- June 30, 2011
- Emerging Markets Building Highways to Wealth
If you think Los Angeles traffic is bad, take a look at the results of IBM’s Commuter Pain Index. Last summer, IBM surveyed more than 8,000 motorists in 20 cities across 6 continents to determine the emotional and economic toll of commuting. They measured the amount of time it took to commute and time stuck in traffic along with whether there was an agreement of the following: the price of gas is already too high, traffic has gotten worse, and driving causes stress and anger.
According to IBM, 13 cities other than LA cause more commuter angst. The top three hail from three different countries: Beijing and Mexico City tie as the world’s worst, with Johannesburg coming in third.
Yet, of IBM’s 20 surveyed cities, three of them fall within U.S. borders. It’s been 50 years since the U.S. began its infrastructure road project that connected the Heartland to the tip of Florida and the east coast to the west coast. Since then, infrastructure spending has been flatter than America’s buckled roads. As a share of GDP, spending has slowly declined to 2.4 percent.
In emerging markets, it’s a completely different story. Among the E-7 countries (the seven most populous nations), Brazil, China, India and Mexico have projects in the works that most likely will have a substantially greater impact than America’s “great road program.” These programs attempt to address infrastructure needs to support increasing urban populations with rising incomes and a significant growth in automobile ownership.
Below are a few highlights published in an extensive report done by the Urban Land Institute (ULI) and Ernst & Young:
Brazil Growth Acceleration ProgramThe country is preparing to host the 2014 World Cup and the 2016 Summer Olympics, with an infrastructure plan to help fans travel around the country. The government has committed to spending $900 billion over several years to construct power plants, hydroelectric dams, port facilities and a high-speed railway which will run from Rio de Janeiro to Sao Paulo. In Rio, major upgrades to highways and bus lines will help link the downtown to the suburbs and airport.
China’s 12th Five Year PlanBeginning in 2011, China will allocate $1 trillion in infrastructure spending over the next five years. According to KPMG Insight Series, key projects will be to increase the number of airports from 175 to 220, including building a new airport in Beijing; and extending the length of highways to more than 50,000 miles and high-speed rail to 27,000 miles.
India’s 12th Five-Year PlanOver the 2012-2017 period, the ULI and Ernst & Young report indicates the national government in India is planning to spend $1 trillion—or about 9 percent of GDP—to build necessary power, water and a transportation system to sustain the growth of its country. As an example of the country’s poor roads and rickety railways, nearly half of fruits and vegetables rot on the way to market. To improve this situation, ULI and Ernst & Young state that the Transport Ministry has “set out an ambitious agenda to build 12 miles of road per day, or 30,000 miles over the next four years.”
Mexico’s National Infrastructure PlanIn 2007, Mexico began a five-year infrastructure plan totaling more than $141 billion spent on 300 projects including ports, airports, roads, railways, water and energy.
General Roy Stone, American Civil War hero and head of the U.S. Office of Road Inquiry, once said, “Good roads are the highways to wealth.” We agree, as we think these infrastructure projects will help transform these most populous countries from the poorest areas of the world to the next economic powerhouses.
Read a previous blog on the $6 Trillion Opportunity in global infrastructure.
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- December 8, 2008
- Obama and Infrastructure
As he gets closer to taking over the Oval Office, President-elect Obama is talking more and more about his desire to spend big on domestic infrastructure improvements as a key part of his economic stimulus plan.In his latest weekend radio address and on “Meet The Press”, Mr. Obama said “we will create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s.”
He also made clear that he wants action now: “We’ll set a simple rule—use it or lose it. If a state doesn’t act quickly to invest in roads and bridges in their communities, they’ll lose the money.”
Stock markets jumped on Mr. Obama’s emphasis on infrastructure, and that makes some sense given that a major infrastructure program signals his focus on reviving the economy and because infrastructure reaches across many sectors, among them steel and cement companies, engineering and construction firms, heavy equipment makers and those who produce industrial commodities like copper and oil.
State highway officials say they have $64 billion worth of road and bridge projects that could be under way within six months. These projects could create nearly 2 million jobs.
The effort wouldn’t have to end there—tens of billions more could be allocated for projects addressing repairs and upgrades in water, mass transit, airport, school and other infrastructure.
We’ve long believed in the global infrastructure build-out in large part because it is driven by government policies for growth. In this case, of course, it’s also a win-win economic stimulus—high-paying jobs to kick up the economy and many long-deferred projects finally get done.
We’ve made a map of some of the biggest infrastructure needs around the country. Click on the image below to see that map.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
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- October 22, 2008
- When Global Tentacles Contract
I recently appeared on CNBC’s “Power Lunch” to discuss whether market turmoil has created the buying opportunity of a lifetime.During the discussion, I was asked how this downturn differs from previous market cycles and what action might help rebuild the economy. I gave this response:
“I knew that the government was leveraged in debt, and I knew that “Main Street” was leveraged in debt. But Wall Street, just the degrees of leveraging and how that [leverage] had these global tentacles that immediately started to contract … that is what’s very different in this kind of cycle. …
“So I think going forward, people will look at these markets differently. They’re going to look at what’s going to take you out of a recession. I mentioned earlier (that) a fiscal stimulus package on infrastructure would be a great, sustainable way.”
*View the Interview on CNBC the Web Site
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
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- January 20, 2009
- Infrastructure Investment and the American Recovery & Reinvestment Bill
John Derrick, Director of Research and co-manager of the Global MegaTrends Fund (MEGAX)Details of the much-discussed “American Recovery and Reinvestment Bill of 2009” were released last Thursday. The bill calls for $825 billion in stimulus, of which roughly $550 billion is allocated for stimulus spending and $275 billion is for tax cuts.
Here’s a quick glance at some of the highlights.
The bill calls for energy infrastructure investments totaling $54 billion. This includes $32 billion to transform the nation’s energy grid, focusing on renewable technology. Another $16 billion is for public housing repair and $6 billion to weatherize modest-income homes.
The bill has funds for investment in technology infrastructure, which gets less attention than traditional infrastructure elements like utilities, highways and bridges but is equally important. Technology investments total $16 billion which is split between $10 billion for science, research and instrumentation facilities and the other $6 billion to expand internet access to underserved areas.
Technology plays a pivotal role in both American business and leisure life, so the investment is key in keeping America competitive on the global landscape.
Transportation infrastructure investments account for just over 10 percent of the bill—totaling $90 billion. The bulk of this money will go towards highway construction and modernizing public and federal buildings, receiving $30 billion and $31 billion respectively.
An additional $19 billion is for clean water and flood control, and $10 billion is specifically targeted for transit and rail improvements aimed at reducing traffic congestion and gasoline consumption.
This isn’t a complete list, but, all told, the total infrastructure allocation comes to $174 billion.
The American Society of Civil Engineers reports that it would take $1.6 trillion over the next five years to fix the nation’s inadequate roads, bridges, water systems and other infrastructure. The $174 billion is a great start, but we still have a long way to go.
Globally, it’s been estimated that infrastructure investments will total $40-65 trillion by 2030 driven primarily by emerging markets looking to build new highway networks, aviation systems and seaports.
The proposed legislation helps validate the infrastructure story here in the U.S. and America will play a key role in solidifying the global infrastructure build-out as a dominant global megatrend.
Please consider carefully the fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.
Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
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- December 15, 2008
- Momentum for Infrastructure is Building
By John Derrick, Director of Research
We’ve been talking infrastructure for a long time, and more people are now listening after President-elect Obama revealed that his best idea for stimulating the U.S. economy is through a massive infrastructure spending program.
While details are still being worked out, it appears that Mr. Obama will quickly propose a two-year fiscal stimulus package worth up to $800 billion and that much of this amount would be directed toward infrastructure programs. To put this number in perspective, $800 billion is equivalent to about 5.5 percent of the nation’s GDP.
And while Americans are divided on the wisdom of the TARP rescue program for financial companies and whether to throw a federal lifeline to the Detroit carmakers, they clearly support spending to repair or replace the aging stock of U.S. infrastructure assets.
A recent Los Angeles Times/Bloomberg survey shows that the public strongly believes that “an economic agenda focused on spending for improvements to the country’s infrastructure such as roads, bridges, and schools” would be more effective than tax cuts in stimulating the nation’s economy and creating jobs.Stock markets responded well to Mr. Obama’s emphasis on infrastructure to revive the economy, which makes some sense because many sectors would be affected, among them steel and cement companies, engineering and construction firms and heavy equipment makers. For those who produce industrial commodities like copper and oil, Mr. Obama’s vision could help reverse declining prices.
State highway officials say they have $64 billion worth of road and bridge projects that could be under way within six months. These projects could create nearly 2 million jobs. Tens of billions more dollars could be allocated for projects addressing repairs and upgrades in water, mass transit, airport, school and other infrastructure.
Governments around the world are also seeing the possibilities. UBS Investment Research estimates that the global fiscal stimulus is equivalent to 1.5 percent of global GDP and, as in America, a significant portion of this stimulus will fund infrastructure projects. Countries that are investing a significant portion into infrastructure include China, Australia, France and the United Kingdom.
The Chinese government has been particularly aggressive—roughly 75 percent of the recently announced $586 billion fiscal stimulus measure is being targeted for infrastructure projects. China’s stimulus program will cover affordable housing, rural infrastructure, railways, power grids and post-earthquake rebuilding in Sichuan.
The stimulus program is only a part of China’s allocation to infrastructure.In its current five-year plan (2006–11), the government plans to spend more than $650 billion on infrastructure projects, most of it on highways, railways and other transportation projects. On top of that, roughly $1 trillion more has been approved for roads, rails, ports, water systems and other infrastructure in the next few years.
The accelerated infrastructure spending is intended to help offset lower exports and lower property related investment in China. Beijing has a fiscal surplus, large foreign exchange reserves and low government debt levels to help pay for the planned spending.
We’ve long believed in the global infrastructure build-out in large part because it is driven by government policies for growth. In the case of both the U.S. and China, it’s a win-win economic stimulus—jobs are created to kick up the economy and many needed projects get done.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
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