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Analysis & Trends
Content
4 Infrastructure –
The Backbone of the Global Economy
5 Globalisation: Global trade
as growth driver
6 The future belongs to the city
6 Energy – the key to economic development
8 Utilities: high need for investment
to safeguard living standards
10 Transport – growth countries
in the fast lane
11 Telecommunications – 3.5 billion potential
new users
12 Social infrastructure – an important factor
12 Enormous need for infrastructure
investment worldwide
Imprint
Allianz Global Investors GmbH
Bockenheimer Landstr. 42 – 44
60323 Frankfurt am Main
Global Capital Markets & Thematic Research
Hans-Jörg Naumer (hjn)
Ann-Katrin Petersen (akp)
Stefan Scheurer (st)
Data origin – if not otherwise noted:
Thomson Reuters Datastream
Allianz Global Investors
www.twitter.com/AllianzGI_VIEW
3
Analysis & Trends
Infrastructure – The Backbone of the Global Economy
In many places, global demographic change is creating the
need for investment in infrastructure. This need is particularly
great in the emerging countries, but investment is required in
the industrial countries, too, in order to ensure quality of life
and economic growth.
• November 2006: a breakdown in the
German power grid leaves about
10 million people in Europe in the dark.
• September 2011: a massive power
outage leaves five million people without
electricity, paralyzing large sections of the
south-western US and Mexico.
• July 2012: India is hit by one of the largest
power outages in more than 10 years. More
than 600 million people are affected.
These examples show that electricity blackouts don’t just happen in developing countries, they can also occur in the industrial
countries of Europe and in the US. Why? The
answer is globalisation. The global population
is growing. People are increasingly mobile,
demand for goods and services is increasing
and energy consumption is on the rise. It is
clear that the infrastructure in place cannot
meet the challenge of these developments.
Governments need to invest millions in new
streets, bridges, clinics, airports and social
services in order to meet these requirements.
What is infrastructure?
There is no standard definition of the
term infrastructure. In general, infrastructure is considered to mean the
basic facilities needed to ensure the
­func­tioning of a country’s economy.
This includes the following areas
(see Chart 1).
Chart 1: What is infrastructure?
Economic infrastructure
Social infrastructure
Transport
Energy & utilities
Telecommunications
• (Toll-)roads
• Bridges & tunnels
• Airports & seaports
• Railways
• Underground
railways
• Logistics centres
• Oil and gas
pipelines
• Gas/electricity
supply
• Gas/electricity
networks
• Water supply
• Water distribution
• Waste-water
disposal
• Renewable energy
• Cable networks
• Radio masts
• Satellite systems
• Schools
• Hospitals
• Prisons
• Courthouses
• Sports stadiums
• Exhibition halls
Source: Ernst & Young, CFA Institute, Allianz Global Investors Capital Markets & Thematic Research
4
Chart 2: High contribution of emerging markets to growth
Development of world population, 1950 to 2050 (in millions)
World Population
(in millions)
10,000
Forecast
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
50
19
55
19
60
19
65
19
70
19
75
19
Developed Countries
80
19
85
19
90
19
95
19
00
20
Emerging Markets
05
20
10
20
15
20
20
20
25
20
30
20
35
20
40
20
45
20
50
20
Developing Regions
Source: United Nations (UN), World Population Prospects: The 2010 Revision, October 2011,
Allianz Global Investors Capital Markets & Thematic Research
Globalisation: Global trade as
growth driver
the emerging countries will remain virtually
unchanged at about 67 %, while the developing countries’ share will rise from just under
12 % to 19 %.
According to United Nations statistics, the
world population was around 2.5 billion in
1950; it has now risen to more than 7 billion
and it is expected to exceed 9 billion by 2050
(see Chart 2). Global population growth continues inexorably, with five babies being born
every two seconds. Growth in the industrial
countries is much less dynamic than in the
emerging economies, and particularly in
the developing countries. The UN estimates
that the share of the world population of the
industrial countries will decline from almost
19 % in 2005 to 14 % in 2050. The share of
The increasing world population and growing globalisation are driving global trade. A
steadily growing and increasingly prosperous
society is demanding more goods and services. This can be seen in the fact that global
trade has risen twice as fast as world economic growth since 1987. According to the
World Bank, low-income countries will grow
twice as fast as high-income countries in the
coming decades (see Chart 3).
World trade has grown
more than twice as the
economy since 1975
Chart 3: Globalisation – “World trade as a driver of growth”
World trade has grown more than twice as the economy since 1975
indexed
1000
800
600
400
200
0
1980
Global Trade
1985
1990
1995
2000
2005
2010
2015
Global Real GDP
Source: Datastream, Allianz Global Investors Capital Markets & Thematic Research, October 2015.
5
Analysis & Trends
The future belongs to the city
deficit. In order to counteract these developments, a wide range of investments is needed
in utilities, construction, telecommunications,
transport and social infrastructure. The
example of China makes this especially clear.
One billion people will be living in Chinese
cities in 2030, according to McKinsey. By that
time, there will be 221 Chinese cities with
a population of more than a million people
(in Europe the figure now is just 35). In the
next 20 years, 40 billion square metres of
living and working space will be created in
5 million buildings, 50,000 of which will be
skyscrapers (this corresponds to 10 times the
volume in New York City).1
In 1980, 39 % of the world’s population lived in
cities; now, more than half live in major cities,
and this figure is expected to rise to 67 % by
2050, according to a United Nations forecast.
The trend is clear: the future belongs to the
city. In Europe (74 %), North America (83 %)
and Latin America (80 %) the share of the
population living in cities will already be high
in 2015, but it will rise even more by 2050.
However, Asia and Africa are undergoing
amazingly rapid development, and more than
half the population is expected to live in cities
by 2050 (see Chart 4).
1
Source: McKinsey Global
Institute: “Preparing for
China’s Urban Billion”,
2008.
Energy – the key to economic
development
The result of this urbanisation is the rise of
megacities, a trend that now seems to be irreversible. While just five cities had a population
of at least 10 million in 1975 (New York, which
is the oldest megacity, Mexico City, Sao Paulo,
Tokyo and Shanghai), the UN expects there to
be 22 by 2015, 17 of which will be in developing countries. In 2012, Asia is already home to
seven of the world’s ten largest megacities.
In addition, the strong growth of the emerging countries has greatly increased the need
for investment in the area of energy infrastructure in recent years. And the need will
probably continue to grow. The Organisation
for Economic Cooperation and Development
(OECD) estimates that, in the period from
2003 to 2030, China will have to invest about
USD 2 trillion in power plants for electricity
generation and distribution, because energy
consumption in China is growing at a rate of
4.5 % annually, among the fastest increases
in the emerging countries (India: 4.9 %)
(see Chart 5).
The industrial and service metropolises will
see a particular need for replacement investment in infrastructure facilities in the coming
years. The emerging and developing countries, in contrast, are faced with severe congestion, environmental and socioeconomic
problems, as well as an extreme infrastructure
Chart 4: More than half of the world’s population live in cities
Proportion of city-dwellers in % of the world population
100 %
89 %
90 %
80 %
70 %
82 %
74 %
83 %
87 %
80 %
74 %
67 %
64 %
67 %
64 %
58 %
60 %
54 %
48 %
50 %
40 %
37 %
30 %
39 %
28 %
27 %
20 %
10 %
0%
Europe
1980
2015 (f)
f = forecast
North America
Latin America
Asia
2050 (f)
Source: United Nations (UN), World Urbanization Prospects: The 2011 Revision, March 2012,
Allianz Global Investors Capital Markets & Thematic Research
6
Africa
World
Chart 5: Electricity consumption is rising steadily – particularly in developing countries
India’s annual growth rate for power consumption is 4.9 % between 2003–2030
in THW
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
OECD
1971
Emerging Markets
2003
2010 (f)
China
India
Latin America
Middle East
Africa
2030 (f)
f = forecast
Source: OECD (2006), Allianz Global Investors Capital Markets & Thematic Research
But the industrial countries also have a lot
of work to do in terms of infrastructure:
According to the OECD, the US and Canada
are expected to invest nearly as much in their
electricity infrastructure as China in the years
to come (see Chart 6). Past failures are the
main reason that this investment is necessary. Existing plants have not been adequately
maintained and investment has not been
made in replacement plants.
Chart 6: Cumulated expected investment requirements in electricity,
worldwide 2003–2030*
Infrastructure is not only something that affects the new emerging world
China
North America
OECD Europe
East Asia
South Asia
OECD Pacific
Latin America
Transition Economies
Africa
Middle East
0
500
Generation
Transmission
1,000
1,500
Distribution
2,000
2,500
in bn USD
* based on a constant local price series by its 2000 USD value.
Source: OECD (2006), Allianz Global Investors Capital Markets & Thematic Research
7
Analysis & Trends
Utilities: high need for investment to safeguard living
standards
2
Source: OECD, “Infra­
structure to 2030”, 2006.
3
Source: OECD, “Infra­
structure to 2030”, 2006.
Take water, for example. Water covers about
71 % of the earth’s surface. A bottleneck for
a commodity that is so important to people
is not really expected to come about in the
future. But in addition to the fact that only
0.3 % of the world’s water supply is actually
available for human use, it is important to
note:
• that only about 83 % of the world’s population has access to clean water and 58 % to
sanitation. The need for investment seems
to be greatest in the developing countries
(see Chart 7).
• that in 2025 the agricultural sector (70–75 %
share of global water consumption), industry (20 %) and households (5–10 %) will
together use up to 40 % more water than is
the case today to maintain the standard of
living (see Chart 8).
• that global water availability has fallen since
1950 and will continue to decline until
2030. Example: By 2030, per capita water
availability in the industrial countries will
be 40 % lower than in 1959. A high level of
investment is required to find new sources
(see Chart 9).2
Infrastructure investments are necessary to
improve the supply infrastructure, in particular. In London, for example, up to 50 %
of the water produced leaks away because
the water pipes date, in part, from the 19th
century. The OECD forecasts that an annual
volume of investment in infrastructure of
over USD 600 billion for the next 20 years is
needed to ensure the water supply. But sanitation is just as important as the water supply. The greatest demand is in the emerging
countries. China is expected to spend more
than USD 200 billion by 2025, India about
USD 100 billion and, for the US, the figure will
probably be USD 150 billion..3
Chart 7: Almost full access in industrialised nations
Proportion of the population with access to a water supply and sanitary facilities (in %)
in %
100
98 98
80
93
83
83
79
60
58
49
40
20
0
World
water supply
Developed countries
Eurasia
sanity equipment
Source: OECD (2006), Allianz Global Investors Capital Markets & Thematic Research
8
Developing regions
Chart 8: Water consumption is rising rapidly – along with costs and investment
Global water consumption of households (km3/year)
in km3/year
Forecast
6,000
5,000
4,000
3,000
2,000
1,000
0
1900
1950
Losses (reservoirs)
1995
Industry
Water for residential areas
2004
2025
Agriculture
Source: OECD (2006), Allianz Global Investors Capital Markets & Thematic Research
Chart 9: Availability of water is declining further
Expected global availability of water*
in %
100
80
60
40
20
0
1950
1960
Developed countries
f = forecast
1970
1980
1990
Developing countries - humid
2000
2010 (f)
2020 (f)
2030 (f)
Developing countries - arid
* availability per head compared with 1950, in %
Source: OECD (2006), Allianz Global Investors Capital Markets & Thematic Research
9
Analysis & Trends
In 2000 there were 40 vehicles for every
100 people worldwide. The OECD expects the
number of vehicles to nearly double by 2030.
And in Brazil, China, India, Indonesia and
Russia the number of vehicles is expected to
triple. Nevertheless, only one in seven people
in these countries will own a vehicle (see
Chart 10).
Transport – growth countries in
the fast lane
4
Source: Ministry of Road
Transport and Highways
(India).
5
Source: Transport Corp.
of India, Indian Institute of
Management, Calcutta.
Beijing’s airport increased its passenger numbers from 27.1 million to 77.4 million from
2002 to 2011, an annual rise of slightly over
25 %. This is not an isolated case, although
growth rates of the world’s 15 biggest airports
are much lower at 10 % to 15 % according to
the Airport Council International. In China
alone, the International Air Transport Association (IATA) expects that China will see an
increase of almost 900 million passengers
from 2010 to 2015. Given this growth, China
plans to build 56 new airports by the end
of 2016, which will put the total number at
around 240. The trend is clear: people are
more mobile, and this fuels globalisation.
The picture is the same for road transport.
The emerging countries are also in the fast
lane in terms of expected expenditures. The
OECD forecasts that these countries will
increase annual investment in road construction alone from its current level of around
USD 10 billion to nearly USD 70 billion in
2030. Globally, around USD 200 billion will
be required annually for the maintenance of
existing roads and the construction of new
roads (see Chart 11). For example, India is
planning to triple the length of its expressways (an increase of 1,600 km) in the coming
years.4 By way of comparison, China already
has 74,000 km of expressways.5
Chart 10: By 2030 Only One in Seven Will Have a Vehicle in Developing Countries
Vehicles per 100 persons, 2000–2030
80
25
70
20
60
50
15
40
10
30
20
5
10
0
0
2000
OECD
World
2010 (f)
Big 5 (rhs)*
2020 (f)
Non-OECD (rhs)
f = forecast
* China, India, Russia, Brasil, Indonesia
Source: OECD (2006), Allianz Global Investors Capital Markets & Thematic Research
10
2030 (f)
Chart 11: Not only in road construction are emerging markets in the fast lane
Road construction, 2000–2030, in billion US Dollar
USD bn
USD bn
350
70
300
60
250
50
200
40
150
30
100
20
50
10
0
0
2000
OECD
World
2010 (f)
Big 5 (rhs)*
2020 (f)
2030 (f)
Non-OECD (rhs)
f = forecast
* China, India, Russia, Brasil, Indonesia
Source: OECD (2006), Allianz Global Investors Capital Markets & Thematic Research
Telecommunications – 3.5 billion
potential new users
population is already on line, while the figure
is a bit over 60 % in Europe, and somewhat
more than 25 % in Asia. The Asian countries
not only represent more than half the global
population, they make up nearly 50 % of all
Internet users. The annual growth rates since
2000 are impressive: the number of Internet
users in Asia increases by 20 % every year, and
in Africa, which has thus far been extremely
underrepresented, annual growth stands at
more than 30 % (see Chart 12).
Given its penetration thus far, it is reasonable
to conclude that the impact of the Internet is
only just beginning to be felt, even if daily life
and the working world have already radically
changed in many ways. This is because it is
primarily people from countries with more
developed economies who have had access
to cyberspace. In the US nearly 80 % of the
Chart 12: Internet – usage by region
The impact of the Internet is only now being felt
in %
90
80
70
60
50
40
30
20
10
0
Penetration (% of population)
Africa
Asia
Europe
% of World
Middle East
Growth p.a.
North America
Latin America/Carib.
Source: Internet World Stats, 2011, Allianz Global Investors Capital Markets & Thematic Research
11
Analysis & Trends
Chart 13: Water needs the most Investment
Expected global expenditure on infrastructure per year in billion US Dollar, 2000–30
in Mrd. USD
1.200
1.000
800
600
400
200
0
Straße
2000 – 10
Schiene
2010 – 20
Telekommunikation
Elektrizität
Wasser
2020 – 30
Source: OECD (2006), Allianz Global Investors Capital Markets & Thematic Research
Social infrastructure –
an important factor
Any review of the topic of infrastructure
should not ignore so-called social infrastructure. Educational facilities and hospitals are
needed for the vital role they play in the economic system; the lines between economic
and social infrastructure overlap: for example,
communications networks support learning
processes.
Enormous need for infrastructure
investment worldwide
The OECD estimates average worldwide
investment volume for new infrastructure, or
for maintenance of existing infrastructure, to
be around USD 1.8 trillion annually (!) from
2010 to 2030 (see Chart 13):
12
• The water sector is expected to see the
highest expenditure (USD 900 billion per
year).
• Around USD 270 billion will be spent on
road construction per year.
• About USD 210 billion annually will go to
the power supply.
Whether it’s the energy supply, the improvement of utilities and transport infrastructure
or telecommunications – a country’s infrastructure requires constant maintenance and
renewal. Globalisation, coupled with worldwide demographic change, will make enormous infrastructure investments necessary
in the coming decades in both the industrial
countries and the growth countries.
Stefan Scheurer
Notes
13
Further Publications of Global Capital Markets & Thematic Research
Active Management
→→ “It‘s the economy, stupid!”
Capital Accumulation – Riskmanagement – Multi Asset
→→ Smart risk with multi-asset solutions
→→ The Changing Nature of Equity Markets
and the Need for More Active Management
→→ Sustainably accumulating wealth and capital income
→→ Harvesting risk premium in equity investing
→→ Active Management
Alternatives
→→ Volatility as an Asset Class
Financial Repression
→→ Shrinking mountains of debt
→→ QE Monitor
→→ Strategic Asset Allocation in Times
of Financial Repression
Behavioral Finance
→→ Behavioral Risk – Outsmart yourself!
→→ Reining in Lack of Investor Discipline:
The Ulysses Strategy
→→ Behavioral Finance – Two Minds at work
→→ Behavioral Finance and the Post-Retirement Crisis
→→ Between a flood of liquidity and a drought
on the government bond markets
→→ Liquidity – The Underestimated Risk
→→ Macroprudential policy – necessary, but not a panacea
Strategy and Investment
→→ Equities – the “new safe option“ for portfolios?
→→ Dividends instead of low interest rates
→→ “QE” – A starting signal for euro area investments?
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September 2012, Slight Update October 2015
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