According to a new report: The Roots of Growth: Projecting EM infrastructure demand to 2030*, produced in conjunction with Cambridge University, the emerging world will need to spend US$20 trillion on infrastructure over the next 20 years – an increase of 158 per cent – compared to the previous corresponding period. Asia should account for the bulk of infrastructure demand with around US$15.8 trillion in spending needs, followed by Emerging Europe (US$1.3 trillion), Latin America (US$1.2 trillion), Africa (US$0.7 trillion) and the Middle East (US$0.2 trillion).
"We have found that emerging markets are undergoing a 'second industrial revolution' as fast rising populations and robust economic growth fuel demand for infrastructure," said Timothy Ash, Head of Emerging Markets Research at RBS. "This provides an excellent investment opportunity in terms of growth, diversification as well as an alternative to traditional asset classes that currently are experiencing lower returns and higher rates of risk. Investors who ignore this boom do so at their own peril."
More than half of all spending needs (US$12.7 trillion) are expected to be related to electricity generation, followed by roads (US$4.2 trillion), mobile telecommunications (US$2.0 trillion), fixed phone lines (US$0.2 trillion) and rail (US$0.2 trillion). While Asia will see the highest total demand for infrastructure, Africa should generally enjoy the highest growth rates due to unprecedented shifts in its demographic makeup and undercapacity. Emerging Europe for its part will likely experience the lowest growth rates as falling and ageing populations reduce the need for large infrastructure investments.
"Countries that will meet the infrastructure demand will enjoy high sustainable growth rates. We expect China, India, Brazil, Turkey, Mexico, Indonesia, Vietnam, Nigeria and South Africa to be the biggest beneficiaries," said Imran Ahmad, Emerging Markets Strategist. David Petitcolin, Emerging Markets Analyst added that this has important implications for asset allocation. "We have found evidence of a significant relationship between economic growth and development and asset class performance. As a result, we expect those countries with the highest infrastructure spending to deliver foreign exchange and equity market outperformance."
*The report was produced by Mr Ash, Mr Ahmad and Mr Petitcolin in conjunction with Cambridge University's Judge Business School MPhil in Technology Policy programme.