Finance: Infrastructure Investment Won't Support Business Growth
Recent Gauteng Business News
The majority of C-level executives (77 percent) surveyed for KPMG International, the global network of audit, tax and advisory firms, believe that the current level of infrastructure investment is insufficient to help sustain the long-term growth of their organisations. Only 14 percent of business leaders globally believe the infrastructure currently available to support their organisations is completely adequate. “/Bridging the Global Infrastructure Gap/,” was conducted by the Economist Intelligence Unit on behalf of KPMG in late November and December 2008. 328 C-level executives or board members from 21 countries around the world where surveyed, representing a wide range of industries with11 percent of respondents came from the Middle East and Africa. The survey is of particular relevance to South Africa where improved infrastructure is essential to improve the quality of life of citizens, provide a platform for accelerated future growth and to provide training and work opportunities to meet the governments’ core objective of poverty alleviation.
South Africa is a microcosm of the global picture with aging infrastructure unable to meet the growth in the economy, uneven quality of infrastructure between developed and under developed areas and with infrastructure being used by government to dampen the impact of the economic slowdown. Analysts estimate that two trillion dollars will be spent on infrastructure globally on an annual basis until 2015. However, executives in every region, including South Africa, expressed concern that infrastructure investment would not be adequate. While business leaders in Eastern Europe and Asia Pacific were most focused on the issue the study reported a high level of concern as well in mature markets with 74 and 64 percent of executives respectively in the United States and Western Europe expressing the same opinion.
The KPMG survey, conducted by the Economist Intelligence Unit, also revealed that:
# Senior executives believe infrastructure will increase in importance over the next five years;
# The availability and quality of infrastructure will directly affect where these executives locate and expand business operations;
# The business leaders believe governments should partner with the private sector to finance and administer major infrastructure projects;
# Roads and power generation are the most urgent infrastructure needs, say the majority of business leaders surveyed globally.
The Importance of Infrastructure is Growing
The vast majority of respondents - 80 percent - say that infrastructure will be even more important to their businesses in five years. While Asia Pacific sees the biggest increase in the impact of infrastructure, with 87 percent saying it will be more important in five years, it’s especially interesting to note that the U.S. is closely grouped with Middle East/Africa, Latin America and Eastern Europe – with more than 80 percent of respondents seeing infrastructure being more important in five years.
“People are concerned about the future impacts of poor infrastructure on their businesses, too. Seventy-seven percent of those surveyed are somewhat or very concerned that current infrastructure investment in the country where they work will not be sufficient to support the long-term growth of their organisations,” says Jeff Shaw, Director of Major Projects at KPMG South Africa. “And this is certainly an issue for developed and developing countries alike. Roughly nine in ten respondents in the emerging markets of India (95 percent), Poland (93 percent), Russia (86 percent), and South Africa (86 percent) said current infrastructure investment is insufficient to support the long-term growth of their organisations.”
“While the economic downturn that began in 2008 may affect the funding of infrastructure improvements, most survey respondents see the economy as a short-term issue. Overall, 58 percent of executives expect the economy where they operate to improve over the next five years,” adds Shaw.
Infrastructure Drives Where Businesses Locate
An overwhelming majority (90 percent) of the executives surveyed said that the availability and quality of infrastructure affects where they locate their business operations.
“As governments around the globe grapple with the current economic crisis, they must recognise that infrastructure investments are still desperately needed to support critical business activities,” said Nick Chism, Head of KPMG’s Global Infrastructure practice, and partner in the UK firm. “Not only does improved infrastructure attract businesses and the employment and the tax revenue that is derived, but it’s recognised that infrastructure work can be an economic stimulus if managed correctly.”
According to Shaw; the 2008 electricity supply disruptions and the resulting impact on business in South Africa have damaged business confidence in South Africa’s infrastructure. “It is essential that government initiatives to address the issues and to ensure that all aspects of infrastructure are upgraded are successful so as to attract investment and stimulate economic growth and job creation.”
Partnering with the Private Sector
With depleted coffers at the federal and local government levels, 80 percent of executives surveyed say governments need to work to a greater extent with the private sector to finance infrastructure improvements. “Infrastructure is at a critical crossroads, and governments have an incredible opportunity to make decisions that will impact many future generations,” Chism noted. “Almost three-quarters of the executives surveyed in the U.S. and Western Europe expressed concern that poor economic conditions along with the challenges facing governments will prevent the needed investment in infrastructure. They are looking for government to partner with the private sector to develop effective financing solutions
Roads and Power Supply Top Concerns in Every Region
Two-thirds (66 percent) of executives in the KPMG survey reported that both transportation and energy/power supply infrastructure are resulting in increased operating costs for their business.
According to the survey, roads and power generation are the most urgent infrastructure needs globally and in every region. For example, twenty-six percent of executives surveyed say that the state of existing energy and power supply infrastructure is adding greatly to the cost of operating their organisations, while another 40 percent claim some negative financial effect. As a result, businesses see power generation as the second most important of all infrastructure areas requiring investment, cited by 47 percent. This is particularly true in South Africa (86 percent) and India (62 percent). In fact, 90 percent and 89 percent, respectively, of respondents in these two countries say poor energy infrastructure burdens their organisations with additional costs.
“Many businesses in developed countries may not be feeling the impact of aging infrastructure in their pocketbook yet,” said Chism. “But with the average infrastructure project taking several years from project start to completion, governments should act now to develop strategic approaches to the issue before it becomes a crisis situation.”
“What this study has indicated is that while it is important for developing – but faster growing – countries to make a commitment to infrastructure investment, it is equally important for more mature markets to replace their aging infrastructure or risk losing their competitiveness,” concludes Shaw. “South Africa’s infrastructure challenges are not unique but it is clear that we cannot afford not to keep pace with the rest of world as they address their infrastructure needs – failure to do so will have a long term negative impact on South African development..”
Business News Sector Tags: Finance|