Red paper Megatrends_AUST

REDPAPER
Reimagining infrastructure amid
transformative change
November 2015

2
How times have changed. Two decades ago, unlisted infrastructure was
an obscure investment asset class, a want-to-be intruder in alternative
portfolios where the asset allocation decision essentially boiled down
to a choice between private equity, real estate and hedge funds.
Fast forward to today and infrastructure is part of the investment
mainstream having emerged as an asset class in its own right to win
separate allocations in institutional portfolios.
Reasons for the turnaround in attitudes are easily identifiable.
Infrastructure’s defining attributes – long duration assets, stable
predictable cash flows, inflation hedges and lack of correlation
with listed equities and other liquid assets – make it attractive for
diversifying investment portfolios and matching the liabilities of
insurance companies and pension funds.
Moreover, in an age of unprecedented low interest rates – following
the trauma and disruption wrought by the Global Financial Crisis – the
essential services provided through infrastructure coupled with high
barriers to entry associated with infrastructure businesses can deliver
less volatile returns, which is particularly attractive to institutional
investors.
Having prevailed in the battle to be accepted as a mainstream
investment class, we think another battle is there to be fought and
won; that is, to reimagine what infrastructure really is to investors and
the wider community.
Defining infrastructure by listing asset types including roads, airports,
seaports, water, gas and electric utilities, hospitals, schools and the
like is limiting. Each of these could soon become out-dated responses
to social and business needs while also losing the attributes that make
them attractive in portfolios.
As megatrends redefine modern living, a new perspective needs to be
adopted. Megatrends are large, transformative global forces that define
the future by having far-reaching impacts on businesses, economies,
industries, societies and individuals.1
The pattern of change is gradual at
first but ultimately expresses itself with explosive impact.2
Perspectives differ on the number of megatrends reshaping the world,
but we believe five will have significant impacts on infrastructure:
• Resources: getting more from less
• Digital disruption, enabling innovation
• High public debt: a durable constraint on fiscal and policy options
• The New Silk Road
• Urbanisation: the coalescing of multiple megatrends.
Each of these megatrends represents risks and opportunities for
current infrastructure businesses and investors. Understanding
them and incorporating them into an institutional investor’s strategy
when considering investing in an asset, or when managing current
infrastructure assets, is essential to creating a truly diversified portfolio
and ensuring that risks and returns are appropriately calibrated.
Reimagining infrastructure amid transformative change
THE CHALLENGE
The world is undergoing transformative change – megatrends – that will impact almost every area of human life. Each of these megatrends
impacts ‘infrastructure’, in fact, they require a new thinking about the underlying elements that support infrastructure as a vital service to
communities and as an investment asset class.
THE REASON
THE RESPONSE
Macro megatrends will continue to have an influence on the infrastructure asset class, presenting opportunities for more efficiency and
increased capital deployment.
A watchful eye on and forward-thinking response to these megatrends is important for the infrastructure asset class, particularly in light
of the long duration nature of infrastructure assets and their defensive positioning in investors’ portfolios. In addition, these trends give
direction for where future investment opportunities will likely emerge and where asset management challenges may occur.
1. Resources: getting
more from less
(page 3)
A global population of
10.2 billion in 2060 and
3 billion people adopting
western lifestyles will
put increased pressure
on natural resources
and require innovative
infrastructure financing,
design and delivery,
particularly in the water
and energy spaces.
2. Digital disruption,
enabling innovation
(page 5)
Technological change
is shattering long-
established business
models. Electricity storage
technology, autonomous
systems and big data are
key trends that will shake
infrastructure businesses.
3. High public debt:
a durable constraint
on fiscal and policy
options (page 8)
Large public deficits are
constraining governments’
ability to invest for the
future as pension and
healthcare costs escalate.
Identifying where private
financing opportunities
are can help bridge the
funding gap for projects
critical to economies.
4. The New Silk
Road (page 9)
The centre of global
economic power is
shifting from West
to East, creating
opportunities for
investors who can
cater to the needs
of the growing Asian
middle class.
5. Urbanisation: the
coalescing of multiple
megatrends (page 11)
All of the previous trends
will take place in ever-
growing cities, with the
appearance of a network
of secondary and tertiary
cities that all of us will
need to get familiar with.
Reimagining infrastructure amid transformative change – October 2015

3Reimagining infrastructure amid transformative change – October 2015
This paper provides a broad overview of the above five megatrends,
as well as specific examples of disruption and adaptation for current
infrastructure assets, and potentially new ones.
RESOURCES: GETTING MORE FROM LESS
Two phenomena are converging to pressure the planet’s natural
resources: exponential population growth and the adoption of
highly resource-consuming lifestyles by a larger share of this growing
population.
The global population is forecast to grow to reach 8.5 billion in 2030
and 10.2 billion in 2060 (Figure 1).3
In a world in which almost 1 billion4
people are already hungry, feeding that many more seems daunting.
However, forecasters also predict continued wealth production leading
to a world population on average 4.4 times wealthier in 2060 than today
at purchasing power parity.5
This increase in wealth can help improve
living conditions for everyone, but also means even greater pressure
on resources as many developing countries adopt technologies and
behaviours requiring higher amounts of non-renewable resources while
releasing larger amounts of CO2
and pollution.
The need for innovation in water infrastructure and water
management
Climate change has led to a multiplication of extreme weather events
such as droughts and typhoons, and some regions are receiving
less and less rain water overall. Combined with population growth,
especially in the very regions most impacted by these events, access
to water for personal, agricultural and industrial activities is one of the
century’s greatest challenges.
The United Nations estimate that by 2030, demand for water may
be 40 per cent more than supply, and water shortages could affect
50 per cent of the world’s population.7
Developing countries are the
main drivers for water demand, but Australia will also see a significant
increase.
Total water consumption in Australia is forecast to rise by 42 per cent
by 2026 and 76 per cent by 2056 compared to 2009 levels.8
2015 2030
Source: United Nations and OECD
Figure 1: A more populous and wealthier world is ahead
Billion10.0
7.5
5.0
2.5
0
7.3bn
8.5bn
2050
10.2bn
By 2060the world
will contain people
who are on average
4.4xwealthier
than they are today
On the bright side, the world as a whole seems to have enough
resources to accommodate this population growth.
For example, recent research showed that if the entire planet’s non-
renewable energy resources are accounted for and then translated
into one measurement unit, such as kilojoules, the world has enough
energy to sustain the current way of life for 574 more years.
However, the challenge will be to manage and share resources in a
cost-efficient way so that an increasing number of people can access
them. On the other side of the equation, new technologies and
lifestyles can provide equivalent levels of comfort and development
with less carbon emissions and pollution, but these technologies are
still sometimes too expensive and hard to scale.
As Dr Stefan Hajkowicz from the CSRIO puts it: “If people design and
adopt innovative ways of using resources efficiently, minimise waste
and reduce pollution, the ‘more from less’ megatrend can be rewritten
as the ‘more than enough’ megatrend”.6
Innovations, especially to decrease the cost and increase the scalability
of technologies, are particularly needed to ensure that a growing and
increasingly urban population has access to enough water and energy.
For these resources in particular, climate change is another factor
contributing to scarcity.
Today, agriculture consumes around 70 per cent of global water
consumption, or about 3,100 billion cubic metres. Without efficiency
gains, agricultural water needs will increase to 4,500 billion cubic
metres by 2030 (65 per cent of water withdrawals Figure 2). Centres
of agricultural demands are India, China and South Africa, but the
problem is also acute in Australia.9
Water efficiency measures will likely be essential but not sufficient. If
until 2030, efficiency improvement in agricultural and industrial water
use follow the same rate as between 1990 and 2004 (approximately 1
per cent), only 20 per cent of the supply-demand gap will be filled.10
Following a business-as-usual approach on the supply side will also
only address a further 20 per cent of the gap (Figure 3 next page).11
Existing
withdrawals2
2030
withdrawals3
Basins with
deﬁcits
Basins with
surplus
Existing
accessible,
reliable,
sustainable
supply1
Groundwater
Surface water
Relevant supply quantity
is much lower than the
absolute renewable water
availability in nature
Source: McKinsey & Company: 2030 Water Resources Group. Water 2030 Global Water Supply and
Demand model; agricultural production based on IFPRI IMPACT-WATER base case.
1. Existing supply which can be provided at 90% reliability, based on historical hydrology and
infrastructure investments scheduled through 2010; net of environmental requirements.
2. Based on 2010 agricultural production analyses from IFPRI.
3. Based on GDP, population projections and agricultural production projections from IFPRI;
considers no water productivity gains between 2005–2030.
Figure 2: Aggregated global gap between existing accessible, reliable supply1
and
2030 water withdrawals, assuming no eﬃciency gains
Billion m3
, 154 basins/regions
6,900
4,500
2% CAGR
-40%
4,200
Agriculture Industry Municipal & Domestic
900
600
700
3,500
1,500 2,800
100
800
4,500
3,100

Closing the remaining 60 per cent gap through traditional supply
measures would be costly: these face a steep marginal cost curve
in many parts of the world. Without a new, balanced approach,
these figures imply additional annual investments in upstream water
infrastructure of up to US$200 billion over and above current levels –
more than four times current expenditures.12
To avoid depleting fossil water reserves, innovation is needed to
reduce consumption and increase supply at lower cost than currently
available. These will require new ‘hard’ infrastructure to treat and
distribute water, but also regulative and economic infrastructure,
namely water markets, to support a fair and efficient distribution of
water between uses and populations.
Today, the great bulk of the world’s water resources are still effectively
free from property rights, but the past century has seen an increase
in water becoming a privately-owned resource. While assigning
property rights and pricing to something that hitherto has been free
is contentious, it does offer a plausible way of encouraging supply
innovations through recycling, storage and supply connectivity.
When water has a price and is traded, there is an incentive to manage
it more efficiently. However, there is also a risk for underprivileged
residents to not be fairly represented in the transaction, and for them
to effectively be deprived of essential resources.
The introduction of privatised water services in Latin America did
lead to resistances and in some instances to upheavals and the loss
of assets by the private owners and operators. Fair distribution and
access is essential, and this fairness depends on communication with
residents and all stakeholders in addition to governments.
Fortunately, there are examples of successful water markets, such as
the UK private water sector. A key part of the success of fully privatised
water companies in the UK is that the consumer interest is supervised
by a single independent economic regulator, the Water Services
Regulation Authority or Ofwat.13
This combination of private ownership and a single regulator
protecting the rights of the public has coincided with improved service
levels and operational efficiency. We believe increased investments by
the private sector can lead to similar improvements in other markets,
including the Australian market. The key is to harness the efficiency
and innovation developed by the private sector while ensuring equity
through efficient governance and regulation.
In short, solving the gap between demand and supply for water will
require investments in innovative technology to decrease demand and
increase supply. In parallel, these innovations will need to be facilitated
by new regulations and markets, in which the private sector can play a
bigger role, bringing funds as well as operational expertise.
Challenges and opportunities of growing global energy needs
The combined factors of economic and population growth, as well as
increasing reliance on technologies powered by electricity, are creating
a long-term increase in energy needs. The International Energy Agency
Worldwide forecast a rise of energy usage by 40 per cent between
2009 and 2035.14
All sources of energy are forecast to experience growth and fossil
fuel-based energy resources will be important to the world for some
time, particularly given recent technological advances to uncover
unconventional supply. Oil demand is forecast to increase by 18 per
cent, coal by 25 per cent and nuclear by 70 per cent.
Horizontal drilling and hydraulic fracturing have released natural
gas from shale formations. Along with natural gas, producers have
developed advanced drilling and completion processes to produce oil
from tight formations. Meanwhile, the number of ultra-deepwater
drilling rigs has increased 22 per cent since 2012.15
Such unconventional sources of oil will contribute to 70 per cent of oil
supply growth, while unconventional sources of gas will account for
almost 50 per cent of increases in global gas production.16
Renewable sources are also growing. By some estimates, renewable
sources could contribute one of every two megawatts of total power
as well as 50 per cent of global electricity generation by 2030.17
As energy consumption grows, so does the investment in infrastructure
needed to make and distribute energy. The International Energy
Agency estimates that increased annual spending on energy efficiency,
alone, needs to rise from US$130 billion today to more than US$550
billion by 2035.18
From 2011 to 2035, the world is forecast to spend around US$38
trillion on energy supply infrastructure to meet growing demand. Two-
thirds of this expenditure is expected to occur in the developing world,
and China, India and the Middle East will be the largest consumers.
However, energy consumption in Australia is also predicted to grow
by 35 per cent by 2030. The most rapidly growing sources will be
natural gas, coal steam gas and renewables. Consequently, investment
opportunities in these sectors will benefit from this strong and rising
demand.
Adapting to a ‘warmer’ world
Finally, all existing as well as new infrastructure will be subject to the
effects of climate change.
Global temperatures are rising and an overall 2 degrees Celsius
increase by 2050 is already unavoidable. The warming of the planet
actually changes rainfall patterns and seasons, and leads to more
frequent and higher-intensity extreme climate events such as
droughts, storms and typhoons.
What this means is that the current transportation, electricity, water
and telecommunications systems to name a few, need to be reinforced
and redesigned to be able to continue to work and provide services
when these events happen. Ill-designed systems actually increase the
negative impacts of natural events.
Today2
2030
Demand with no
productivity improvements
Portion
of gap
Existing accessible,
reliable supply3
Historical improvements
in water productivity1 20%
Increase in supply2
under business-as-usual 20%
Remaining gap 60%
Source: McKinsey & Company: 2030 Water Resources Group. Water 2030 Global Water Supply and
Demand model; IFPRI; FAOSTAT.
1. Based on historical agricultural yield growth rates from 1990–2004 from FAOSTAT, agricultural and
industrial eﬃciency improvements from IFPRI.
2. Total increased capture of raw water through infrastructure buildout, excluding unsustainable extraction.
3. Supply shown at 90% reliability and includes infratructure investments scheduled and funded
through 2010. Current 90% reliable supply does not meet average demand.
Figure 3: Business-as-usual approaches will not meet demand for raw water
Billion m3
8,000
7,000
6,000
5,000
4,000
3,000
800

The technology to build more resilient infrastructure exists, but is
costly. The World Bank forecast that US$70-100 billion per annum
will be needed by 2050 to adapt to a ‘warmer’ world. The developing
world, and especially the East-Asia and Pacific regions, is likely to have
to shoulder 70-80 per cent of these adaptation costs.
To be efficient, resiliency efforts also require the participation of
many stakeholders including residents. Recognising this need, some
initiatives such as “100 Resilient Cities” help cities to create a position
for a Resilience Officer, responsible for identifying the weaknesses of
their city, and coordinating the work of stakeholders to solve them.
The private sector, notably utility operators, are also coming up with
plans to upgrade and operate their networks to tackle climate change
challenges. In public private partnerships, the private party is bound
to levels of quality of service: this is a strong incentive for them to
anticipate and plan for climate change. To serve this goal, many
companies now have ‘adaptation plans’ to climate change.
In parallel, infrastructure assets transform and transport resources
and can therefore have a significant impact on how much resources
are used, and the potential to decrease CO2
emissions, pollutants
and use of raw material, contributing to preserving the local as well
as global environment.
These changes should not be thought of as cost burdens; rather they
can be investments with returns thanks to lower future operation
costs. This aspect is often called ‘mitigation’ in climate change plans.
Both adaptation and mitigation initiatives are essential to ensure the
long-term value creation of utilities. See “Dealing with climate change
and building resilient cities: The case of Thames Water” to learn more
about how a water sector operator can plan for climate change.
DIGITAL DISRUPTION, ENABLING INNOVATION
Thanks to the pervasive availability of internet access coupled with
exponentially growing computing power, the digital trend is morphing
into a megatrend with even deeper immersion into social and
economic systems.
Connected devices and social media have changed the way people
access information and purchase goods and services, therefore
disrupting the sale and distribution channels of most companies. The
other side of the coin is that online purchases as well as web browsing
and social media enable companies to access information about
customers at a scale never achieved before.
Moreover, progress in data analytics is also increasingly enabling
companies to use information to make business decisions and increase
their customer base and sales.
Starting with the disruptive aspect: global internet users have grown
from 413 million in 2000 (6.7 per cent market penetration) to 2.9
billion in 2014, which corresponds to a market penetration of 40.4 per
cent. Eighty per cent of companies say their customers are changing
how they access goods and services, and more than 50 per cent say
they are changing their pricing and delivery models.20
DEALING WITH CLIMATE CHANGE AND BUILDING RESILIENT CITIES: THE CASE OF THAMES WATER
In 2008, the United Kingdom published its carbon plan, and pledged
to reduce their carbon emissions by at least 34 per cent by 2020, to
set them on a path to reduce their carbon emissions by 80 per cent
by 2050 compared to 1990.
Thames Water, the UK’s largest water and wastewater services
provider, operating across London and the Thames Valley, also put in
place a process that deals with two main aspects of climate change:
an adaptation plan to deal with impacts on their operations and
a mitigation plan to reduce further climate change by decreasing
carbon emissions.
Both plans are a key part of their “Long-term Strategy 2015-2040”.
The adaptation plan recognises that climate change is a business
risk, with potentially high costs if the company fails to assess the
risks and is not adequately prepared. Thames Water infrastructure
is threatened by flooding, drought, extreme cold and snow and
they need to plan for these events occurring more frequently and
prevent disruption to the network.
To this end, Thames Water focused on water resource planning
to secure future availability of water supply, sewerage design and
capacity, as well as resilience of assets to flooding. Dealing with
flooding is a key priority.
Thames Water led an assessment of their network to identify
weaknesses, invested in durable reinforcement of assets, and
created response centres that can act quickly and provide
temporary measures.
The mitigation plan set to achieve the same goal as the government of
a 34 per cent reduction in emissions in 2020 compared to 1990 levels
for emissions from operations and from electricity used from the grid.
To this end, Thames Water implement a range of energy efficiency
improvements in their operations, increase renewable energy
generation, using combined heat and power production from water
treatment, and continue to invest in new low carbon operational
processes and assets.
One of the strengths of Thames Water’s work on resilience comes
from its engagement with stakeholders. They recognise the need to
work with the government, their suppliers, employees, and to tap
into a network of experts to innovate.
Thames Water works closely with the government, reporting about
their actions, understanding how they fit with other stakeholders’
actions, and the broader efforts led by the government. They also
engage their water suppliers, working with them to improve the
resilience of both parties’ business.
Internally, they put in place several internal management processes
to create a sustainability culture and help their employees better
consider environmental resources when making decisions.
Finally, they formed an alliance, “eight2O”, with two design-and-
build joint ventures made up of Costain, Atkins and Skanska, MWH,
Balfour Beatty, plus MWH as the programme manager and IBM as
the technology and innovation partner. Thames Water challenged
the alliance to minimise both the operational and embodied carbon
impacts of all their programmes. Together they are designing
solutions for energy efficiency and renewable generation and intend
to deliver new renewable generation capacity at 11 sites in two
years.19
Note: QIC owns an 8.7 per cent equity interest in Thames Water.

Consumer spending via mobile phones is expected to be treble from
2014 to 2018.21
Consequently, companies that do not adapt to this
rapid change are likely to see their business shrink. Through these
changes, fortunes are made and lost: the average number of years a
company spent in the S&P500 was 75 years in 1937, against only 15
years in 2011, and it is expected to be only 5 years in 2025.
New technologies put pressure on the way businesses reach customers
for sales, but also for delivery of products and services. Products are
increasingly delivered to customers at their home, and therefore
stored in a few central locations near transportation hubs instead of at
multiple local stores.
The quantity of goods being moved by the world’s shipping industry
has grown at a rate of 12 per cent a year over the past decade. It’s
estimated that ships will move 2.3 times more goods today than they
did 10 years ago.22
In parallel, Boeing estimates world aviation cargo traffic to more than
double over the next 20 years. This increase will offer opportunities
for the traditional transport sector, but will also put pressure for
innovation in logistics to meet increasingly demanding standards for
delivery speed and reliability.
Taobao, the leading Chinese market place, now delivers fresh fruit and
vegetables directly to the homes of customers, products that most
other companies, even in developed countries, do not deliver directly
to customers.
At the same time, customers expect experience and personalisation,
leading to innovation in the delivery process itself.
Amazon Prime Air is putting together a fleet of new drones to deliver
small goods directly to customers. The experience of having a drone
deliver products is certainly an important marketing strength, but it
also reacts to increasingly jammed city centres, in which motorised
traffic speed and parking spaces are increasingly reduced by local
authorities.
In addition to the logistics and transportation of goods sectors, we
believe three new technologies are worth noting as disruptors in the
infrastructure space: new battery technology, autonomous systems
and big data.
New battery storage will give access to more energy at a lower
CO2
footprint
Technological innovation can also help to reconcile greater energy
demand with the need to address climate change by improving the
efficiency of the grid and optimising the use of renewable sources.
Most renewable energy sources have so far struggled with the
challenge of producing sufficient electricity when it is most needed by
customers. Electricity consumption is not consistent over the course of
a day, a month or a year.
There are electricity demand peaks when households and businesses
decide to use more at the same time, for example on hot or cold days
when air-conditioners and heaters are swung into use.
In Australia, consumption peaks account for about 40 hours a year or
roughly 1 per cent of the time23
, but dealing with these peaks accounts
for 25 per cent of electricity bills and corresponds to around 20 per
cent of electricity distribution infrastructure, used only when demand
is the highest.
Until now, storing electricity from renewable sources has been very
challenging, and peak production was therefore mostly lost. Better
batteries will be pivotal in transforming energy storage, supply and
usage.
Batteries will allow households to store electricity from multiple
sources including more erratic and intermittent ones such as wind
and solar at off-peak times so that it can be used at peak times. It will
also reduce peaks of production from renewables, which are currently
putting stress on the grid and complicating grid management for grid
operators.
Battery technology has improved significantly in recent years and Tesla
is now commercialising home batteries to manage the load produced
by photovoltaic panels installed on single family homes.
See “New battery technology from electric cars to revolutionise the
power grid?” for more on this.
However, governments must monitor the adoption of new
technologies and assist their integration into the energy system by
proactively updating legislation. In Australia, this would include the
definition and classification of new technologies such as energy
storage devices in the National Electricity Law.
For example, these devices could currently be viewed as electricity
consumers (when recharging), electricity generators (when
discharging) and ancillary service providers (when treated as part
of the network). This has implications on the applicable network
tariffs and ownership restrictions. Legislators need to rule on the
classification of such new technologies to eliminate confusion and
provide certainty for market participants.
This could include tariff alterations or updating regulatory frameworks
and mandates to cater for the new technology. As an example,
California has one of the world’s most progressive regulatory bodies,
the California Public Utilities Commission (CPUC), when it comes
to energy storage uptake. The CPUC has mandated California’s
three investor-owned utility companies to fund and own 1.3GW of
battery storage on the grid by 2020. CPUC regulation requires these
centralised storage installations to be funded using customer charges,
on the basis that consumer benefits can be maximised and costs
minimised by coordinating and optimising technology deployment on
a system-wide basis.24
Autonomous systems are becoming key for corporations’
competitiveness
Yet another technological advance that will change the way people
live and consume a great deal of energy is artificial intelligence and
autonomous systems. As underscored by the Institute for the Future
in their 10-year forecast, corporations will increasingly automate their
processes.
On the one hand, this trend will impact the workforce greatly, with 47
per cent of occupations in advanced economies being at high risk of
being automated in the next 20 years.
Automation will change the way some services are experienced as well
as the operations of many companies. Within transportation, driverless
cars are becoming a reality with Google’s driverless cars having already
logged 700,000 miles of accident-free autonomous driving on the
roads of California and Nevada.
Automation technology could reshape the mining industry by digging
up rocks from hard-to-get places, but also by using autonomous
driving. In Western Australia’s Pilbara region, Rio Tinto has moved 100
million tonnes of rocks using a fleet of driverless cars.25

The total change in employment was a growth of 3.5 per cent,
indicating that overall the economy benefited from technological
advances. Isolating the technology component results in highly skilled
employment growth of 4.6 per cent and contraction of low-skilled jobs
by 27.1 per cent.30
Harnessing “Big data” for all aspects of the business
The increasing use of computers and the internet in every aspect of
life leads to the creation of a vast amount of data. According to IBM,
the world generates 2.5 quintillion bytes of data every day, and this
amount is bound to grow exponentially in the near future: 90 per cent
of the data in the world was created in the last two years.31
However, it is also estimated that companies fail to use 80 per cent of
the customer data generated. Failing to analyse the data generated is
likely to lead many businesses to their end: by 2018, 33 per cent of the
top 20 firms in most industries are forecast to be disrupted by industry
specific data platforms.
Big data analytics is thus not only an opportunity but also a necessity
for businesses. It has the potential to improve efficiency as processes
are tracked and optimised. It can also improve forecasting just by
making more data points available.
Big data analytics creates new opportunities for sales, as was the case
for internet advertisement, now personalised to the demographics
and tastes of internet-users by analysing data stored on social media
platforms, and by tracking the webpages viewed by the user.
Big data analytics already allows a retailer to know what the consumer
wants before the consumer does. It will likely allow financial
institutions to uncover trends and make investment choices, or even
know the risk-profile of a potential customer by their demographics
and browsing history tracked online.
A wide range of mechanical equipment on a mine site can be near-
fully automated with current technology, such as trains, drilling
equipment and digging equipment. A fully automated mine site has
a skeleton number of its original staff. Researchers from AutoRun
Technologies and the University of Western Australia have estimated
that automated systems yield mine site productivity increases of 25
per cent.26
Automation is also increasing the capacity and safety of container
yards. Port of Brisbane saw its stevedores implement full container-
handling automation. One of them claimed a 90 per cent reduction
in safety incidents and improved operational efficiency. Automated
stacking cranes select and load containers onto trucks automatically
and dramatically increase the handling capacity as well as the
efficiency of the terminal.27
In a transportation sector closer to the customer, automated payments
in car parking is becoming standard. Undoubtedly technology will
engender social and labour market changes.
Low skilled jobs do diminish, however high-skilled jobs flourish.
The implication is that the public policy, and education and training
response are keys to minimising the negatives and maximising the
benefits of technological advances.
A study of the Swedish manufacturing sector over 35 years from 1965
to 1999 found an acceleration in demand for skilled jobs as companies
intensified research and development activities.28
A similar pattern was discernible in the UK in a study examining the
combined impact of technological advances and trade on labour
markets that found that from 1979 to 1990, highly skilled jobs
experienced 29 per cent growth and low skilled jobs experienced 15
per cent contraction.29
Electric cars were very popular in 1900, before technological advances
in gas-powered motors made them cheaper and more convenient.
More recently, increased air pollution has increased interest and funds
available for electric cars and battery technology.
In 2013, Elon Musk, Tesla Motors’ CEO, observed that batteries were
still the limiting factor in democratising electric vehicles as they
remained too big and expensive. Tesla Motors succeeded in reducing
the price and size of batteries by an impressive amount, notably
between its first model, the Roadster, started in 2006, and its second
model, the Model S, first delivered in 2012.
By offering a 265 miles range (three times that of the Nissan Leaf,
a best seller among electric cars), and adding design perks and an
impressive acceleration, Tesla also achieved in making an electric
vehicle a best seller among full-size luxury sedans in 2013 in the USA,
ahead of Mercedes, BMW and other well-known luxury car brands.
Tesla’s technological bet relies on the use of lithium-ion batteries
originally developed for computers. They assemble smaller cylindrical
cells, in larger number than other car manufacturers, achieving cost
and size reduction, but with cooling and assembly challenges.
After attracting much attention in the automobile space, Tesla is
now moving into the ‘energy solutions’ space, with the creation and
commercialisation of batteries for utilities, companies and individual homes.
They are seeking to be paired with PV solar panels, or used with
the grid to charge at off-peak rates, both in order to shave peak
electricity demand.
The question is, can these new batteries, smaller and cheaper, make
homes with PV panels and batteries self-sufficient? Is this the start
of a trend in which more and more homes will be disconnected from
the grid? It does not seem so.
Some calculations show that even in regions where PV panels are
attractive, way too many panels and batteries would be needed to
provide a disconnected home with enough electricity for average
usage over the summer and winter. Tesla itself advertises their
battery as a solution to make the most of PV installation, or reduce
electricity costs by enjoying off-peak prices, but while still being
connected to the grid.
Instead of a competitor to the grid, it seems that these batteries
could actually be more of an ally to the grid manager, transferring
the peak management task from the network operator to each
home. However, it could still be a competitor to large grid operators,
by making the management of micro-grids easier.
The decentralisation of peak management could also reduce CO2
emissions and costs associated with upgrades and investments
needed on large networks to deal with this problem.
NEW BATTERY TECHNOLOGY FROM ELECTRIC CARS TO REVOLUTIONISE THE POWER GRID?

High debt levels are potentially dangerous as they may limit
governments’ ability to react to future fiscal shocks. They may also
reach a limit at which markets will not lend to them anymore, or at
a huge risk premium. However, reducing government debt implies
raising taxes and/or reducing government spending, which might also
slow down the economy.
In the current context of slow economic growth and high government
debt in advanced economies, governments are incentivised to find
new ways to attract capital into infrastructure and public services
projects with the potential to sustain long-term economic growth, and
that governments will not be able to finance alone.
In Australia, current levels of public sector expenditure – especially
in the transport sector, which remains largely funded by government
rather than user charges – may be unsustainable in the face of
increasing budget pressures to fund welfare and health services.
Funding mechanisms that incorporate value capture and user-pay
arrangements can help increase the volume of infrastructure delivered
and release funding for maintenance of existing assets, increasing
overall productivity and standards of living.
Given the amount of private sector capital that is targeted for
investment in Australian infrastructure, now may be an opportune
time for government procuring agencies to explore hybrid funding
models consisting of availability-based and demand-risk revenue
streams.
Using the private sector to finance, operate and maintain
infrastructure projects also offers opportunities for innovations. For
example, congestion and peak pricing models can be an alternative
funding model that can also improve traffic.
Adequate partnerships with the private sector can also give access to
experience from other projects, including the use of new technologies
in construction and operation.
Public sector contributions to fund greenfield projects (state or federal
government grants) should seek to avoid crowding out private sector
investment; it is an inefficient use of scarce government capital to
invest in a project that does not require it. At times it may be prudent
for a government grant to reduce in size if the capital cost of a project
also declines.
Promoting and encouraging private sector investment through
unsolicited bid processes is another avenue that may free
governments to reduce to their share of infrastructure spending
without reducing the overall amount of infrastructure investment
through an economy.
However, most of the possibilities of big data are not yet used by
infrastructure operators mainly because analysing the data collected
still requires huge resources, and knowing what is important or what
to do with this data is still open.
Faced with these challenges, many cities around the world actually
open their data about transportation or even energy to the public
and organise contests and challenges to incentivise them to build
applications and visualisations of the data collected for the use of the
broader public.
In the future, we expect infrastructure investors and operators to
increase their investment in data analytics, as these provide three
services essential for them to be competitive.
First, it can enable the operation of an infrastructure asset to be more
efficient, reducing cost and improving the quality of service.
Second, it can enable investors to improve revenue forecasts as the
higher number of data points increases confidence in projections.
Finally, it can help schedule capital expenditure optimally, by running
models to schedule the repair and maintenance of many components
of the asset to schedule expenditure when they bring the most value.
The counterpoint to all the possibilities open by big data analytics
is the increased vulnerability of individuals, companies and even
governments and countries to cyber attacks, and the increasing
difficulty to protect privacy and confidentiality.
In summary, the impact of more data being produced, and the
increasing value of this data creates new investment opportunities
in the infrastructure needed for telecommunications, including data
centres, even in the face of competition from the largest companies
providing web platforms and services.
HIGH PUBLIC DEBT: A DURABLE CONSTRAINT ON FISCAL
AND POLICY OPTIONS
Public debt exploded during the Global Financial Crisis. The gross
government debt to GDP ratio globally grew from 65 per cent in 2008
to 79.8 per cent in 2014 and is projected to be 80.4 per cent in 2015. It
became a lasting reality for advanced economies, which has seen their
gross debt to GDP ratio stabilise around 105 per cent since 2012, with
the same forecast for 2015 and 2016.32
High government debt results from cyclical and structural factors. The
IMF points to financial bailouts, stimulus spending, and lower revenues
as aggravating factors in maintaining public debt at a high level in the
wake of the Global Financial Crisis.33
However, public debt started its continuous ascension before 2007,
following structural changes in developed economies such as the
ageing of the population, which is durably increasing healthcare and
pension costs, as part of governments’ social welfare programs. By
2030 ageing populations will drive up health and pension spending by
4.4 percentage points of GDP in developed countries (Figure 4).34
Emerging markets have lower gross government debt/GDP ratios, but
these are steadily increasing from a gross average of 35.2 per cent in
2008 to 41.7 per cent in 2014, with a projected growth to 44.6 per
cent in 2016.
Most emerging markets, and most notably China, will face ageing
population challenges in the coming decades, and their health and
pension-related spending is forecast to rise by 3.4 percentage points of
GDP by 2030.35
2008 2015
Source: IMF Fiscal Monitor, Now is the time: Fiscal policies for sustainable growth April 2015
Figure 4: Rising government debt: an issue in developed and emerging economies
Gross government debt to GDP ratios in 2008 and 2015 globally
On top of this high debt/GDP
ratio, by 2030, population
ageing will drive up health and
pension spending by a projected
4.4%of GDP in developed
countries and 3.4%of GDP
in developing countries
65%
80.4%

For instance, it is common in greenfield public private partnerships
(PPP) procurement processes for construction price estimates to
decline over the process given the competitive dynamics. The terms
of the associated government grant need to be flexible enough to
allow for a corresponding reduction in grant size too. See ‘Innovative
financing of greenfield projects: the case of Northwestern Roads
Group (NorthConnex) in Sydney’ for an example.
In conclusion, as public debt stabilises at higher levels, governments
will have to focus on how to use public money most efficiently,
leverage the private sector’s capital and skills, and allocate roles and
risks optimally between stakeholders to continue to fund a high quality
infrastructure network.
THE NEW SILK ROAD
A rising “East”, with China as an economic powerhouse, versus a
slower growing “West” has become a reality of the past decade.
What is today called the “New Silk Road” references the ancient trade
network extending thousands of kilometres across Europe and Asia
that was at one time the backbone of the world economy. The rebirth
of the ancient trade network in a new form reflects the renewed
importance of China and Asia in global exchanges.
The increasing economic and demographic weight of Brazil, China
and India, as well as the prospect of continuous development in Latin
America and Africa has already started shifting the balance of power
between countries from West to East and from North to South.
In 2010, emerging economies accounted for 49 per cent of the global
GDP. By 2030, they will account for 57 per cent of global GDP36
, and
China and India alone will make up 35 per cent of the world population
and 25 per cent of the global GDP (Figure 5).37
Despite a large gap between the poorest and wealthiest residents
in developing countries, a middle class is expected to emerge from
rapidly growing economies: Asia-Pacific residents are forecast to
account for 66 per cent of the global middle class by 2030. One billion
people in Asia should move out of poverty into the middle income
bracket in the next decade.38
In the context of high public debt, financing new (greenfield)
transportation projects can be challenging for governments. At
the same time, the private sector can also be wary of investing in
greenfield projects, as these projects bear higher risks, notably
linked to construction and predictability of cash flows and revenues
once construction is complete. The cost and uncertainty with the
bidding process can also limit the number of private stakeholders
interested in the project and increase overall costs.
To overcome this, in Sydney, the New South Wales (NSW)
Government worked with private partners to finance the
construction and operation of a 9 kilometre road tunnel linking the
M1 and M2 motorways to form part of the National Highway route.
This project was part of the State Infrastructure Strategy and Long
Term Transport Master Plan to reduce congestion and accidents in
this part of the city.
The private partners, shareholders in the Westlink M7, a toll road
in Sydney’s arterial road network, used the NSW Government’s
Unsolicited Proposal process to propose an innovative financing
option for this road tunnel project. Investors came with the idea of
using enhancements to the existing Westlink M7 concession as a
primary funding source for the greenfield project. This drastically
reduced traffic risk for this new project and increased investors’
comfort level.
The use of the unsolicited proposal process was also a key enabler
of this innovative financing structure. It increased interest from the
private parties as it reduced the cost and risk of a traditional bidding
process and enabled them to come up with a proposal aligning the
interests of both parties.
Note: QIC owns a 25 per cent equity interest in NorthConnex
INNOVATIVE FINANCING OF GREENFIELD PROJECTS: THE CASE OF NORTHWESTERN ROADS GROUP
(NORTHCONNEX) IN SYDNEY
Source: KPMG International. Future State 2030: the global megatrends shaping governments. 2014
Figure 5: The rise of the East and South
Developing countries will
account for an estimated
57%of global GDP by 2030.
Developing countries will
be home to 440 of the
world’s fastest growing
cities, generating
By 2030, China and India will account for
of world population
35%
of global GDP
and
25%
47%of global GDP growth
through 2025.
China
India

Competition for these tourists is likely to be fierce and quality
infrastructure will be a determining factor. Tourist infrastructure
includes airports, hotels, restaurants, ports, railways and all other
physical structures tourists use on holidays.
According to the World Travel and Tourism Council, the US is currently
the world’s biggest spender on tourism infrastructure. The US invested
A$150 billion on tourism infrastructure in 2012 while China spent
A$100 billion.
At current rates, however, China will become the largest spender,
investing A$257 billion in 2030 compared to US expenditure of A$235
billion.42
Many other countries are ramping up their investments in
touristic infrastructure, doubling these investments for Thailand,
Indonesia, Brazil, Singapore and Mexico between 2012 and 2023.
Comparatively, Australia, France and the UK are planned to increase
their investment by 50 per cent only.43
To sustain the competition and benefit from both trends discussed
here, Australia might want to attract more Asian investments into
tourist-related infrastructure.
Opportunities for infrastructure investments in emerging markets
As Asian cities continue to grow and inter-region trade region
intensifies, Asia will need to build and fund many more infrastructure
projects. China is taking the lead in the region on this front.
Two initiatives are especially worth noting, as they may also represent
further opening of a market that is still hard to access for many
western investors: the creation of the “One belt; One road” plan, and
the Asian Infrastructure Investment Bank (AIIB).
China revealed in March 2015 its “One belt; One road” strategy,
which aims to re-establish ancient land and maritime trade routes
across Eurasia, making China an important hub on these routes, and
effectively challenging US influence in Asia, Africa and the Middle-East.
See ‘Institutional underpinnings of the New Silk Road’ for more on
this.
This strategy has two components, a “Silk Road economic belt”
between China and Europe through mountainous regions in Central
Asia, and a “maritime Silk Road” linking China’s ports to the African
coast and through the Suez Canal to the Mediterranean Sea.
The initiative is still in the planning stage, but the routes will require
logistics hubs, communication networks, airports, railway lines,
modern highways, ports, all opportunities for investments. US$40
billion was proposed to support these infrastructure investments and
China is expected to seek co-investors.
In parallel, the AIIB proposed by China in 2013 and launched in a
ceremony in Beijing in 2014, became a reality when the articles of
agreement were signed by 50 Prospective Founding Members (PFMs)
on 29 June 2015. China is the largest shareholder in the bank, with
Australia the 6th largest shareholder.
The United States, Japan and Canada did not sign. The regulated
capital of the AIIB is US$100 billion and Australia has pledged A$930
million as upfront capital to the bank. The AIIB’s creation could mean
more investment opportunities for Australian and foreign investors
in Asian infrastructure and the bank could help identify a pipeline of
deals as well as reduce political and legislative risk.
At the same time, emerging countries’ economies are changing, and
moving from agricultural and industrial production toward the science
and technology, as well as knowledge and services sectors. If, so far,
developed economies had an advantage in the science and technology,
as well as knowledge and services sectors, they are likely to be more
and more challenged in those areas by emerging countries.39
The implications of this across economies, industries and companies
will be immense. Some of the questions concern what emerging
economies will look for in the future, what they are likely to be a
producer of versus consumer of, and what the new investments
opportunities will be.
The growth of Asia and particularly China can be analysed in terms
of opportunities for investments from these growing countries in
Australia, as well as potential trade opportunities, if Australia can offer
the growing Asian middle class the products and services they want.
In parallel, the gradual opening of markets and initiatives spearheaded
by China such as the Asia Infrastructure Investment Bank and the ‘One
belt, One road’ plan, also offer opportunities for Australian investors to
deploy capital in these growing countries.
Attracting Asian investments and catering to the needs of the
growing Asian middle class
Asia’s rise brings two main opportunities for Australia’s infrastructure
industry. On the one hand, emerging countries are accumulating
reserves, notably in foreign currencies they wish to invest in low-risk
investments in developed economies, as a stabiliser for their own
economies.
Australia is very well positioned to attract these investments. A
recent UN “World Investment Report” listed Australia 15th out of 200
countries for its direct investment potential in the future. Australia’s
need for infrastructure funding could therefore meet Asian investors’
appetite.
On the other hand, the growth of the Asian middle class means
that the demand for some products and services will grow, which
represents an important revenue opportunity for the countries and
companies that can strategically position themselves to meet this
demand. Two examples of these new products and services with an
impact on Australian infrastructure are the demand for specific food
products such as meat and the growth in tourism.40
Currently, China has large deficits in wheat, wine, dairy, chicken and
pork, and these are likely to increase as the Chinese middle-class
grows. Even if Chinese production increases, it seems that there will
still be large opportunities for other countries to export to China.
Australia has a geographic advantage to fulfil this demand and if the
country can support a durable trade with China on these markets,
it will also translate into increased business for Australian domestic
logistics and transportation of goods networks.
Another strong trend coming from the growth in the Asian middle class
is the explosion of travel and tourism. Outbound travels from China
to foreign countries (excluding Hong Kong and Macau) went from
10.6 million in 2007 to 47 million in 2014, and this number is likely
to continue to grow. Except for Japan, Asian countries have also seen
their number of outbound flights increase steadily, with India, Korea
and Taiwan already above 14 million in 2014. Tourist departures from
developing countries are growing three times as fast as departures
from developed countries.41

A network of complementary cities
Urbanisation will drive sector shifts and changing employment
patterns in the years to 2030. Rapid urbanisation in Africa, for instance,
is helping new service industries to emerge, as well as facilitating a
steady shift from agriculture to manufacturing.
Asian cities will continue to dominate job growth in the industrial
sector, while mature market cities such as Tokyo, Osaka, Seoul and
Taipei, which have high land and labour costs, will shed these kinds of
jobs. Manufacturing is forecast to expand specifically in rapid-growth
market cities with adequate space to grow, such as Chongqing in China,
where industry is moving further inland.
Seaboard cities with proximity to China’s large manufacturing centres,
such as Jakarta and Ho Chi Minh City, are also expected to enjoy large
increases in industrial employment.
Urban areas such as Delhi and Hanoi will continue to benefit from their
relatively competitive labour costs, attracting both manufacturing and
outsourced services jobs, including software development.
Beijing, Lagos and Mumbai are all expected to create more financial
service sector jobs than London from 2013 to 2030.
However, New York, London and Hong Kong will still remain the
world’s largest financial hubs. The need to build new infrastructure in
emerging cities, while upgrading infrastructure in mature market cities,
will continue to drive growth in construction and related sectors.47
As the urban population continues to grow, the activities powering
these cities’ growth are also changing, creating opportunities for
others in their network to attract new activities and move up the value
chain. This means it is important for cities to think about their position
in a network of other cities.
As uses in cities change, old infrastructure will likely need to be
upgraded, or new infrastructure will need to be built in cities aspiring
to move up the value chain and get the activities offset by other cities.
These changes might happen faster than before, and spending time to
understand the relationship between cities, the logistics network, and
the interest and plans of the stakeholders in these networks will be
essential for long-term investors in large scale infrastructure.
URBANISATION: THE COALESCING OF MULTIPLE
MEGATRENDS
In 2007, for the first time in history, more people on this planet lived in
cities than in rural areas. This trend is intensifying, giving birth to more
cities and to mega-cities, cities with a population larger than the most
populated cities in developed countries (Figure 6). In fact, 60 per cent
of the world’s population will live in cities by 2030.45
Figure 6: The emergence of mega-cities
Mega City Growth (Population 10 million +)
Year Number of cities Number of people
1990 10 153 m
2014 28 453 m
2030 41 680 m
Source: UN World Urbanisation Prospects 2014 Revision
Cities are most rapidly growing in Asia and Africa, where 80 per cent of
all urban growth will take place in the next 20 years.46
All the trends described hitherto coalesce around the urbanisation
trend. Cities are large consumers of resources, way more than rural
areas. Automation and big data have the power to change the urban
infrastructure and make urban life more pleasant.
Public debt also often funds urban infrastructure, and many city
governments that have access to debt have had issues managing it
and are less resilient to global financial crises. Finally, Asian growth is
closely intertwined with the urbanisation trend, as most of the urban
growth will happen in Asia.
However, here, we’ll add some elements specific to value creation
in cities, and how it impacts the network of cities around the world,
by changing economic activities, population demand and ultimately
exchanges and flows between cities and the infrastructure supporting
them.
In a historical context, China’s emergence as an economic
superpower is not entirely new. Reemergence is a more apt
description, since China had the world’s largest economy for most of
the past thousand years.
Until the 15th century, China was not only the world’s richest
country, but also a technological leader. So in some ways China
seems to be in the process of rediscovering itself in its current
resurgence.44
The Industrial Revolution, which China missed out on,
was a historic breach that upended the link between population and
economic size.
China is consolidating its economic return by creating new
institutions including its US$40 billion contribution to kick-start
a New Silk Road infrastructure fund that will boost connectivity
across Asia. It is part of China’s Silk Road Economic Belt and the
21st Century Maritime Silk Road initiative, which aim to build roads,
railways, ports and airports across Central Asia and South Asia.
The recently launched US$50 billion China-backed Asian
Infrastructure Investment Bank (AIIB), seen as a challenge to the
World Bank and Asian Development Bank, both multilateral lenders
that count Washington and its allies as their biggest financial
backers, is another.
China has sought to allay concerns that its new bank aims to
undermine the World Bank and Asian Development Bank, saying it
wants to learn from their experience and that there are more than
enough projects around for all the lenders to fund.
Around fifty countries from five continents signed in June 2015 the
35-page-long Articles of Agreement (AOA), which determines the
AIIB’s governance structure as well as the contributions and shares
of individual members and the lending agency’s initial capitalisation
of US$100 billion.
The AIIB has been welcomed by much of the world, including
international financial institutions such as the World Bank and
the Asian Development Bank, as a much-need complementary
mechanism to address the US$8 trillion infrastructure spending gap
in Asia alone.
INSTITUTIONAL UNDERPINNINGS OF THE NEW SILK ROAD

High needs for investment in infrastructure and the potential for the
private sector to step in
This increase in wealth creates a significant market with a forecast of
US$18 trillion increase in consumer spending by 2030. It will also have
a tremendous impact on infrastructure and real estate demand as
urban-dwellers of the 750 largest cities in 2030 spend an extra US$ 1.7
trillion on cars and eating out, needing an extra 540 million m2
in office
space, and 260 million new homes by 2030.51
The size of the challenge is such that the cost to keep pace with
urbanisation is forecast to be US$ 57 trillion over 2012–2030. Based
on a base case of governments spending 3 per cent of GDP to fund
infrastructure, there would still be a total gap of US$8.4 trillion, or
US$500 billion annually. The downside scenario in which governments
spend 2 per cent of GDP would lead to a total gap of US$24.6 trillion or
US$1.5 trillion annually.
Cities contributing to wealth creation and development in emerging
economies
The transition of humanity from predominantly rural-dwelling to city-
living goes hand in hand with the shift from predominantly agricultural-
based economies to industry and also service and information-based
economies. The rise of cities will also lead to high concentrations of
wealth and the rise of a middle class in developing countries, and
reinforces the shift in economic power from West to East.
By 2030, 40 per cent of the world’s 50 largest cities in terms of
constant-price GDP will be in China and by the year 2030 the total GDP
of China’s 150 largest cities is expected to triple to US$25 trillion, up
from US$8 trillion today.48
In 2030, China will have 17 of the global top
50 cities by GDP, more than North America, and 4 times the number of
European cities.49
This growth will take more time to be shared with the population: GDP
per capita in emerging and developing countries is forecast to take
24 years for Beijing to be at levels comparable to New York today for
example, while it will take 50 years for Delhi and 150 years for Lagos,
Nigeria (assuming comparable trends as witnessed today).50
Nevertheless, due to the size of emerging economies’ population, their
GDP growth still translates into a very high number of people accessing
higher standards of living, and very large markets for consumer
products and infrastructure.
By 2030, the world’s 750 biggest cities will gain 220 million additional
middle class consumers, and form 60 per cent of total global spending
including an 88 per cent growth in spending on non essential products.
China will have 45 million urban households with annual incomes in
excess of US$70,000, way more than Europe, and almost as much
as North America, while Shanghai will become the 8th world city in
number of high-income households in 2030 from a rank of 69th today.
Wealth creation in urban centres (Figure 7) and the growth of the
middle-class will certainly impact urban infrastructure but also global
trade and therefore infrastructure in other places than the very cities
that are growing.
1950
0 10 20 30 40 50 60 70 80 90
Source: Population Division of the United Nations; Angus Maddison via Timetrics; Global Insight;
Census reports of England and Wales; Honda in Steckel & Floud, 1997; Bairoch, 1975
1. Definition of urbanisation varies by country, pre-1950 figures for the United Kingdom are estimated.
2. Historical per capita GDP series expressed in 1990 Geary-Khamis dollars, which reflect PPP.
Figure 7: Per capita GDP has risen in tandem with increases in the urbanisation rate
30,000
10,000
3,000
1,000
300
1990 PPP $ (log scale)2
Japan
Urban
population (%)
China
1820
1891
1920
1960
1990
2005
2005
1950
2006
2005
2005
2005
2005
2005
2005
1990
1860
1960
Germany
India
South Korea
United States
Brazil
Italy United Kingdom
PercapitaGDPandurbanisation
Rapid urbanisation will require US$57t in investment over
2012–2030. However, there is also a funding gap. Under current
conditions, only US$45t is likely to be realised.
Figure 8: An urban world requires major investment in infrastructure, but funding will remain challenging
The B20 Infrastructure and Investment
Taskforce’s six recommendations for
G20 nations could generate:
US$8t worth of additional
infrastructure capacity by 2030
US$1.6t of additional investment by
businesses every year
and contribute up to 1% to the G20
target of 2% additional growth over the
next five years
Source: B20 Infrastructure and Investment Taskforce. Policy Summary. B20 Australia 2014. July 2014.
2012–2030
US$57t$

Resource scarcity will require better management at the asset level, as
well as at the level of global logistics systems. It will certainly present
investors with opportunities, as new assets are needed for a better
distribution of resources, or as assets are better managed to produce
more from less.
Indeed, automation and big data analytics provide opportunities
for asset owners to operate infrastructure assets more efficiently,
increase the level of service and optimise the timing and cost of capital
investments. At the same time, they may make some assets as we
know them, obsolete.
Will we need as many parking garages, or roads, when we’ll have
self-driving cars? Would a fleet of self-driving cars be an infrastructure
asset similar to other public transportation ones? The answers to these
questions will be driven by the evolution of the transport value chain,
but they should also be considered more broadly.
High levels of public debt are a burden for many governments. But
this represents an opportunity to review the way public and private
stakeholders share risks and returns, while procuring the assets
needed to support economic growth and improve quality of life.
The economic growth of Asia together with urbanisation will fuel new
investment opportunities, and platforms, such as the “One belt; One
road” plan with the support of the AIIB.
Finally, the scale of urban development ahead is unprecedented,
increasing the need for infrastructure in growing cities. This will change
import and export flows, and thus impacts infrastructure outside of
these cities. The nature of the infrastructure needed to improve and
maintain an acceptable quality of life in fast growing cities will also be
significant.
The right step is to acknowledge these megatrends, then analyse and
test their effects on new investments being considered and existing
owned investments. Expanding the scope of scenario analysis and the
testing of sensitivities are keys in translating them into valuation of
assets and the construction of portfolios.
The pace of change and the likely shorter timeframes for them to
significantly affect value chains means investors, at their peril, remain
complacent about their import into infrastructure investment.
These needs will be particularly acute for transport (additional roads
and mass transit such as rail and light rail), and energy, notably clean
energy, as the concentration of extremely large populations and the
use of fossil sources of energy are already creating massive health
hazards through air and water pollution in fast growing cities in the
developing world.
Nearly all cities have a growth agenda: high-quality infrastructure
contributes to well-functioning, growth-primed cities that can
attract new residents and keep their existing ones. Many emerging
nations face the challenge of building new urban infrastructure
from scratch, while many developed nations face the problem of
aging infrastructure. Funding will remain challenging, especially
for governments alone, and under current conditions, only US$45
billion investment is likely to be realised. This can create significant
opportunities for the private sector to step in (Figure 8 on the
previous page).
In order to attract more private investments into infrastructure, the
B20 Infrastructure and Investment Taskforce insisted on three actions
that the G20 should take: setting specific targets for infrastructure in
their national growth plans, establishing a Global Infrastructure Hub
and increasing the availability of long-term financing for investment.
Efficiently financing global infrastructure needs could contribute up to
1.1 per cent to the G20 target of 2 per cent additional growth over the
next 5 years.
With government budgets around the world under pressure, many
will continue to finance infrastructure projects using public private
partnership (PPP) models, with new flavours emerging to meet local
needs. Those markets that harness the promise of urbanisation by
finding creative solutions to financing infrastructure needs will be
those that enjoy economic growth.
MAKING SENSE OF MEGATRENDS
Megatrends are deep-rooted changes that show early signals before
putting many stakeholders who could not read or react to them in
“freefall”, or events that radically change one’s environment and
situation. However, no one can predict with high levels of certainty
how these trends will express themselves, and what the “freefall”
events will be.
The megatrends focused on in this paper are already impacting many
sectors. We have tried to draw attention to some of the risks and
opportunities that they engender for infrastructure investors and
managers.
FOR MORE INFORMATION www.qic.com
Craig Balenzuela CFA
Director Business Development
– Australia
Level 34/52 Martin Place,
Sydney NSW 2000
PO Box R1413 Royal Exchange
NSW 1225
T +61 2 8045 8001
M +61 417 684 154
E c.balenzuela@qic.com
Chris O’Connor
Senior Business Development
Director
Sydney NSW 2000
NSW 1225
T +61 2 9347 3380
M +61 401 567 792
E c.oconnor@qic.com
William Stephens
Business Development Director
Sydney NSW 2000
NSW 1225
T +61 2 9347 3355
M +61 466 315 385
E w.stephens@qic.com
Melannie Pyzik
Director, Investment Specialist
– Global Infrastructure
Sydney NSW 2000
NSW 1225
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This Red Paper results from a collaboration of the following people in the QIC Global Infrastructure team: Ross Israel, Albert Daniels,
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Reimagining infrastructure amid transformative change – October 2015
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14
1. EY Global. Megatrends 2015: Making sense of a world in motion.
2. This and a number of other insights in this paper are drawn from Stefan
Hajkowicz, Global megatrends: seven patterns of change shaping our
future. CSIRO Publishing 2015.
3. United Nations, Population Division, Probabilistic Population Projections
based on the World Population Prospects: The 2015 Revision.
4. Op cit. Stefan Hajkowicz.
5. OECD (2013) Economic Outlook No 93 – June 2013 Long Term Baseline
Projection. Cited by Stefan Hajkowicz.
6. Op cit. Stefan Hajkowicz, Global megatrends: seven patterns of change
shaping our future.
7. The United Nations World Water Development Report 2014: Water and
Energy — Volume 1, UN Water, 2014.
8. Op cit. EY Global. Megatrends 2015.
9. McKinsey & Company: 2030 Water Resources Group. Charting Our Water
Future: Economic frameworks to inform decision-making.
10. Ibid.
11. Ibid.
12. Ibid.
13. https://www.ofwat.gov.uk/.
14. IEA (2011) World Energy Outlook. Paris, International Energy Agency.
15. Ted Moon, “Deep water drilling rig fleet faces short-term slowdown,
long-term growth,” Offshore website, 17 July 2014, www. offshore-mag.
com/articles/print/volume-74/ issue-7/rig-report/deepwater-drilling-rig-fl
eetfaces-short-term-slowdown-long-termgrowth. 12 January 2015.
16. BP Energy Outlook 2030, BP, January 2013; and World Energy Outlook
2012, International Energy Agency, 2012.
17. The People’s Climate, Project Syndicate website, 24 September 2014,
www.project-syndicate.org/commentary/monica-araya-and-hans-verolme-
saythat- the-people-s-climate-march-was-just-the-startof-popular-pressure-
on-world-leaders.
18. World Energy Investment Outlook 2014, International Energy Agency,
2014.
19. http://www.thameswater.co.uk/cr/Climatechange/index.html.
20. Ernst & Young, Megatrends 2015, Making sense of a world in motion.
21. Ibid.
22. Ibid.
24. http://www.greenbiz.com/blog/2013/12/11/inside-california-energy-
storage-mandate.
25. Ibid.
26. Bellamy D, Pravica L (2011) Assessing the impact of driverless haul trucks in
Australian surface mining. Resources Policy 36 (2).
27. http://www.fullyloaded.com.au/logistics-news/1404/port-of-brisbane-
highlights-stevedore-automation.
28. Hansson P (2000) Relative demand for skills in Swedish manufacturing:
technology or trade? Review of International Economics 53 (1).
29. Gregory M, Zissimos B, Greenhalgh C (2001) Jobs for the skilled: how
technology, trade and domestic demand changed the structure of UK
employment, 1979-1990. Oxford Economic Papers 53 (1).
31. IBM (2014) Bringing Big Data to the Enterprise. http://www-01.ibm.com/
software/au/data/bigdata.
32. IMF, Fiscal Monitor 2015 http://www.elibrary.imf.org/view/IMF089/22120-
9781498396387/22120-9781498396387/ch01.xml.
33. http://www.imf.org/external/pubs/ft/sdn/2015/sdn1510.pdf.
34. IMF 2013 Fiscal Monitor. Fiscal Adjustment in an Uncertain World
35. Ibid.
36. Congressional Research Service. 2011. “Rising Economic Powers and the
Global Economy: Trends and Issues for Congress”. http://www.fas.org/sgp/
crs/misc/R41969.pdf. Accessed 29 May 2013.
37. uropean Union Institute for Security Studies, 2011.
38. Wilson, D, Kelston AL, Ahmed S (2010) Is this the ‘BRICs decade’? BRICs
Monthly. Goldman Sachs Global Economics, Commodities and Strategy
Research. Cited by Stefan Hajkowicz.
39. Op cit. Stefan Hajkowicz, Global megatrends: seven patterns of change
shaping our future.
41. World Bank data webpage: World Development Indicators, International
tourism, number of departures (World Tourism Organization, Yearbook of
Tourism Statistics).
42. WTTC 2013. Travel & Tourism Economic Impact 2013. In Country Profiles.
UK, World Travel and Tourism Council.
43. Ibid.
44. Robert Devlin, Antoni Estevadeordal, Andrés Rodríguez-Clare, The
Emergence of China: Opportunities and Challenges for Latin America and
the Caribbean. IDB 2006.
45. United Nations Population Division World Urbanisation Prospects.
46. Ibid.
47. Ibid.
48. Future Trends and Market Opportunities in the World’s Largest 750 Cities,
Oxford Economics, 2014.
49. Ibid.
50. Ibid.
51. Ibid.

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