INFRASTRUCTURE:

Building for Tomorrows Competition

THIS MONTH S ISSUE Why We chose INFRASTRUCTURE

ROME HAD ROADS AND AQUEDUCTS WELL AHEAD OF ANY OF ITS RIVALS.
ITS EMPIRE TOWERED ABOVE THE WORLD FOR CENTURIES. The dark ages were ushered in when disorganized peoples from Northern Europe let that infrastructure fall into disrepair. What followed was centuries of ill health, isolation, ignorance and death. The fate of our collective industry is about more than the bureaucratic policies of the Department of Public Works, but of our future prosperity.

THIS MONTH S ISSUE Why We chose INFRASTRUCTURE

As you know from prior STEEP Reports, there are several strategic changes that await us: from a global talent crunch to urbanization, from immigration to clean industries. While many pieces are in play, one will greatly control how and where the rest of the chips fall. Were talking about infrastructure. The physical capital of bridges, roads, ports, rail, and electrical grids doesnt just provide the basic necessities of today, but actually functions as the roots of future economic productivity. As such, to understand what will provide the underpinnings of all the other decisions you will be making, this issue of the Competitive Futures STEEP Report, studies the major trends in infrastructure around the world.

A personal note on Why We chose INFRASTRUCTURE

On July 30, 2007, Competitive Futures president Eric Garland was attending the international congress of the World Future Society, held in Minneapolis, Minnesota, USA. Enjoying the beautiful Midwestern summer nights, he went jogging every evening over the Hennepin bridge, located next to Interstate 35, which connects St. Paul and Minneapolis. The following evening during rush hour, for no apparent reason, the Interstate 35W bridge collapsed, killing 13 commuters. A world-class infrastructure has been one of the hallmarks of the United States economy. If this infrastructure is threatened in the future, its impact will be broad reaching and instructive for businesses around the world.

Todays success was built on yesterdays investments. Tomorrows success will depend on what you build TODAY.

The long-term future success of your company may likely depend on the infrastructural decisions made today. 1. Inform yourself about the state of the infrastructure on which you depend. 2.Communicate with your government about the need for infrastructure. Its the future of their tax base, too.

Infrastructure: The Global View

The world economy will require $30 trillion in infrastructure over the next 20 years
repaired bridges, new roads, water treatment, airports, ports, and much more

Competitive Futures Rules for Managing the Future #5: Whenever people are going to write checks for BILLIONS or TRILLIONS, pay attention

Thos trillions of oll rs

ill b sp nt b

s :

1.1 billion people around the world lack access to clean water 2.6 billion people around the world lack the basic necessity of a toilet 1.6 billion people worldwide lack access to electricity Billions of dollars are lost worldwide in fuel waste and lost productivity by traffic congestion Thousands of bridges waiting to be replaced Billions of dollars of trade could be unleashed by roads, bridges, and ports in emerging economies

The Trends

AT A GLANCE: Todays infrastructure olicies around the world

Europe Increasing connectivity among E.U. countries, modernizing Eastern member states

U.S - No strategy for infrastructure development; coasting from old investments

Middle East Investing petroprofits in nextgen cleantech infrastructure China World top investor in infrastructure

Latin America overwhelmed; expanding through privatization

Subsaharan Africa relying on crumbling colonial infrastructure; receiving help from China

Australia coasting

Which countries are investing for tomorrow?

CHINA: Planning to compete through infrastructure

China is investing a full 9% of its GDP in infrastructure No other country is close.
China invested $400 billion in transportation projects scheduled to be completed by 2010. Some examples: 6 high-speed passenger railways, including a route from Beijing to Shanghai 14 expressways, including a road from Hong Kong to Beijing Dredging the Yangtze and Pearl rivers and expanding road and rail systems to connect to major ports

Expansions of 10 airports, including construction of the world's largest terminal building in Beijing.

The Three Gorges Dam: Sometimes, you need dictatorshi to get ig rojects done

Consider Shanghai the infrastructure of the future

While the United States watches bridges collapse at random, China is engaging in world-class megaprojects aimed at increasing its competitiveness. Chief among these is SHANGHAI, which is building:

Mag-lev train fro

the airport to the city center

Ten ring roads, dozens of superhighways

Bullet train connecting Shanghai to Beijing

Worlds highest capacity deep-water port

Consider just Chinas roadways

China went from only 169 miles (271 km) of highways in 1989, to approximately 25,000 miles (40,000 km) of highways today. As it expands manufacturing and commercial growth, the country plans to expand its highways to a total of 51,250 miles (82,000 km), reaching out into the rural areas as well as the already-vibrant Pacific coast.

EUROPE: Growing closer through shared infrastructure

Europe is focused on increasing the connectivity between EU member states: EU countries connecting transport, telecommunications, and energy networks to promote mobility and economic synergy. Planners building and expanding various northsouth, east west road and rail corridors, connecting to seaports, airports, and major cities.

The Millau Bridge, France

EUROPE: Growing closer through shared infrastructure

In SPAIN, a15-year, $375 billion plan to add 5,625 iles (9,000 k ) of high-speed rail (up fro 625 iles [1,000 k ]) and 3,750 iles (6,000 k ) of new highways (expanding fro 5,625 iles [9,000 k ]). By 2020, 95% of the population within 18.75 iles (30 k ) of a highway and 90 percent within 31 iles (50 k ) of a high-speed rail station

GERMANY looking to add a new high-speed rail line linking Cologne and Munich, aintain its rail and trucking infrastructure to continue econo ic growth

UK - The govern ent seeks to double rail ridership by 2030 and considers expanding high-speed rail north of London, linking Manchester and Scotland

FRANCE - A new freight canal into Belgiu rail line in the world

is to be built, along with the highest-speed

RUSSIA - A new $2.5 billion state invest ent fund targets financing transport projects, though uch will be anaged by private investors

Infrastructure in Euro e: Im roving a variety of social ro lems.

Think roadly a out the definition of infrastructure its not just for driving on!
We find it interesting that investments in infrastructure can be used to improve a number of social or commercials problems. Consider Germany: With a birthrate of 1.4 per couple and 33% of its women refusing to have children, Germany is facing a future where the social security system could go bankrupt by 2030, and where the total population of ethnic Germans could reach only 10 million eo le of German descent y 2050, down from 80 million today. For Chancellor Angela Merkel, the answer to infertility is infrastructure. The German government is investing in child care, nursery schools, and tax credits for young people willing to have babies.

The Middle East: Converting etro-dollars into Cleantech Infrastructure

Just ecause they are sitting on all the etroleum doesnt mean that the Gulf States are ignoring tomorrows needs. Abu Dhabi, once known for petroleum and pearls, will be host to what is planned as the worlds first zero carbon, zero waste city. In addition to investing aggressively in cleantech ventures, the city will rely entirely on solar and other renewable energy sources. The city is being constructed 17 kilometers (11 mi) east-south-east of the city of Abu Dhabi, next to its airport.

Africa: Crum ling infrastructure kee s eo le in overty

We know that Africa remains impoverished, but poor transportation infrastructure is a major reason why. For example, people living in cities benefit from cheaper goods, while people in the countryside must pay more. Meanwhile, the vegetables sell for the least in their own villages, but getting them into the cities is very expensive with the poor infrastructure. Prices remain high, profits remain low, keeping the African countryside in desperate time.

Africa: Small im rovements go a long way

The UNs Fund for Agricultural Development estimates that African villages with better infrastructure: Produce 1/3 more crops per hectare than those with poor infrastructure Earn wages 12% higher Pay 14% less for fertilizer

Africa: Relying on deteriorated colonial infrastructure

The colonial infrastructure was built in Africa to extract natural resources, not rovide economic and cultural connections between nations.

Transport costs for Africa's 16 landlocked

countries are on the average 50% higher than for coastal counties. A World Bank official esti ates that the cost of doing business is twice as high in Africa as it is in East Asia and 30% higher than any other region.

As a result, the African Develo ment Bank (AfDB) has announced that 60 ercent of its funds for low-income countries will go to su ort infrastructure such as roads, dams, and ridges through 2011.

Infrastructure in Africa: A questionable past forces a new debate on the future of international development
Recommending investment in Africa can get complicated. For decades, the policies of the World Bank and International Monetary Fund were to recommend that African nations borrow vast sums to create a World One infrastructure. The only problem was, in African military kleptocracies, the typical scenario went as such: 1. 2. 3. 4. 5. 6. 7. 8. Borrow millions from World Bank, ostensibly for bridges, roads, electrical grid, etc. Take 50% of loan. Deposit in Swiss numbered bank account. Take 25% of loan. Buy German luxury cars, new weapons for personal defense forces. Take remaining 25% of loan. Half-construct shoddy road, bridge, pipeline, or other. Do not complete projects. Do not repay loans. Doom country to both substandard infrastructure and crushing debt. Flee to London when opposition forces seize capital. Get Bono from U2 to suggest the World Bank forgive loans in name of world peace.
Is this an exaggeration? Not by much.

So, who will invest in Africas infrastructure? China.

The Chinese are making a ig im act in Africa, uilding much-needed infrastructure. In 2006, China pledged $10 billion towards building Africa's infrastructure. China plans to build roads, railways, power stations and bridges at costs that experts believe are 2530% below their Western counterparts'. They may be the direct economic benificiary of this new infrastructure since, China has negotiated 2500 se arate deals for su ly raw materials from Africa.
Note: The Chinese are using their own labor forces for this infrastructure, which does not benefit the local African economies.This is causing residual tension between the locals and the foreign construction firms.

Latin America: overwhelmed y needs of growing o ulations

58 137

illion Latin A ericans lack access to potable water illion dont have adequate sanitation is paved is paved

Less than half of Mexicos 213,000- ile road syste Only 12 percent of Brazils 1 illion ile road syste

Latin America: uilding asic infrastructure

Trash collection and aintenance Water and sewage treat ent

Basic latrines for rural areas

Extending electricity Expanding road syste , paving connector roads

Latin America today: A few take ste s to modernize

In Mexico -New five-year, $250 billion progra targets odernizing 12,400 iles (19,840 k ) of highways and rural roads to international standards, expanding rails by 930 iles (1,488 k ), and developing suburban rail, particularly around the Mexico City gateway. Brazil - $237 billion in public and private invest ents between 2007 and 2010, ost co ing fro stateowned co panies. About $56 billion targets new housing projects and $21 billion covers sanitation and sewage treat ent in slu s. PANAMA - The country widens its nearly 100-year-old canal to ensure a Central A erican passage for the new generation of supersized freighters and tankers. The $5 billion expansion is scheduled for co pletion by 2014.

China versus Latin America: Why not manufacture in our own backyard?
Question: Why did North American companies choose to manufacture in China instead of Latin America?
Think of it. If cheap labor was the impetus behind developing a low-cost manufacturing sector, why did the West make deals with a Communist country across the Pacific instead with its neighbors to the south? El Salvador, Mexico, Peru and others are much closer than China, have both educated work forces and inexpensive low-skill labor, and speak romance languages that are far easier to translate (linguistically and culturally.) So why go all the way to China?

China versus Latin America: Infrastructure was the deciding factor

Answer: An average of 43 days is needed to ship goods out of El Salvador, including the export documentation, port & terminal handling, customs and inspection, and pre-arrival documentation.

This is why CAFTA is reinvesting heavily in commercial infrastructure to assure the future success of the region - $300 Million in the Port of Monkey Point (Nicaragua), US$200 Million in the Port of La Union (El Salvador), and US$300 Million in the Port of Corts (Honduras).

The United States : coasting on old investments

For a $13 trillion economy that drove the 20th Century, it is difficult to find evidence of a cohesive infrastructure lan on which the United States will uild its 21st Century success.

The levees at Lake Pontchartrain, New Orleans

I-35W Bridge, Minneapolis

New York City water system, leaking 20% of its capacity

Once upon a time, the United States undertook massive projects in the construction of a world-class infrastructure

Since the construction highway system in the 1960s, the US has had NO national infrastructure agenda

Today, the America Society of Civil Engineers (which built the Interstate Highway System) recommends $1.6 trillion in reinvestment in national infrastructure in the next five years, including but not limited to the following projects:

Circle Interchange, Chicago Brooklyn Bridge Canal Lock, New Orleans tlanta water system laskan Way Viaduct Lake Okechobee, Florida Dover Bridge, Idaho Wolf Creek Dam, Kentucky

Congestion in both road and rail is costing the U.S. billions

Back in the 1960s, the United States was unified y the national effort to connect its cities y the construction of the Interstate Highway System, which served for decades as an exam le to the world.

Today, slow trains, clogged highways.

Approximately 24% of major roads in the

U.S. are in poor to mediocre condition.

25.4 percent of bridges in the U.S. are

structurally deficient or obsolete

Americans spend 4.2 billion hours stuck

in traffic per year

Traffic congestion wastes $3 billion of

gas a year

The use of public transportation has

The Washington DC Beltway Dont get us started

increased 32% since 1995 investment has not kept up that pace

US infrastructure: suffering from clogged arteries

Key Challenges

Key Challenges
Funding
How to fund these massive investments? Government funding? Private? User fees?

Strategic planning for future

Quantity vs. quality. Smart, strategic, well-planned development needed.

Political obstacles
How to push through political barriers? Chinas competitive advantage.

Public perception
How to regain public trust in developing countries after massive infrastructure failures/ private corruption?

Corruption/ kickbacks
Kickbacks are common with infrastructure projects in many countries. How to limit them to improve efficiency/ public benefit?

Why You Should Care

Strategic implications why you should care

$30 trillion is a LOT of usiness o ortunity

The global need for infrastructure investment over the next 20 years presents a major business opportunity. Materials, engineering, architecture, design, chemicals, automotive, logistics, IT all these industries are implicated, and positioned to make major revenue from these projects.

Talent crunch meets massive infrastructure needs

Infrastructure is the future of com etition

The need for massive infrastructure investment worldwide comes at the same time as the world faces a talent crunch. There likely wont be enough civil engineers and crane operators to go around.

If your competition cant get its products out of the ports and warehouses to meet customer demand, they cant very well compete. Available infrastructure is the determinant of the future winners and losers in tomorrows markets.

Strategic implications why you should care

The rich/ oor ga threatens to widen

As the West and Asia Pacific move to more sophisticated, higheroutput infrastructure, the economic position of the global South could fall even further by comparison. Governments and NGOs must be aware of future economic development challenges.

Traffic will go from annoying to economically fatal

Cleantech will e decided y infrastructure

Sitting in traffic is fun for nobody. But in a world of expensive petroleum, this annoyance will become expensive enough to put transport companies and many manufacturers in jeopardy.

People talk all the time about the green revolution or a commitment to clean industries. It is practically impossible to create a zero-carbon industry on 19th or 20th century infrastructure. Therefore, trillions in infrastructure must redesigned. This isnt a bad thing in fact it represents trillions in opportunity, and the real possibility for a better world tomorrow.

What To Do Today

Recommended options: What can you do today?

Assess com etitors futures y their infrastructural investments

Infrastructure its not just for countries. When taking the long-range view assessing competitor strengths and weaknesses, examine where their long-range dollars are going: facilities, human capital, R&D programs, leadership. If they havent got the capital assets, their advantage will weaken. Deficient investment in infrastructure cannot be borne by individual companies or industries these are valuable goods that belong to all people of a nation, and as such can only be financed through the government. Policymakers must be advised that their future tax base will be assured only through rather expensive projects.

Lo y your national government to take the long view on infrastructure

Look at your glo al o erations now and in the future and determine what you require for infrastructure

To better examine your own strategy, and to help government officials to decide what is required for tomorrows economy make an inventory of your own needs now and in the future in terms of industry. Do you need rail for shipping, trolleys to bring your employees to work, ports for global logistics?

Addendum: Infrastructure- By the Numbers

Figure
The U.S. has reduced its spending on infrastructure fro 3.0% in 1960 to 2.4% of GDP today, while the Chinese are investing $150 billion annually, or 9% of its GDP. By the end 2007, China had built 53,600 k of toll roads. It ai s to have built 70,000 k of expressways by 2020. An esti ated $30 TRILLION invest ent in infrastructure is projected worldwide over the next 20 years to build and aintain roads, bridges, water syste s, and oil and gas pipelines. China-Africa trade, at al ost $40 billion last year according to Chinese figures, quadrupled since 2000 and is expected to reach $100 billion in the next 5-10 years. In the past 20 years, co unities across the U.S. have spent approxi ately $ 1 trillion on drinking water treat ent and supply and wastewater treat ent and disposal. It takes an average of 43 days to ship goods out of El Salvador, including the export docu entation, port & ter inal handling, custo s and inspection, and prearrival docu entation.

Source
"Infrastructure 2008: A Co petitive Advantage." Urban Land Institute. "Rushing on by road, rail and air." The Econo ist. http://www.econo ist.co /world/asia/displaystory.cf ?s tory_id=10697210 "The New Trend: Infrastructure." Bob Frick. January 11, 2008. http://www.kiplinger.co /colu ns/picks/archive/2008/pic k0111.ht David White. "The China Factor: A Spectacular Resurgence." The Financial Ti es. Sustaining Our Nations Water Infrastructure. U.S. Environ ental Protection Agency.

The State of Latin A erican Infrastructure and Logistics. Latin A erican Logistics. http://www.latina ericanlogistics.org/articles/the-stateof-latin-a erican-infrastructure-and-logistics.ht

Addendum: Infrastructure- By the Numbers

Figure
Since 1995, A ericans' use of public transportation has increased by 32%. In 2007, the U.S. public ade ore than 10.3 billion trips on public transportation - the highest nu ber in 50 years. Approxi ately 24% of ajor roads in the U.S. are in poor to ediocre condition. 25.4% of bridges in the U.S. are structurally deficient or obsolete. China is investing heavily in African infrastructure, building roads, railways, power stations and bridges at costs that experts believe are 25-30% below their Western counterparts'. A ericans are stuck in traffic 4.2 billion hours per year. Traffic congestion forces A ericans to waste $3 billion of gasoline a year. Spains 15-year $375 billion expansion will place 95 % of the population within 18.75 ile (30 k ) of a highway and 90% within 31 iles (50 k ) of a high-speed rail station by 2020. 2.6 billion people around the world lack the basic necessity of a toilet.

Source
H.R. 6052, The Saving Energy Through Public Transportation Act of 2008. http://transportation.house.gov/Media/File/Full%20Co ittee/HR6052/HR6052%20Fact%20Sheet.pdf "Infrastructure 2008: A Co petitive Advantage." Urban Land Institute. David White. "The China Factor: A Spectacular Resurgence." The Financial Ti es.

Opportunity 08: Transportation and the Econo y. Brookings Institution. http://www.brookings.edu/~/ edia/Files/events/2008/04 28_transportation/20080428_transportation.pdf "Infrastructure 2008: A Co petitive Advantage." Urban Land Institute.

"International Year of Sanitation 2008." United Nations. http://es.un.org/iys

Addendum: Infrastructure- By the Numbers

Figure
The UNs Fund for Agricultural Develop ent esti ates that African villages with better infrastructure: produce 1/3 ore crops per hectare than those with poor infrastructure; earn wages 12% higher, and pay 14% less for fertilizer. According to a World Bank official, the cost of doing business is twice as high in Africa as it is in East Asia and 30% higher than any other region. Transport costs for Africa's 16 landlocked countries are on the average 50% higher than for coastal counties. Less than half of Mexicos 213,000- ile road syste only 12 percent of Brazils 1 illion ile road syste paved. and is

Source
The Road to Hell Is Unpaved. The Econo ist. http://www.econo ist.co /displayStory.cf ?Story_ID=1 487583

David White. "A Change to Bridge the Gap." The Financial Ti es. http://www.ft.co /c s/s/0/34e64922-73dd-11db-8dd70000779e2340,dwp_uuid=1f2588a0-765d-11db-82840000779e2340.ht l?nclick_check=1 "Infrastructure 2008: A Co petitive Advantage." Urban Land Institute. "2030: le Big Bang De ographique," ARTE Television and Groupe Futuribles. http://www.artevod.co /progra Details.do?e issionId= 2138

With birthrates of 1.4 per couple and 33% of the wo en refusing to have children, Ger any faces a future where by 2050 the population of ethnic Ger ans could fall to 10 illion (fro 80 illion today).

Find out more: Books

Rischard, J.F. High Noon: Twenty Global Problems,Twenty Years to Solve Them. (2002) http://www.amazon.com/gp/product/0465070094/sr=820/qid=1211983152/ref=olp_product_details?ie=UTF8&me=&qid=121 1983152&sr=8-20&seller

Levy, Sidney M. Build, Operate,Transfer: Paving the Way for Tomorrows Infrastructure. (1996) http://www.amazon.com/Build-Operate-Transfer-TomorrowsInfrastructure/dp/047111992X/ref=sr_1_40?ie=UTF8&s=books&q id=1211983539&sr=8-40

Makansi, Jason. Lights Out: The Electricity Crisis, the Global Economy, and What It Means To You. (2007) http://www.amazon.com/Lights-Out-Electricity-CrisisEconomy/dp/0470109181/ref=sr_1_11?ie=UTF8&s=books&qid=121198 2592&sr=8-11

Find out more: Books

Goodman, Alvin S. and Hastak, Makarand. Infrastructure Planning Handbook. (2006) http://www.amazon.com/Infrastructure-Planning-Handbook-AlvinGoodman/dp/0071474943/ref=si3_rdr_bb_product

Grigg, Neil S. Water,Wastewater and Stormwater Infrastructure Management. (2003) http://www.amazon.com/Water-Wastewater-StormwaterInfrastructureManagement/dp/1566705738/ref=sr_1_37?ie=UTF8&s=books&qi d=1211982106&sr=8-37

Find out more: Articles

"A Change to Bridge the Gap." David White. The Financial Times. http://www.ft.co /c s/s/0/34e64922-73dd-11db-8dd7-0000779e2340,dwp_uuid=1f2588a0-765d-11db-82840000779e2340.ht l?nclick_check=1 A ericas Infrastructure: Ra ping Up or Crashing Down. Brookings Institution. http://www.brookings.edu/~/ edia/Files/rc/papers/2008/01_infrastructure_katz_puentes/01_infrastructure_katz_puentes.pdf China, U.S., and India Driving Water Infrastructure Spending. Joshua Levine. http://seekingalpha.co /article/45274-china-u-s-and-india-driving-water-infrastructure-spending Clogged Arteries. Bruce Katz and Robert Puentes. The Atlantic. http://www.theatlantic.co /doc/200803/road-rail-air-networks Current and Future Invest ent in Infrastructure. Testi ony of Peter R. Orszag, Director of the Congressional Budget ittee on the Budget and Co ittee on Transportation and Infrastructure. May 8, 2008. Office before the House Co http://www.cbo.gov/ftpdocs/91xx/doc9136/05-07-Infrastructure_Testi ony.pdf "Freight Rail Transportation: Long-Ter Issues." A CBO Paper. January 2006. http://www.cbo.gov/ftpdocs/70xx/doc7021/01-17-Rail.pdf Increasing the Capacity of Freight Transportation. By: David S. Ortiz, Brian Weatherford, Henry H. Willis, Myles Collins, Naveen Mandava, Chris Ordowich. The RAND Corporation. http://www.rand.org/pubs/conf_proceedings/CF228/

Find out more: Articles

"Infrastructure 2008: A Co petitive Advantage." Urban Land Institute. http://www.uli.org/AM/Te plate.cf ?Section=Ho e&CONTENTFILEID=41493&TEMPLATE=/CM/ContentDisplay.cf Infrastructure in Latin A erica and the Caribbean: Recent Develop ents and Key Challenges. Marianne Fay and Mary Morrison. The World Bank. http://siteresources.worldbank.org/INTLAC/Resources/LAC_Infrastructure_co plete.pdf "International Year of Sanitation 2008." United Nations. http://es.un.org/iys National Rail Freight Infrastructure Capacity and Invest ent Study. Ca bridge Syste atics Inc. Septe ber 2007. http://www.aar.org/PubCo on/Docu ents/natl_freight_capacity_study.pdf Opportunity O8: Transportation and the Econo y. Brookings Institution. April 28, 2008. http://www.brookings.edu/~/ edia/Files/events/2008/0428_transportation/20080428_transportation.pdf Rushing on by road, rail and air. The Economist. February 14, 2008. http://www.econo ist.co /world/asia/displaystory.cf ?story_id=10697210 Status Report on the Water-Wastewater Infrastructure Progra Environ ental Protection Agency. http://www.epa.gov/ow / ab/ exican/us exrpt/index.ht for the US-Mexico Borderlands. U.S.

Sustaining Our Nations Water Infrastructure. U.S. Environ ental Protection Agency. http://www.epa.gov/waterinfrastructure/pdfs/brochure_si_sustainingournationswaters.pdf

Contact
For more information or to discuss what this means for you, contact: steepreport@competitivefutures.com (202) 508-1496