In recent years, we have witnessed an acceleration in the rate at which the Earth’s climate is changing. Rising average temperatures have led to growth in the frequency and severity of acute hazards, such as heat waves and floods, as well as growth in the intensity of chronic hazards, such as drought and rising sea levels.
Approximately 70% of global greenhouse gas (GHG) emissions are caused by the construction and operation of infrastructure. Infrastructure projects can have a lifespan of multiple decades, even centuries, meaning that any project built today will bring with it significant lock-ins for the climate change trajectory. Given the significant infrastructure needs, for climate considerations alone, it is crucial that infrastructure solutions are designed in the most sustainable way.
During the outbreak of the Covid-19 pandemic, governments around the world have placed infrastructure development at the centre of their agendas aimed at relaunching their economies. The large recovery packages put in place are an unprecedented opportunity to address our future’s next great challenge: climate change.
In a world on the brink of a global recession caused by COVID-19, the Infrastructure efforts of today and tomorrow are more crucial than ever. They are an indispensable countercyclical tool to mitigate the negative effects of the economic paralysis. But they also constitute a pivotal component of a country’s development and competitiveness in the long term.
With the outbreak of the COVID-19 pandemic, governments all over the world are enacting major stimulus packages to confront the health crisis, one of the biggest challenges since the end of the Second World War. But when the pandemic crisis has been tamed, bigger challenges will be waiting, since the major imperative would be to immediately re-launch the global economy.
The recession that’s on the way poses a formidable challenge: the scale of fiscal and monetary support required to soften the blow to personal incomes and ensure the survival of companies bereft of revenues has no precedent in recent times. Public debt levels, and probably also private debt levels, are going to soar.
Why investing in Sustainable Infrastructure? With global yields at historical lows, investing in real assets needed to fill the infrastructure gap of emerging and developing countries (UD 150bl per year in LAC) currently represent the most promising investment opportunity for investors around the world – and the continuing capital shift towards real assets seems to confirm it (Blackrock, 2020).
According to recent estimates by the Inter-American Development Bank (IADB), Latin America suffers from an infrastructure gap of around 2.5 percent of GDP, or around $150 billion per year.
In Latin America (LatAm), line ministries are usually responsible for sectoral policy development and in charge of infrastructure planning (long-term plans), programming (medium to short-term programs) and individual project appraisal. Furthermore, in most of LatAm countries, there are inter-sectoral development plans and programs, compiled by planning secretaries or ministries of economy and finance, which include the previous sectoral efforts.
Infrastructure is critical for economic growth and development. Recent studies show how not expanding capital stocks in infrastructure sectors in the Latin American and Caribbean (LAC) region costs, on average, about one percentage point of GDP growth in the first year; this figure could increase to up to 15 percentage points of lost growth if the policy persists over 10 years (IDB Macroreport, 2019).
It was a visit worthy of a plethora of superlatives. The arrival of China’s President Xi Jinping in Athens (November 10-12) was termed a “vote of confidence” for Greece. Prime Minister Kyriakos Mitsotakis underlined that Greece and China are bound together by their cultural heritages, linking ancient civilizations of the West and East. President Xi described China’s multi-decade anchor investment in the Port of Piraeus as the “biggest project of the One Belt, One Road Initiative” (OBOR, the official Chinese term for the ‘Belt and Road Initiative’ (BRI)).
Currently, Asia has a population of 4.6 billion and a GDP of US$31.58 billion. Its annual infrastructure spending amounts to about 3% of GDP (US$0.95 trillion) and, if Asia is to limit the adverse effects of climate change and rising sea levels, it will need to invest 4.5% of GDP (US$1.42 trillion). These are approximate estimates, given that infrastructure spending varies between 2.5% to 8% of GDP for most countries globally.