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Decisive Factors of Infrastructure Investment Needs

June/11/2019

Infrastructure Investment Needs

Why do we need a Financial Investment? Because, it ensures all our dreams turn real, be prepared for unexpected expenses and make our future secure. It also controls our spending pattern and makes us decide how and what amount should be spent so there is sufficient money for the future.

Let us consider a home buyer. What would be the investment amount needed to own a house? The question may seem simple. But that depends on various factors. The location, the neighborhood, size of the house, materials used for flooring, the faucets, the builder, the realty agent, the banker and of course the negotiation skills of the buyer with all of them and so on.

Such is the case when estimating the infrastructure investment of a country. The ambition of the country and the potency in following that ambition plays a major role in deciding the proportion of investment of the country. Budget constraints hold an important role in investment desires. This is true whether it is a home buyer or a country.

Infrastructural needs should be the reconciliation of what the society aspires and how much society can afford. We have so far been focusing on the quantity of money spent on infrastructure. It’s time we start to focus on the quality and objectives of our spending. When a developing country plans for new infrastructures, the costs estimated by 2030 per year could be between 2% to 8% of GDP.  This also depends on both the quality of services and the quantity and also on the spending efficiency of countries.

There are three scenarios:

In a scenario where the expenditure is low, countries have modest ambitions and high potency. These countries are compelled to pay 2% of GDP each year to generate new capital funding and can satisfy the basic water needs and sanitation facilities and will be able to achieve universal access by the year 2030. They will be able to provide electricity facilities for basic needs only and energy efficiency will be a priority. They will also be able to provide public transport facilities and taxes on fuel could be increased to encourage people to use public transport as much as possible.

In a scenario where expenditures are low, the country’s ambitions are found high and their potency is low. They are required to spend 8% of GDP each year. This helps them safe water to be accessible to all and so is sanitation. Electricity facilities can be increased from the basic needs to a much higher level. Transportation facilities can be improved to meet the needs of the urban dwellers’ use of their own private vehicles.

In a preferred scenario, countries realize that water facilities, sanitation facilities, and electricity are to be provided to all. Focus is also given to greater mobility, food security, protection from floods and decarbonization. They spend about 4.5% of GDP each year on new infrastructure. With this, they will be able to achieve all the above. These countries are also seen spending 2.7% of GDP in addition to infrastructure maintenance. Smart maintenance not only generates savings but also the cost of the total life-cycle is reduced. Transport, water, and sanitation allow up to 50% of savings through this method.

 So, it becomes very important to know what the countries are actually spending.

In the year 2011, the expenditure of developing countries on infrastructure capital investment was nearly 4% of GDP. There will also be a considerable difference in this average across regions.

It is important to note that, the estimated amount of 4.5% spending achieves full decarbonization. The investment paths for full decarbonization wouldn’t be at a higher cost than the polluting alternatives. Hence, infrastructure financing figures need not scare you. With informed decisions, infrastructure related, sustainable development can be achieved as it makes the goals possible.

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