The Smart Infrastructure Opportunity

The globe faces three major problems that impede the construction of adequate infrastructure over the next 20 years:

1. $94 trillion of investment is needed.
2. The construction industry is not presently equipped to address the need.
3. Government budgets are constricting investment and maintenance funding.

The construction of smart infrastructure will address these problems head on. It will also provide public benefit that will make 'dumb' infrastructure obsolete in the not-so-distant future.

This is the second in our series of blog posts drawn from our recent web report: The Promise of Smart Infrastructure. Here we present the most fundamental promise of smart infrastructure: the opportunity to construct sufficient infrastructure capacity.

Let's start with some background on the three problems described above;

1) The world requires $94 trillion of infrastructure over the next 20 years

The G20 released its Global Infrastructure Outlook in 2017 to forecast infrastructure investment needs and the funding gaps relative to current spending. The forecast suggests that $94 trillion of new investment will be needed through 2040, starting with $2.7 trillion in 2019.  This amount is $15 trillion more than current spending will fund, suggesting that the world will need to spend more or find ways to become almost 20% more productive in infrastructure construction.  

2) The construction industry is not presently equipped to address the global infrastructure need.

In its 2017 report entitled Reinventing Construction: A Route to Higher Productivity, the McKinsey Global Institute reports that the construction industry lags all other major industries in productivity. In fact, the construction industry experienced a productivity decline of almost 1.5% per year from 2005 through 2014. Not surprisingly, the industry also lags in the adoption of digital technologies.

3) Government budgets are constricting infrastructure funding.

While investment needs are surging, the governments of developed countries are experiencing political pressure to reduce the tax burden and economic pressures that are limiting tax revenue growth.

In its Fiscal 50: State Trends and Analysis report, the PEW Charitable Trust reveals that, while 2018 state tax collections in the US are demonstrating strong short-term growth, this proves to be the exception to the rule in the years since the Great Recession of 2007 - 2009. Collections in 2016 and 2017 provided the slowest tax revenue growth (outside of an economic recession) in 30 years.  Tax revenues increased more slowly immediately following the Great Recession than for any of the three previous recessions.

The report's conclusion underscores that infrastructure project managers cannot rely on tax revenues alone to fund the funding gap or additional maintenance costs of new infrastructure investments:

"Even a return to peak levels can leave states with little extra to cover costs associated with population increases, growth in Medicaid expenses, deferred needs, and accumulated debts and liabilities."

The Smart Infrastructure Opportunity

By its nature, the construction of smart infrastructure will address the issues of productivity in construction and maintenance.

The McKinsey report details recommendations for achieving $1.6 trillion of productivity improvements, enough to fill the gap between annual infrastructure investment and the global need. A substantial proportion of the recommendations involve the application of technology and new practices that also happen to be the solutions and practices required to manufacture and construct smart infrastructure. So, the specification of smart infrastructure projects will inherently address the construction productivity problem.

Similarly, the smart infrastructure solutions we describe in our web report will reduce the cost of asset inspections by 40% or more, saving billions of dollars annually and addressing the public sector budget pressures in the process. 

There will be many other public benefits to smart infrastructure:

• Optimized traffic management
• Transportation efficiency
• Real-time communication with the public
• Improved safety, and
• Currently unforeseen benefits from innovative apps produced by the private sector

Years from now, we may see benefits such as these as essential to our way of life; much the same as we can't envision how we ever managed without the internet.

However, the most pressing problem currently is finding a way to produce enough infrastructure to sustain our existing needs. Therefore, the most fundamental promise of smart infrastructure is that it will drive the productivity improvements in construction and maintenance that are essential to meeting global infrastructure needs over the next 20 years.

If you want to discuss how Idencia can help your company provide smart infrastructure with Connected Concrete™, we hope you will click below or download our Connected Concrete™ deck to the right of this post.

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