A huge wave of global investment is underway, and this is potentially good news for Canada.
This wave of investment — which will take place in Asia, Latin America and even Africa — represents one of the best opportunities for Canadian companies of all sizes, and comes at a time when a weaker U.S. economy for the foreseeable future means we must look elsewhere for growth.
A new report from the McKinsey Global Institute argues that “the world is now at the start of another potentially enormous wave of capital investment, this time driven primarily by emerging markets.”
The consulting firm’s think tank maintains that “there have been a number of economic periods in history, such as the Industrial Revolution and the post-war reconstruction of Europe and Japan, that required massive investment.”
We are, it says, now at the beginning of another such investment boom one that will have to be more environmentally sustainable.
It projects global capital investment at US$24 trillion (in 2005 prices and at existing exchange rates) in 2030, compared to US$10.7 trillion in 2008. That’s just two decades from now.
The largest share of that investment, by far, will take place in two countries — China and India. But throughout emerging market economies there will be a huge demand for new housing, highways, airports, rail systems, water and sanitation facilities, telecommunications, electric power, factories, machinery and equipment, shopping centres, hospitals and large office towers. The high investment rate triggered by this growing demand “could last for decades,” the McKinsey study says.
The economies of both China and India could more than quadruple over the next two decades, McKinsey says. In 2008, China accounted for 12 per cent of global investment; in 2030, it is projected to account for 25 per cent. But countries in many other parts of the world, such as Brazil, Indonesia, South Africa, Kazakhstan and Russia, will also have huge needs. As the report points out, Sao Paulo, Brazil, already has more office towers than Tokyo and is adding more.
This suggests that Canada should be adopting now a strategy to participate in this investment boom, which will touch so many industries. Led by Industry Canada, and working with the provinces and business, we should set up a special branch of government to quarterback such an initiative.
Our Export Development Corp. should also be part of the Canadian action plan. You can bet that the United States, Europe, Japan and South Korea will be doing so.
In 2008, global investment included US$2.1 trillion in residential real estate, US$1.6 trillion in infrastructure, and US$7 trillion in other productive assets such as commercial buildings, factories and machinery and equipment, for a total of US$10.7 trillion.
In 2030, McKinsey forecasts, global investment will include US$4.9 trillion for residential real estate, US$3.7 trillion for infrastructure, and US$15.4 trillion for productive assets, for a total of US$24 trillion.
A huge factor is the movement of literally hundreds of millions of people in China and India from the countryside to cities, where they work in factories and offices. Some 500 million more people live in cities now than in 2002.
This huge migration to cities means a surging demand for housing, public infrastructure, transportation, factories, office buildings, hospitals and shopping centres, the report stresses.
To keep pace, China needs to have 40 billion square metres of residential and commercial floor space, the equivalent of building a New York City every two years for the next two decades, while India needs to add 800 to 900 million square metres a year for the next 20 years, or the equivalent of a new Chicago every year.
In many respects, Canada’s history is one of ongoing infrastructure development, meeting the transportation, communications, electric power, housing and industrial needs of a growing nation. It is a country of engineers, architects, planners, builders and financiers. Canadian engineers in the late 19th and early 20th century helped develop the mines of South Africa and the oil fields of Romania and built the power plants of Brazil and the Caribbean.
Those kinds of reliable can-do skills will be needed more than ever in the next capital boom, as will the financing skills to support such initiatives.
There is no reason why Canadians cannot play a productive role in this next capital boom. But we will need to organize ourselves to do it and we must start planning for this now.
David Crane is a syndicated Toronto Star columnist. He can be reached at crane@interlog.com.