Non-OECD states are likely to spend a whopping $57 trillion on infrastructure projects over the next 20 years, compared to $34 trillion by OECD countries, according to a recent study by management consultancy Strategy& Middle East (formerly Booz & Company), part of the PwC network.
In conjunction with this spending, policymakers in non-OECD countries have increased their commitment to promoting localization of their infrastructure spending. Nearly 300 local content requirements measures are currently in place in non-OECD countries.
According to the Strategy& report, such an approach is particularly important for the GCC, where governments are investing significant sums to develop infrastructure.
Saudi Arabia, for example, is likely to spend $1.1 trillion from 2019-2038, while the UAE is scheduled to invest $350 billion over a similar time frame. These large development schemes can allow local companies not just to substitute imports, but also to grow non-oil exports by enhancing their capabilities.
Commenting on the report, Dr Raed Kombargi, Partner, Strategy& Middle East said the trend towards local content requirements reflects an increasing recognition that the trillions of dollars that governments spend on mining, oil and gas, power, water, and transportation infrastructure could potentially fuel economic growth, create jobs, and support broader national strategies.
However, many local-content programs fall short of their objectives because policies are affected by the conceptual biases of policymakers. By understanding and addressing these biases directly, developing countries can ensure that they retain the bulk of the economic gains from the coming wave of infrastructure spending, he noted.
According to him, the GCC governments need to think logically about how they balance the need to localize manufacturing while pursuing sound economic policies.
There are many capabilities that the region does not possess because of its small size and hence needs to import to build infrastructure, observed Kombargi.
Additionally, policymakers need to stress the importance of economic openness and free trade given the region’s need to export. However, many governments have a sense of urgency that, although commendable, can lead to short-sighted and counterproductive policies, he stated.
Governments in developing economies are increasingly crafting policies to expand the share of local goods and services in large infrastructure projects worth trillions of dollars, he added.
TradeArabia News Service