Infrastructure a Smart Bet in 2008

By Jennifer Yousfi
Managing Editor

It is estimated that India needs to invest $500 billion over the next five years to keep its economy chugging along at its current 9% rate. In fact, India could be generating another couple percentage points worth of growth if the country's roads and ports weren't such a bottleneck and could handle more traffic. 

"We regard infrastructure as a critical constraint to growth," Montek Singh Ahluwalia, a key economic advisor and deputy chairman of India's Planning Commission, said in a Tuesday speech before the World Economic Forum's India summit, quoted by Bloomberg. "Investment into infrastructure now is not exactly a trickle, but a stream. It needs to become a flow."

Infrastructure is the framework that keeps business moving. Everything we as Americans often take for granted - electricity, phone lines, highways, trains, trucks - needs to be built and maintained to sustain India's economic growth. Emerging markets like India have been experiencing record economic growth and now have the cash reserves needed to invest in renovating existing, over-burdened infrastructure on top of developing new projects.

And emerging markets aren't the only ones who need to invest in infrastructure. Even the United States needs $1.6 trillion in infrastructure investment, especially if more disasters like the Minnesota bridge collapse are to be avoided, according to the American Society of Civil Engineers.

Infrastructure demand is huge, even at a time when other industries have found corporate profits shrinking. These infrastructure-focused companies are posting strong results: 

  • Switzerland-based ABB Ltd. (NYSE:ABB) is up 62% year to date and beat its third-quarter targets by a wide margin. ABB, an engineering firm specializing in power generation infrastructure, is benefiting from new infrastructure projects in China and India as well as replacement of aging infrastructure in Europe and the United States.
  • Hong Kong-based China Merchants Holdings (International) Co. (HKG:0144) announced in its 2007 interim report a 26.1% year-over-year increase in profits that amounted to HK$1,520 million ($195 million). More than 70% of those profits derived from its port-related activities.
  • U.S.-based Harsco Corporation (NYSE:HSC) is up 53% year-to-date, and last year it posted revenues of more than $3 billion. The firm is a leading provider of diversified infrastructure services worldwide.
  • France-based BOUYGUES (EPA:EN), the second-largest construction company in the world, is up 25% year to date. It also just announced third-quarter profit gains of 27% on the strength of home and road construction projects in its home country. 

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