Leading in a disrupted world

Leading in a disrupted world

In today’s changing geopolitical environment, infrastructure can be a catalyst or an obstacle to solving many of the world’s most intractable challenges. View this roundtable discussion on the issue.

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Americas and India Head of Global Infrastructure, Head of Global Cities

KPMG in Canada

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Smoke sticks in hand

In this round-table discussion, Stephen Beatty, Americas region and Indian Head of KPMG’s Global Infrastructure practice, asked three experts to share some of the pressures they are tracking in the current geopolitical environment and offer some suggestions for infrastructure players and governments seeking to become leaders in a disrupted world.

This article provides the highlights of the discussion between Lord Michael Hastings CBE, KPMG’s Global Head of Corporate Citizenship, Dr. Khalid Koser MBE, Chair of the World Economic Forum’s Global Future Council on Migration and Anahita Arora, Senior Analyst with the Eurasia Group.

Stephen Beatty (SB): What are some of the big pressures facing world leaders today?

Lord Michael Hastings (LMH): I think some of the challenges are fairly well understood and acknowledged. The environment, for example, remains at the top of World Economic Forum’s list of global risks and it is becoming increasingly clear that we will face significant challenges meeting the targets set in Paris in 2015. Other pressures are maybe less well understood. Automation, for example, is improving efficiency and lowering costs, but it is also creating disruption in job markets and changing the entire nature of supply and demand in some sectors.

Khalid Koser (KK): I agree. The other somewhat unknown pressure comes from the demographic change now underway around the world. We are witnessing massive population growth in some parts of the world. But, at the same time, the ‘rich’ world is suffering from population decline and that is shifting the demand for infrastructure towards the emerging markets. Consider, for example, the fact that China will build 42 new international airports over the coming years while, in the UK, we will struggle to simply add a new runway.

Anahita Arora (AA): The other pressure we are seeing is the rise of populist agendas around the world, especially in industrialised countries where support for democracy, globalisation and traditional values of economic and political liberalism is in decline. With changing politics, public and private institutions will increasingly have to cater to populist agendas. Also, as the industrialised world turns more inwards, we are likely to witness weakening of the power of traditional supranational institutions and the US led global order, with greater influence from countries such as China in trade and investment.

SB: What is your greatest concern?

AA: I think it’s clear that political instability is on the rise in both the developed and developing world. And we are now seeing some of the impacts of that instability play out through politics, economics and societies. One of the most pressing issues today is greater migration within countries and around the world. The current refugee crisis in Europe and the Middle East is a clear indication of the impact migration will have on infrastructure spending, particularly in urban areas.

LMH: Migration is absolutely one of the greatest long-term challenges facing the world today. And I think the stresses that migration creates on governments and society are massive. Just think about the growth of the size of our cities over the past few decades and the ongoing impact this is having on infrastructure spending and planning. Then consider the tremendous growth expected for Africa and the fact that — by 2100 — Nigeria will have a larger population than all of Western Europe and it becomes clear that migration will continue to be a long-term challenge for governments around the world.

KK: The big challenge surrounding migration is actually one of integration. If we can get the integration right through proper education, training, language, cultural understanding and so on, then I think migration is actually exactly what the world needs for the future. The point is that we need to deal with some of the short-term stresses so that we can get to the longer-term dividends that migration can deliver.

SB: What role can infrastructure play in responding to these pressures?

LMH: When you consider the scale and scope of the infrastructure required to support this tremendous shift in people and demands, I think there is an obvious opportunity for infrastructure players. The key will be in turning these challenges into opportunities for business profitability, while safeguarding against exploitation. If we can unlock that equation, I believe that infrastructure will be the catalyst to responding to the other big pressures such as climate change, security, automation and migration.

KK: The antithesis of that, however, is that infrastructure can also be used to exclude people and stop the natural flow and integration of migrants, often with unintended consequences. But I also believe that infrastructure plays a balancing role to some of the shorter-term pain points. Governments live in perpetual short-term cycles whereas infrastructure developers, investors and operators think in 40, 50 or 60-year cycles and it’s this type of longer-term strategic problem solving that we need in today’s world. Unfortunately, we’re not getting that level of leadership from most politicians, and the private sector is still quite reluctant to engage in migration policy.

AA: I think we are already seeing significant changes in infrastructure spend as a result of refugee and migrant shifts. Investment into border controls and equipment, policing and IT infrastructure aimed at controlling the movement of people, for example. We’re also seeing increased spend into projects aimed at improving integration such as hospitals, schools and social infrastructure. But as Khalid notes, these shifts are largely driven by political cycles so priorities greatly depend on how inward or outward-looking the government is at the time.

SB: What can governments do to respond?

LMH: I certainly believe that there is sufficient capital and resources available in private markets to finance smart solutions. I think it’s also obvious that we have the land-mass and the technology to create a more equitable society. What I believe is missing is the political will to make the hard decisions that are required. These aren’t local or national issues, they are global and I’m not sure that any government or supra-government organisation has the right mechanisms to deliver a solution without significant involvement from the private sector.

AA: I think part of the challenge is that we are starting to see politics hold more importance than long-term economic benefit in rhetoric surrounding refugees and migrants in several developed countries. And what that means is that governments are increasingly being driven by nationalist pressures that cater to the voter base rather than thinking about what their policies mean for commerce, global trade, financial investment or economic stability.

KK: I agree that there is a real gap in political leadership in many countries, particularly around key issues such as migration. One of the biggest challenges is that the solution requires cooperation — across government departments, between governments and with the private sector — and that will require governments to adopt a much broader and more inclusive approach to infrastructure planning and delivery. But that will also require governments to think more proactively about the long-term growth of their economies rather than the short-term pain points. And I’m not sure many governments are quite ‘there’ yet.

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© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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