Mega, Giga, Tera: Inside the Biggest Investment Boom in History

The World Bank Building, Washington, DC. (Photo: Arvid Bring)

Consider this: We have entered an age in which a single “mega” (million-dollar) project can easily exceed the national economy of a low-income country; a single “giga” (billion-dollar) project can outpace the earnings of a middle-income state; and a single “tera” (trillion-dollar) investment project can compare with the GDP of one of the world’s top 20 richest nations.

Research reveals that we are living through the largest investment boom in human history. Oxford University’s Bent Flyvbjerg, an economic geographer who specializes in mega-project planning and management, estimates global mega-project spending at between $6-9 trillion annually. This is 8 percent of the world’s combined GDP.

Mega-projects are not just moving with the times; they are growing in number and in scale at a terrific pace. Investments in behemoth infrastructure projects in the transportation, energy, water and agricultural sectors, in particular, are skyrocketing.

In a 2014 paper published in the Project Management Journal, Flyvbjerg noted that between 2004 and 2008, China alone “spent more on infrastructure in real terms than during the entire 20th century, … an increase in spending rate of a factor of 20.”

There is no evidence that financialization will not “socialize losses and privatize gains.”

The current unprecedented rate of investment is matched by another phenomenon: a never-before-seen consensus among the world’s largest development finance institutions that investing in mammoth infrastructure projects could boost economic growth rates by 2.1 percent by 2018, adding $2 trillion to the global economy and creating millions of jobs for the unemployed.

In early April, China’s brainchild, the $100 billion Asian Infrastructure Investment Bank (AIIB), designed to finance infrastructure projects in the Asia-Pacific region, counted 46 countries among its founding members.

And this is only the tip of the “investment in infrastructure” iceberg.

In November 2014, governments of the Group of 20 (G20) launched the Global Infrastructure Initiative, a multiyear program aimed at improving the environment for public and private investment in large infrastructure projects worldwide.

The move followed closely on the heels of a joint statement by the International Monetary Fund (IMF) and seven major multilateral development banks (MDBs) expressing the need for additional investment in “quality infrastructure.”

In the statement, these seven institutions – the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank, the Islamic Development Bank and the World Bank Group – and the IMF announced their collective capacity to provide $130 billion of financing for infrastructure annually.

Just prior to these announcements, the World Bank unveiled its own Global Infrastructure Facility (GIF).

In an email to Truthout, Jordan Schwartz, head of the GIF, described the initiative as a “global, open platform that facilitates the preparation and structuring of complex infrastructure Public-Private Partnerships (PPP) to enable mobilization of private sector and institutional investor capital.”

Comprised of other MDBs and 16 private sector partners that include Citibank and HSBC, the GIF’s partners hold over $8 trillion in assets.

“Most of these projects are directly counter to any notion of sustainability.”

Schwartz told Truthout that the facility, which currently has just $80-100 million at its disposal, will “operate globally, to support infrastructure projects in Emerging Markets and Developing Economies (EMDE)” in the energy, water and sanitation, transport and telecommunications sectors.

Already the World Bank’s contribution to infrastructure development is huge: In 2014, it provided $24 billion for this purpose.

But this is apparently not enough.

In his speech at last year’s annual meetings, the Bank’s president, Jim Yong Kim, explained, “[Our] loans and projects will fall far short of what the developing world needs. The infrastructure gap is simply enormous – an estimated $1 trillion to $1.5 trillion more is needed each year.”

According to private sector estimates, an additional $60-70 trillion of infrastructure capacity will be required by 2030 to spur economic growth. With current investment trends suggesting $30-35 trillion per year forthcoming from public sources and $10-15 trillion per year from the private sector, this leaves $15-20 trillion unaccounted for.

The global consensus appears to be coalescing around the notion that this “infrastructure gap” can only be met by tapping into the roughly $85 trillion of long-term institutional finance held in sovereign wealth funds, pension funds, hedge funds and insurance schemes around the world.

Even the United Nations seems to share the analysis that “unlocking” these private funds represents the magic bullet that’s going to save the world: In his synthesis report on the post-2015 development agenda, UN Secretary General Ban Ki-moon stated, “Urgent action is needed to mobilise, redirect, and unlock the transformative power of trillions of dollars of private resources to deliver on sustainable development objectives.”

His words are, essentially, a call to action for greater collaboration between the public and private sectors to plan and execute massive projects that can fill the so-called “infrastructure gap.”

Mega-Project Success Rate: 1 in 1,000

In order to understand how risky these plans are for the global economy, one must first consider the track record of large-scale infrastructure projects.

Judged against what Brent Blackwelder, president emeritus of Friends of the Earth International, calls “the ABCs of economics” – namely, whether projects deliver their stated benefits, on time, within their allocated budget – only one in 1,000 mega-projects meets the criteria for success.

Quoting the work of Bent Flyvbjerg at Oxford University, Blackwelder stated, “This is true across all sectors, from transportation, to energy, to water and agriculture.”

In one of the most comprehensive databases on mega-project cost overruns, Flyvbjerg reported that “nine out of 10 projects have overruns” while “50 percent [overruns] in real terms are common [and] over 50 percent are not uncommon.”

On the high end of the spectrum, the Suez Canal in Egypt incurred a cost overrun of 1,900 percent. On the lower end, the Denver International Airport in the United States overran its budgeted costs by 200 percent.

World Bank-funded projects displaced an estimated 3.4 million people between 2004 and 2013.

In real terms, these overestimates end up costing billions: The delayed Channel Tunnel – a 50-kilometer passage connecting the United Kingdom with France – went 80 percent over budget, costing the British economy about $17.8 billion.

“Very frequently, the government, taxpayers and consumers meet the cost of these delays and extra expenditures,” Nancy Alexander, director of the Economic Governance Program at the Heinrich Böll Foundation, told Truthout.

While acknowledging that there is a “desperate” need for infrastructure in most developing countries, she said that the current scaling up of mega-projects and public-private partnerships cannot be justified in the absence of evidence of a respectable success rate for either.

Add to this what she terms the “financialization” of investment plans and the forecast is even more troubling. Financialization entails creating infrastructure as an asset class, so that investors – especially long-term investors – can finance portfolios of public-private partnerships (PPPs).

Yet, here again, there is no evidence that financialization (especially speculative finance) will not “socialize losses and privatize gains,” since the state is required to provide significant protection of investors and guarantee certain rates of return.

According to Alexander, neither the international financial institutions (IFIs) nor the United Nations has engaged in a serious assessment of how – or whether – financialization of investment plans will serve the public interest.

To the contrary, research on PPPs reveals little evidence of success and ample proof of failure.

“An independent evaluation group (IEG) of the World Bank did an evaluation of PPPs last July and found that, in financial terms, 67 percent of World Bank-funded energy distribution projects failed,” she explained. The same held true for 41 percent of water-related projects.

“Why the massive scaling up of PPPs without waiting for better results?” she asked. “It isn’t really logical.”

Public-Private Partnerships: A Recipe for “Sustainability” or Disaster?

Logical or not, titanic players in the world economy are forging ahead with their plans for investment in infrastructure.

Consider these maps of the African continent, which provide a blueprint for proposed energy, water, transportation and extraction projects from 2012 to 2020 under the aegis of the Program for Infrastructure Development in Africa (PIDA).

In PIDA’s first phase, the collective price tag for these mega-projects touches $68 billion, and the result is a continent severed by highways, pipelines and dams with no apparent assessment of their impact on the environment or the poor.

The governance bodies of PIDA show little regard for transparency, information disclosure, consultation with civil society or participation by affected communities. To the contrary, they have blocked engagement and some governments have threatened those who challenge their plans.

“Most of these projects are directly counter to any notion of sustainability because they are producing incredibly long-term costs … and are putting the risks of failure on to the public rather than onto private investors,” Blackwelder told Truthout in a phone interview.

“The result is … billions of dollars going into the coffers of transnational corporations [while] compromising the lives of the poor and undermining all life support systems on this planet needed to sustain a global population of more than 7 billion.”

Dams alone, he said, displaced between 40 and 80 million people worldwide, and that was only until 2000.

PPPs are less about “financing development” and more about “developing finance.”

Even now, Ethiopia’s gigantic Gilgel Gibe III hydroelectric power project on the Omo River, which feeds the world’s largest desert lake, Lake Turkana, in Kenya, is causing widespread hunger and threatening the lives and livelihoods of several hundred thousand people who have relied on these fisheries and surrounding forests for generations.

This is just one example of a terrible trend that is becoming harder for policy planners to ignore. On April 16, the International Consortium of Investigative Journalists (ICIJ) revealed that World Bank-funded projects displaced an estimated 3.4 million people between 2004 and 2013.

More than 50 journalists working in some 21 countries over a period of 12 months found that the majority of those displaced were from Asia and Africa, where the Bank pumped $455 billion into 7,200 projects over a single decade.

While the bulk of the projects were aimed at strengthening transportation networks, energy grids and water supply systems in some of the poorest countries for the purpose of reducing inequality, in reality, they have added to the impoverishment of some of the world’s most destitute people – farmers, indigenous communities, slum dwellers and fisherfolk.

Experts fear that public-private partnerships will only build on this history, broadening – rather than shrinking – an already gaping wealth gap.

In a presentation to the Manchester Business School in July 2014, Nicholas Hildyard, founder-director of the UK-based research and advocacy group The Corner House, broke down the myths surrounding PPPs, concluding that they are less about “financing development” and more about “developing finance” – which in turn “enables the extraction of public wealth for private gain.”

In a world where the wealth gap between the richest and poorest nations has increased from 35:1 during the colonial period to 80:1 at the turn of the millennium, and the world’s richest 85 people control more wealth between them than one half of the entire earth’s population put together, the question remains: Who is this investment boom for?

“We are building more pipelines, more dams, more bridges than we can maintain and roads to nowhere,” Blackwelder said. “We have now reached a crossroads, where we have got to change the vision of what is ‘sustainable’ and start investing in an entirely new mentality.”