airports and ports. On a regional basis, a similar proportion of the need can be attributed to Asia and the Americas. In developed markets, investment is predominantly required for infrastructure replacement and upgrading purposes. In underdeveloped regions, new infrastructure is predominantly required to enable economic development and meet basic needs such as utilities and transport networks.

Around the globe, this need is clear. US infrastructure was recently rated a D+ overall, with dams, roads and energy scoring some of the lowest grades. In Italy, some 300 bridges are at risk of collapse. Ageing power plants in Europe and recent load-shedding (shutting down power in localized areas to prevent countrywide blackouts) in South Africa due to breakdowns continues to be concerning. India has the 10 fastest-growing cities globally and its continued economic success depends on meeting vast infrastructure needs. Meanwhile, state-sponsored cyberattacks in the US and Saudi Arabia have elevated concerns about the vulnerability of infrastructure to growing geopolitical tensions.

Underinvestment in infrastructure: global risks implications

Underinvestment in infrastructure amplifies our exposure to major global risks. Ageing physical infrastructure increases the vulnerability of communities to natural catastrophes, and outdated security infrastructure adds to the risks stemming from cyberattacks.

Bridging the underinvestment gap is made more complex and challenging by growing geopolitical frictions. Current tensions are leading to increasing project costs, lengthy project timelines, restrictions on investment and exports, and competition for influence.

Economic protectionism for home-grown players, trade tariffs affecting commodities, buy/make local agendas, and preferred suppliers within bilateral deals are impacting the competitiveness and reliability of suppliers and increasing construction costs. For example, the cost of steel for an infrastructure project on the Lower Rogue River in Detroit increased by 13% due to recent US tariffs on steel imports.

Deepening security concerns about foreign technology suppliers in critical infrastructure deployments are leading much-needed next-generation infrastructure deployments to become a long and more expensive process. For example, there has been a recent push from Western economies, such as the US, UK, Australia and New Zealand, to exclude Huawei 5G equipment from their communications infrastructure.

From a geostrategic perspective, China has been aggressively seeking infrastructure investments and contracts around the world to extend Beijing’s influence, including its signature Belt and Road Initiative. The US recently countered with the establishment of the US International Development Finance Corporation, a new foreign aid agency with $60 billion in funding to bankroll infrastructure projects in Asia, Africa and the Americas.

With over 90% of global risk survey respondents anticipating increased economic confrontation between the world’s major powers in 2019, infrastructure development and financing is likely to get even more complicated and challenging in the near term.

New imperatives for risk management

Given the fiscal pressures on government, the private sector needs to be engaged more fully to close the investment gap. To improve the resilience of global infrastructure, we need new approaches to public-private partnerships, project finance and risk management.

First, businesses and government should collaborate to strengthen existing infrastructure resilience. Government and industry should expand the sharing of information about critical infrastructure threats so that key physical and system vulnerabilities can be explored and addressed.

There should also be greater public-private sector coordination around the design of critical infrastructure networks in urban planning, and more collaborative emergency response plans for natural catastrophes, cyberattacks and other risk events.

Second, we need to improve project “bankability”. There is no shortage of private investment capital available, so the challenge is to define economic structures which are sufficiently attractive to investors.

Investors value stability in the political and regulatory environment, and governments can take steps to de-risk investments for the private sector side of blended investments. For example, in Argentina the government has committed to a contingent contribution if the sums in the public-private trust don’t meet public-private partnership obligations.

The public sector should also consider monetizing existing infrastructure assets which have attractive investment characteristics (through leasing or sales to the private sector) to free up public sector capital for investment in new infrastructure.

More than ever, companies in the broader economy need to think hard about their dependencies on infrastructure, and examine risks to their bottom line and share price due to unexpected failures.

Not only should they devote efforts to exploring “what-if” scenarios, but they should engage more fully with the public sector to explore opportunities to collaborate constructively, in order to remain resilient in this challenging risk environment.

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Art has the power to change the world, says this renowned Iranian muralist

European Commission welcomes the positive assessment about how it has managed the EU budget

New seat projections for the next European Parliament EU28

FROM THE FIELD: Liberia boosts efforts to guard against rising seas

3 ways to protect your mental health during – and after – COVID-19

Protecting the ocean is key to fighting climate change

MEPs call for binding 2030 targets for materials use and consumption footprint

More than one million sexually transmitted infections occur every day: WHO

Brexit: visa-free access to the EU for UK nationals and to the UK for Europeans

‘Good enough’ global cooperation is key to our survival

5 key themes for reforming the EU, as elections loom

Mental Health: Role of the individual for their well-being in the pandemic

EU leaders prepare timetable and structure for EU budget negotiations

Whale populations are slowly recovering – this is why

EU’s VAT system further equipped to tackle fraud in e-commerce and to help small businesses grow

State aid: Commission approves €380 million German rescue aid to Condor

Member States agree to Commission proposal to support Irish beef producers impacted by market uncertainty

Got the blues? Head for some green spaces

This is how Copenhagen plans to go carbon-neutral by 2025

Meet Cipta: the comic book hero using her powers to tackle bullying in schools

Further reforms will promote a stronger and more inclusive Hungarian economy

UN chief appeals for calm as Mali presidential election draws to a close

Hatred ‘a threat to everyone’, urges Guterres calling for global effort to end xenophobia and ‘loathsome rhetoric’

Health inequalities in the 21st century

Here’s why infrastructure will make or break our response to climate change

Autonomous weapons that kill must be banned, insists UN chief

Mobile Technology saving lives, the way forward

Sassoli to EU institutions: “Be brave on EU recovery plan”

Rule of law in Hungary: Parliament calls on the EU to act

Mental health: fighting the hidden pandemic

5 key concepts for blockchain newbies

Do doctors need to know their patients’ sexual orientation and gender identity?

On World Health Day, new report says the world needs 6 million more nurses

More women than ever before are running for political office in the US

Climate change: cutting the good by the root?

Creative Europe: 30 years of support to European films and cultural and creative media works

Commission proposes to purchase up to 300 million additional doses of BioNTech-Pfizer vaccine

What can the military teach us about keeping the lights on?

Venezuela migrant crisis begs a ‘coherent, predictable and harmonized’ response: UNHCR

Young people are not a nameless, faceless mass. So why do we treat them as such?

Commission presents far-reaching anti-tax evasion measures

Getting people with disabilities into work requires data

Why cybersecurity should be standard due diligence for investors

UN chief hails Libyan leaders’ agreement to hold general election

UN chief appeals to G7 leaders for ‘strong commitment’ and political will to tackle climate emergency

Illegal fishing: EU lifts Taiwan’s yellow card following reforms

Vulnerable children face ‘dire and dangerous’ situation on Greek island reception centres, UNICEF warns

To win combat against HIV worldwide, ‘knowledge is power’, says UNAIDS report

Antitrust: Commission consults stakeholders on guidance for national courts when handling disclosure information

How digital is your country? Europe needs Digital Single Market to boost its digital performance

New neighbours: Could Venus really be home to alien life?

Coronavirus: Commission proposes €4.5 million to support over 5,000 dismissed tourism workers or self-employed in Estonia

Moving from a promise made in Sweden towards hope for peace in Yemen

An alternative to the future of antimicrobial therapy

Here’s how the EU is doing on gender equality

FROM THE FIELD: Enslaved Guatemalan indigenous women wait for reparations

UN boosts humanitarian appeal to help tackle Zimbabwe’s ‘worst-ever’ hunger crisis

Norway is returning Easter Island artefacts to Chile (Will Britain ever return the marbles to Greece?)

As the year closes out, UN political chief talks the art of diplomacy – and crises to watch in 2019.

Refugees in Greece: MEPs demand solidarity, warn about impact of health crisis

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s