Posts Tagged ‘infrastructure’

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McKinsey & Boeing on India’s momentum & infrastructure

Friday 8 April, 2011

The Chicago Council on Global Affairs hosted this event India’s Economic Momentum and the Infrastructure Challenge featuring Jaidit Singh Brar of McKinsey-India,  Varun Bajpai of SBI Macquarie Infrastructure Management, & Rik Geiersbach, VP-Corporate Strategy @ Boeing.

Jaidit opened by noting that India’s infrastructure is behind on all parameters & needs massive investment of $1.5-2TR to catch up with their quality of life.  Because a water shortfall of 50% is expected, river basins are centers of economic activity.  The rural population is moving to the cities which will result in urbanization of 50-60% by 2030.  Unfortunately India has a poor track record of building infrastructure, which could derail growth, but that’s unlikely.  Consumer markets are attractive because they are relatively unregulated.  All infrastructure opportunities are open to the private sector & foreign investment, although few participated until 2005.  During Y2K-2010, infrastructure firms provided 4 out of the 5 best returns.  Power projects provide 30% returns annually.  Capital & skills availability make it 30-40% cheaper to build infrastructure in India.

80% of the capital raised for Varun’s State Bank of India-backed firm came from mature markets.  By 2025, 70% of India’s population will be of working age.  India’s economy is very inward-looking, but domestic consumption is high.  The conservative banking system has been relatively untouched by the financial crisis & Indians have the highest savings rates in the world.  Rising GDP leads to increased consumption, which leads to the need for infrastructure.  India is already @ the bursting point.  12 megawatt power plants are being built.  Regulations were a problem 10 years ago, but are no longer a barrier to entry.  For example, the telecom industry used to be convoluted:  now they have the cheapest phone calls in the world.  Although India’s infrastructure deficit consists of made-up numbers, their spend must simply be faster & deeper.  India’s is a slow moving democracy, but it always moves forward.  Large pension funds are investing in large projects like privatising airports.  Corruption is a problem, but the investment climate is sophisticated.  They could do more MNC investment, but they’re doing it already via partners.  All large private equity funds have offices in Mumbai or Delhi, but their local exposures are small.

Geiersbach observed that Boeing can’t ignore India’s opportunity set, which will be  the largest aviation market in the world.  That market’s growth is 18% from 140M passengers/year to 420M, while cargo traffic grew 80% in 2010.  There are 5 major airports in India & air traffic management is another growth area.  Security & environment are issues there.  India falls between China & the Middle East in terms of regulations & liability.

panel Q&A

  • Political connections, presence, & good partners all lead to creating a successful business in India, along with a fully differentiated offering.
  • There are still regulatory challenges in defense industries, but they are hungry to refresh old Soviet equipment.
  • While it’s simple to have standard cooperative agreements, equity partners are another story.

open Q&A

  • Corruption is a huge systemic problem, but the economy still does well.  Flagbearers are needed on some issues.
  • India is a complex country in which states compete for investment.  Working there requires a local presence because something is always simmering below the surface.  1 state has cleaned up its act & maintains its own standards.
  • India has the inspiring goal of putting a man on the moon by 2020.  108 of 126 defense planes will be produced in India by Boeing.  Although there is some debate on how much technology should be shared with Indian counterparts, Boeing is not holding back.

McKinsey left this document with the attendees India’s urban awakening which seems to contain a trove of information on India’s infrastructure.

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railroad opportunities in Brazil

Friday 14 January, 2011

I was invited to attend this business briefing: Opportunities in Brazil’s Rail Sector: A Business Briefing for U.S. Companies, organized by TERA International Group & sponsored by the U.S. Trade and Development AgencyHere‘s a link to a similar earlier project on which they worked.  After Steve Winkates of TERA welcomed everyone, Gabrielle Mandel of the USTDA gave an overview of their services.  Next Martin Claessens of the US Commercial Service referred people to their website to see what they do & promoted Obama’s National Export Initiative goal of doubling exports in the next 5 years to create 2M jobs.

The meat of the presentations started Britto Rajkumar, of the Transportation Technology Center, Inc., who provided the results of a USTDA-funded Railway Integration Technical Assistance Project (RITAP).  Brazil’s railroad system grew 100% in the last 10 years & is expected to grow 100% again in the next 10 years.  The focus today is on track standards for certification & safety, & so that they can be integrated across the country.  There is a 2 year pilot project & 5 year comprehensive plan to guide privatized railways to meet growing demand.  They are building 60K km in Brazil, of which 700 km are in/around Sao Paulo.  For comparison, the US has 300km of track nationwide.

Brazil’s International Affairs Advisor to the Ministerio dos Transportes, Francisco Luis Da Costa, then described Brazil’s logistical infrastructure.  The 2008 financial crisis has had little impact on Brazil’s economy, & actually increased public investment.  Foreign direct investment is up, & foreign reserves are up.  Their focus is more on internal market growth than export.  They are trying to plot a sustainable growth path:  infrastructure investment has increased 20% in 2010.  Brazil has agreed with the IMF in that infrastructure requires different fiscal treatment than other investments.   Currently Brazil depends more on roads & highways than rail, especially compared with other countries.  Their Plan for Logistics & Transport plans to change the matrix of rail & waterways directly to production areas.  Their focus is on energy efficiency, & reducing fuel consumption & emissions.  Rail is a priority, emphasized by expansion to create a modern integrated high capacity system to optimize:

  • existing network capacity
  • multimodal
  • high speed
  • North-south backbone
  • connect production areas to ports which are served by trucks now

Brazil is converting from large 1.6m gauge to more narrow 1.0m gauge & creating urban bypasses & beltways.

Other association presentations were given by:

Other visiting Brazilian delegate presentations were made by:

  • Antonio Carlos Modesto de Oliveira, Legal & Corporate Affaris Director of Ferrovia Tereza Cristina (FTC)
  • Elvira M B Cavalcanti, CFO & Thiago Rosa Moraes, Procurement Specialist of MRS Logistica SA
  • Flaviana Crus Coelho, Director General of Innovation & Railway Development & Jose Osvaldo Cruz, Office of Institutional Relations for Vale
  • Marcello Barreto Marques, Commercial Executive Officer & Miguel Angelo Barroso Andrade, General Business Development Manager of Transnordestina

I had to leave this event early due to another commitment.  If you want more information, just let me know & I’ll see if I can go back to the sources.

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the importance of public transportation

Thursday 21 August, 2008

I find it very interesting that the 1st thing Chicago Mayor Daley investigated in Beijing on his trip to promote the Chicago 2016 Olympic bid was to check out the new public transportation system, as mentioned in this article Transit system is Daley’s first stop in Beijing by Kathy Bergen in the Chicago Tribune. Chicago’s decaying public transportation system has been an embarrassment for quite awhile now & I’m glad it’s coming into focus for the mayor to fix it.

Head of the International Olympic Committee, Jacque Rogue was in Chicago late last fall & spoke to the Chicago Council on Global Affairs. It was during that visit that CTA funding was being debated in Springfield, & the headlines in the papers were not complimentary to the negotiations. If he read the local papers on that trip, I’m sure he was horrified @ how public transportation is being managed in Chicago.

What concerns me as a businessperson is the CTA’s impact upon business, in that if workers can’t plan their commutes to get to work & home on time, significant worker productivity is lost. The CTA’s refusal to publish schedules (& even make them less relevant by saying they’ll run every 4-15 minutes, which essentially means whenever the conductor/driver wants), makes no sense to me. I’m surprised the business community doesn’t express a more vocal opinion on this too. Employers are losing valuable work time when workers aren’t sure when they’ll arrive @ work.

I’ve been on public transportation systems all over the world. I’ve been on buses in small towns in Poland that are more reliable than the buses in Chicago. The CTA’s argument is that you can’t control traffic. My argument is there is no reason to wait for a 1/2 hour for a bus, & then 3 come by in a 3 minute span. That’s an average of a bus arriving every 10 minutes, but doesn’t serve customers whose travel is inconsistent that way. 3 buses every 30 minutes doesn’t move people as effectively as 1 bus every 10 minutes. It’s a management issue. Make a schedule & stick to it. I understand the unions might not want to be held to a schedule, but I’ll choose serving customers over the interests of the unions.

When I was living in Germany, I visited Berlin before the wall came down. The subway in West Berlin rode through stations in East Berlin to get to other West Berlin stations. Which stations do Chicago’s most resemble? The old dilapidated East German ones! Even further, the CTA more resembles systems from old communistic countries with old hub & spoke systems where all lines run through a central point rather than more developed systems where you can travel to multiple destinations within an integrated subway/bus system with a schedule so that you can plan when & where to go. Here, you just have to wing it & hope for the best.

It would be terribly ironic if Chicago loses the bid for the 2016 Olympics because of inferior transportation infrastructure, especially in a city that sells itself to the world based on it’s world-class air & freight connections. We don’t need the glitz that Daley saw in China. We just need a system with a schedule you can count on that works as scheduled.