Infrastructure is increasingly becoming the centre of geopolitical tensions, leaving infrastructure investments around the world more vulnerable to rising costs and delays, warns the World Economic Forum.
Speaking at the launch of the WEF’s 2019 global risk report today, John Drzik, president of global risk and digital at Marsh and one of the report’s authors, said that infrastructure is “in the middle” of growing economic and political confrontation.
“Infrastructure is getting increasingly intertwined with the geopolitical landscape. There’s an intersection with geopolitics which is getting unproductive,” he said. “The whole move toward a more protectionist economic environment in many countries – tariffs, sanctions, etc – is increasing costs and delaying projects. One example is the steel tariffs in the US, which raised the cost of an infrastructure project in Detroit by approximately 13%. There are also now restrictions on importing and exporting technology, including Huawei recently being restricted from being used in the US, Australia and New Zealand, and being reviewed in other countries.”
The Global Risks Report 2019, which was released ahead of the WEF annual meeting in Davos next week, labels “rising geopolitical and economic tensions” as the most urgent risk for the year ahead, with 90% of the 1,000 experts surveyed expecting further economic confrontation between major powers in the year ahead.
The report further warns that the geopolitical positioning of foreign direct investment means that “increasing geo-economic competition could sow seeds of tensions that take years to grow and years more to resolve”.
According to Drzik, the US-China trade dispute is an example of a confrontation that is “now spilling into other areas”, hinting that global powers are increasingly using infrastructure as a political tool in the conflict.
“If you think about infrastructure in that context [the US-China trade dispute], China is aggressively investing in infrastructure, increasing Beijing’s influence in a number of countries. The US is countering with the formation of the International Development Finance Corporation (IDFC), with US$60bn to bankroll infrastructure projects in Asia, Africa and the Americas,” he said.
The IDFC, which was unveiled late last year, is widely seen as part of the US’ strategy to counter rising Chinese influence abroad. It will, in part, enable the US to respond to the threat posed to its economic and national security interests by China’s Belt and Road Initiative and the China-Africa Development Fund.
“With global trade and economic growth at risk in 2019, there is a more urgent need than ever to renew the architecture of international co-operation,” added Børge Brende, president of the WEF. “We simply do not have the gunpowder to deal with the kind of slowdown that current dynamics might lead us towards. What we need now is co-ordinated, concerted action to sustain growth and to tackle the grave threats facing our world today.”
The Global Risks Report is published annually to help firms and governments identify priority areas for action in the year ahead. It incorporates the results of the WEF’s annual Global Risks Perception Survey of approximately 1,000 experts and decision-makers.
Other risks highlighted this year include cyber and environmental risks. The latter dominate respondents’ concerns in the survey’s 10-year outlook, with all five of the environmental risks the report tracks appearing in the ‘high-impact, high-likelihood’ category. They include biodiversity loss, extreme weather events, failure of climate change mitigation and adaptation, man-made disasters and natural disasters.