Issue link: https://read.dmtmag.com/i/319134
I DA U N I V E R S A L M ay -J u n e 2 0 1 4 41 s investment opportunities go, lending money to a con- sortium building three prisons in rural France does not have the cachet of backing the lat- est Silicon Valley IPO. A new subway line in Seoul or energy pipelines in Texas will not set many pulses racing, either. Unglamorous as they may be, such investments are vital for economic growth. Yet fi nanc- ing infrastructure is falling out of favor with banks. Can other investors plug the gap? European lenders, which used to dominate infra- structure fi nancing, are now busy repairing their dented balance-sheets. Meanwhile the new Basel 3"rules are steering banks away from the long- term loans (o en stretching beyond 20 years) required by backers of infrastructure projects. e one exception is Japanese banks, which have stronger balance-sheets and are keen to put money to work. Banks are not only wary of making long-term loans, but also reluctant to take as much risk as before. Whereas they used to be happy to lend 90 percent of the construction cost of a large project, such as a toll road in America, that fi gure is down to around 70 percent now. is forces the backers to come up with more of their own cash. In the same way that building houses slows when banks cut the supply of cheap mortgages, infrastructure construction dries up when fi nancing gets tighter. All this is contributing to a widening gap between the amount that is being invested in infrastructure and the amount that ought to be. It will cost $57 trillion to build and maintain the world's roads, power plants, pipelines and the like between now and 2030, estimate consultants at McKinsey (see chart). at is more than the value of today's infrastructure. By one esti- mate, infrastructure spending currently amounts to $2.7 tril- lion a year (about 4 percent of global output), yet $3.7 trillion is needed. With public fi nances straitened, governments are unable to make up all of the shortfall. Some, notably China, can pay outright for the stuff that needs to be built. But most others (and private investors such as telecom fi rms) rely on fi nancing of a sort which has The World Needs More Infrastructure. How Will It Pay for It? A Continued on page 43