When analysing the macroeconomic outlook for a country, productive government capital expenditures come at the top of the list of indicators that underscore its prospects and its potential. This criterion might be simplistic but is broadly accurate: economies that do not invest in infrastructure or let them decay obviously neglect their future, but also their present, because investments constitute the fundamental driver of the economic cycle. In short, the adequacy of infrastructure and their maintenance determine the success or failure of a country.

The latest DIFC Economic Note titled “Infrastructure as an Engine of Growth in MENASA” examines the role of infrastructure in the growth outlook in a macro-region that is poised to benefit from integration of its national economies, demographic trends, human capital enhancement, and a wealth of energy resources. The note discusses in much detail major factors that drive infrastructure demand including demographics, urbanization, trade and financial markets. Indeed, the GCC countries are currently in the process or planning to spend some $2.9 trillion on infrastructure that will transform their economies.

Especially in times when the policy agenda is dictated by crisis management and economic emergency, the role of economists is to remind nations and governments that the central effect of infrastructure is not the short term stimulus to growth, but the long lasting contribution to a transformation of economies and societies, to the upward shift in productivity and in productivity growth. In this regard it is of fundamental importance to point out to policy makers that public capital produces its most durable benefits when it exerts a positive effect on private investment by widening the business opportunities or by reducing the cost of inputs. In short, when public investments increase, the competitiveness of an economy is boosted, with positive spill overs for the private sector and the general public.

Governments’ role as the largest provider of infrastructure financing in the region needs to be redefined given the crisis and resultant fiscal constraints. The role of private sector needs to be enhanced through privatization and Public-Private Partnerships (PPPs). The availability of capital is a key to spur an investment cycle. Given the long-gestation nature of infrastructure projects, there is a need to attract private sector funds and more importantly, a need to develop deep and liquid local currency debt markets to improve access to and diversify the sources of finance. This brings to the forefront the role of DIFC and financial markets in financing infrastructure.

The bottom line is that infrastructure investment can also be the key to inclusive development, bringing together economic geography and social geography by transforming regions that are less developed.

What are the links between infrastructure demand and demographics, urbanization and trade? Does infrastructure investment lead to economic growth, increased competitiveness and development? Would developing financial markets make financing infrastructure projects (which are capital intensive and requires long gestation) easier? How can the DIFC play a key role? Click here to download the note for all the answers and to understand better how infrastructure development can drive growth in the GCC, MENA and the greater MENASA region.