In the World Economic Forum’s Global Competitiveness Report for 2014/15, South Africa is ranked 32nd with respect to transport infrastructure. This is ahead of its Brics (Brazil, Russia, India, China and South Africa) counterparts Russia and Brazil, which are ranked 42 and 77 respectively, but below China, which is ranked 21.
The South African government is planning to invest R849-billion in infrastructure over the next three years, including the procurement of passenger and freight rail through Transnet and the Passenger Rail Agency of South Africa (Prasa). Globally, infrastructure spend is on the increase, in line with the belief that infrastructure investment will lead to economic growth.
“There are three exciting innovations in the global infrastructure landscape on the horizon: high-speed rail, bus rapid transport and both air and sea ports,” says Steffen Wagner, global head of transport for KPMG.
“Outside South Africa, the most noteworthy projects are in the Asia Pacific and Latin American markets, where China and Brazil are the most prominent examples,” says Wagner. “China’s investment in infrastructure is driven largely by the need to reduce its logistics costs which, at 18% of gross domestic product (GDP), are among the highest in the developed and developing world.”
To this end, the State Council has put forward a six-year plan to modernise infrastructure in China, which includes warehouses, toll roads and high-speed rail.
In Latin America, Brazil will be making significant investments to upgrade its ailing infrastructure, some of the oldest in the world. This is partly because Brazil has traditionally spent very little (historically approximately 1.5% of GDP) on its infrastructure development. As a result, the value of Brazil’s infrastructure is estimated at only 16% of GDP, while other large economies average around 70%. One of Brazil’s bottlenecks to infrastructure development was the Brazilian government’s reluctance to allow infrastructure development to be privatised. The recent about-turn and use of the public-private partnership model present many opportunities for growth in the country.
“Another key trend in global infrastructure spend is the advent of Chinese technology in high-speed rail, which has become an important driver of infrastructure investment for a number of countries, including India, Turkey and Brazil,” says Wagner.
China is planning to spend about €200-billion on its high-speed rail network, extending it from 12 000km to about 16 000km by 2020. This is expected to connect China with Singapore, Myanmar and even Europe through Kazakhstan.
In addition, Chinese rail providers are working on feasibility studies for one of seven new high-speed rail corridors under development in India. This is expected to have a major impact on rail speeds on the subcontinent, increasing the average speed of travel from about 80km/h to 300km/h. As part of the Indian Development Plan, the Indian government will now allow 100% private investment into these systems, contrary to the former situation where private investment was restricted to projects in major metropolitan areas.
China’s strategy to expand the use of its rail technology across the globe led to it signing high-speed rail corridor agreements with Brazil and Turkey. In August 2014, a rail track constructed with Chinese technology was installed between Ankara and Istanbul.
China outperforms other rail technology providers (such as France and Germany) on cost, a critical factor given the size of these projects.
Urban transport is another main consideration for governments all over the world, especially in densely populated cities. For example, China is home to 160 cities of more than one million inhabitants. As a result, the Chinese central government has ambitious plans to complete a bus rapid transport system (BRT) for 40 major cities by 2020. This represents substantial investment at the municipal level and means that BRT systems in China will double in the next four years. Globally, there are currently 200 operational BRT lines. This number is set to increase to 350 by 2018.
In more developed countries such as France, the UK and Turkey, where urban rail is the preferred mode of passenger transport, the focus has shifted to improving the travel experience within the city.
“The UK is at the forefront of these kinds of developments in integrated mobility. Using mobile technology, the UK government has been able to help commuters navigate their way through the city in the shortest time and in the cheapest possible manner,” says Wagner. “This digitisation of transport information is the next step in transport infrastructure investment.”
Furthermore, global trends indicate a move towards building larger container ships and increasing freight capacity. The same is true for the aeroplane cargo industry.
An example of the demand for increased capacity is the large number of orders for Airbus A380 and Boeing Dreamliner aircraft from Middle Eastern carriers. These new aircraft will bring significant capacity to market, both in terms of freight and passengers, which will force providers to bring down prices in order to remain competitive. It is important to note that this increased capacity may lead to consolidation or mergers, particularly in the shipping industry. A prime example is the recent merger between MSC and Maersk, the so-called 2M alliance, which controls approximately 35% of the market share in the Europe-Asia shipping lanes.
This trend in increased capacity has implications for port infrastructure investment as port operators must increase the sizes of berths and storage they are able to offer. Tianjin deep water port, for example, will double in size in the next years. Some ports, like the shallow Port of Hamburg, will need to deepen into the sea to ensure that larger container ships are able to enter.
In addition, these large ships present ports with challenges in terms of intermodal capacity. Ports must ensure that there is sufficient storage and freight capacity in order to unload the cargo from the container ships and then transport it by either rail or truck. Governments will then need to find funding for these inter-related infrastructure developments.
Similar to the trend in shipping, there is increasing collaboration between airlines, particularly those in the Middle East, which are based at local hubs that have substantial capacity. These airlines rely on European markets to feed passengers to their hubs in the Middle East and make use of the extra capacity. The airlines also receive subsidies from their respective governments. They are therefore more competitive than the legacy carriers, because they have lower fuel costs and substantially larger budgets to invest in new aircraft.
Also, the rise in the number of aircraft in service and the resulting increase in capacity is leading to the construction of a myriad of new airports. Currently Atlanta is the largest airport in the world in terms of passenger capacity and serves 95 million passengers per year. However, there are currently plans for four airports around the globe that will exceed Atlanta in terms of size. These airports will be located in Doha and Dubai in the Middle East, as well as in Beijing and Istanbul, which will have capacity to serve 120 million to 200 million and 150 million passengers respectively.
“Generally governments are now more open to private sector funding for national infrastructure projects, because the states are no longer in a position to finance these investments solely from the fiscus,” explains Wagner. “As a result, there is likely to be an increase in the use of the public-private partnership model.
“Financing remains a challenge due to the fact that transport infrastructure requires a significant amount of investment, particularly in aviation and in high-speed rail,” says Wagner. “It is thus essential that all of these various elements are taken into account in the planning process. In relation to new transport infrastructure builds, integration is the key.”
Ntsiki Mpulo is communications manager at KPMG