Infrastructures development, a competitive imperative
By Roberto Dos Reis Alvarez
Investments in infrastructures can reduce systemic costs in national economies and if smartly engineered, catalyze innovation and value creation
“Countries also need to develop 21st Century infrastructures in order to become and remain competitive.”
“It is evident by now that information technology is pervasive and will become increasingly embedded in all kinds of devices and infrastructures – the Internet of Things is here to stay.”
Infrastructure impacts both cost and value structures of national economies. Therefore both perspectives must be considered in competitiveness promotion policies and initiatives. The lack of functional infrastructures creates systemic costs. On the other hand, timely and smart investments in infrastructures can reduce costs, generate demand, unleash entrepreneurship and create the conditions for new industries to emerge.
Infrastructures are long-term oriented by their very nature. However, they are not static, immutable or exist in isolation. Infrastructures need to be maintained and updated, can be disrupted – that is, can be turned obsolete by alternative technologies (e.g. fixed telephony) – and are increasingly integrated (e.g. energy and telecommunications). A dynamic perspective on the nature of infrastructures needs to be conciliated with the cost-value nexus and investment solutions.
The GFCC Competitiveness DecoderTM (decoder.thegfcc.org) – a data-based tool developed to visualize key drivers of national competitiveness – shows that while traditional infrastructures are key, more and more countries are clustered around the availability of 21st Century infrastructures – broadband internet, computer networks etc. This is not to say that traditional infrastructures are not relevant, they surely are, but countries also need to develop 21st Century infrastructures in order to become and remain competitive.
Physical infrastructures that provide the foundations for national competitiveness and well-being are in short supply globally. Infrastructures are needed to make business and trade possible; to make national economies competitive in the global landscape and, above all, to improve people’s lives. Indeed, people need and deserve to have access to sanitation, shelter, water, energy, food and much more. We live in a world full of challenges and opportunities, marked by big transformations, in which developments in infrastructure are critical for adapting to those changes as well as for creating both value and improving social welfare.
The development of infrastructures opens up opportunities for value creation and new industries can be enabled and nurtured via timely made investments. Addressing the infrastructure gap creates huge opportunities for business growth. Businesses can benefit from investments in infrastructure not only through the resulting operational efficiency outcome reflected in the lower cost of doing business, but also because of new business opportunities that are created. The existence of certain infrastructures allows determined activities to take place or even blossom in a region/country. For instance, internet infrastructures are required for ecommerce companies to exist and airports for air transportation and logistics companies to prosper – big investments in infrastructures have the potential to create comparative advantages in trade, logistics, and business location. The absence of infrastructure creates barriers for the development of industries and businesses; thus hindering value creation. It’s necessary to build the infrastructures of the 21st Century to enable the creation of 21st Century businesses – and vice-versa. There are positive feedback loops between infrastructure and business development that cannot be neglected by nations as they pursue national competitiveness.
Estimations from consultancy companies (Booz Allen Hamilton, CIBC World Markets) and international organizations (OECD) account that global investment in infrastructure until 2030 will be between $27 and $42 trillion, while a G20 report estimates the amount needed to be invested until that year, for additional infrastructure capacity to be around US$70 trillion. Given the massive amount of capital that will be mobilized, opportunities for manufacturing and other business spillovers should not be neglected. In order to leverage those opportunities, we should not just consider traditional and well established infrastructures, but look ahead, to the potential of new and emerging technologies.
Disruptive/exponential technologies can transform the landscape for infrastructures, creating new markets and disrupting existing ones. The rapid transformation of the technology landscape has a lot to say about infrastructure investments. Moore’s Law (microprocessors capacity double each 18 months) has set the pace for performance improvement, and cost reduction in semiconductors and electronics in the last five to six decades. We’re now at the dawn of an era in which biological materials and matter is likely to be subjected to the same logic of cost reduction and drastic improvement. Together, improvements in electronics, information technology, synthetic biology and materials science have the potential to unleash a new industrial revolution where the impacts on nations, business, and people’s lives will reach tectonic proportions.
It is evident by now that information technology is pervasive and will become increasingly embedded in all kinds of devices and infrastructures – the Internet of Things is here to stay. This opens the potential for real time monitoring and intervention (not to mention what will be achieved with the use of self-healing materials) in infrastructures, improving performance, safety and reliability and reducing maintenance costs.
In combination, the miniaturization of devices, the manipulation of matter at the nano scale, the development of new bioprocesses and technologies and the integration of solutions via advanced networks can reshape much of what we currently know as standard solutions for infrastructures.
What if energy is produced and stored locally at low cost? What if drinking/waste water systems become integrated and 100% autonomous at the unit (residential/industrial) level? What if public transportation systems become based on shared autonomous vehicles – in other words, what if Über meets robot car in mass scale? What if manufacturing becomes fully distributed and most goods are printed locally and not transported across the globe? The potential impacts are enormous. New types or configurations for infrastructures can emerge and old types of infrastructures – and business – can be disrupted. Luckily, those development will contribute to the solution of the global challenges here outlined – food, water, energy, shelter, health etc. A great part of those transformations will take place in cities, both as primary spaces for infrastructure development and innovation.
Urban spaces will face additional pressure for the development of infrastructures; while the emergence of globally connected cities in new geographies (e.g. Africa) will also catalyze the global flow of ideas and people. While 54% of the world population already lives in cities, we are at the cusp of a new urbanization wave. According to the UN, 2.5 billion people will be added to the global urban population in the next 35 years, mainly in Africa and Asia. This transformation is expected to put a lot of pressure on urban infrastructures, especially in places where they are not in place or are underdeveloped.
About 66% of the world population is estimated to be living in cities by 2050, and a great part of then in mega cities with 10+ million inhabitants – today, 7% of the world population lives in mega cities, which account for 15% of world’s GDP, according to the US National Academy of Sciences. The geographical concentration of the human population gives rise to new tensions and propels resources utilization, but also boosts trade and creativity. Cities have been the locus for business, creativity and innovation for millennia. Designing solutions to cope with the needs (shelter, mobility, sanitation, food and water supply) of an increasingly urbanized population will be key for a prosperous and socially stable future. Advanced planning and simulation tools (visualization and virtual reality included) and new technologies will be instrumental in delivering infrastructure services. But that alone won’t be enough – a new set of design concepts and principles will also be required.
The implementation of infrastructures in the 21st Century will require leadership, innovative models and action on different fronts. Investment, regulation, talent and innovation are key decision/action areas for the implementation of infrastructures. Any agenda to be outlined should consider these components; both for traditional or advanced IT enabled 21st Century infrastructures. The massive amount of investments needed to cope with infrastructure needs around the globe will only materialize if the appropriate funding mechanisms are in place. Making long term funding mechanisms available for infrastructure projects is a challenge in different realities. Even when capital is not scarce, the very nature of infrastructure projects (long term oriented, capital intensive, subjected to regulation and unique technical and operational risks) can make the mobilization of financial resources a challenging task. Connecting infrastructure projects with technology development adds extra layers of complexity to the investment equation. Innovative funding models are required, in conjunction with super informed and diligent project design and management, among other factors.
Most of infrastructures are regulated by government agencies at different levels, from the local to the national – or even international. Infrastructures can be owned and/or operated by governments, corporations, consortia etc. in a wide variety of combinations.
Governments interfere – for good or bad, in the design, implementation and operation of infrastructures. Return rates, technologies, service levels, business models, funding sources and other aspects are subject to government rules and/or oversee. Implementation of 21st Century infrastructures will require several developments in funding and risk mitigation mechanisms, public-private partnerships for research, development and scale-up of technologies, concession models etc. There is need and space for innovation in regulation and institutional frameworks.
The development of infrastructures is and will be limited by the availability of the appropriate talent pool. Pipelines and power lines require welders, mechanics and pipefitters; distributed solar power generation requires professionals trained to install and maintain solar panels and energy storage units. Talent will be needed for project conceptualization, design, implementation and operation of infrastructures. While that is the case, it’s also true that the implementation of new infrastructures creates opportunities for new skills to be disseminated in the workforce, in all levels of specialization.
As infrastructure projects become more complex, they’ll demand new sets of skills and multidisciplinary approaches – design, technology, social engineering, financial modeling and other disciplines need to come together. Business design, social systems modeling and project management are key disciplines in a new infrastructure curriculum.
Innovation will be the cornerstone for 21st Century infrastructures. The realization of value creation potential of investments in infrastructure will only be possible through innovation. New concepts, business models, technology solutions and regulatory models can help humanity to address infrastructure and global challenges and create value economy wide.
Competitiveness is increasingly interconnected with sustainability – not a nation, region or city will be truly competitive and thrive in the future if that nexus is neglected. Beyond environmental issues, sustainability says a lot about economic performance, the capacity to attract and retain talent, the possibility of life at local and global scales. Bridging growth, competitiveness and sustainability will depend of new concepts, technologies and business models. The solution will increasingly depend on the capacity to innovate, in different dimensions of business, government and society.