In another report from the World Economic Forum this week, General Electric Co.’s (NYSE:GE) vice chair John G. Rice spoke with the Wall Street Journal regarding the “tremendous underlying demand for infrastructure” in emerging markets, despite lower growth expectations. Rice expressed optimism about the global economy in general, saying it is “getting better, not worse.”
GE has substantial operations in emerging markets, and said that demand in China “remains great.” News of slowing growth in emerging markets such as Asia come at a time when GE is undergoing big restructuring moves; the company has been re-focusing its efforts away from higher-margin financing activities and is investing instead in its classic industrial business.
Rice estimates that over the next three years, the company’s industrial businesses will contribute 70 percent of GE’s operating profits, with the remainder stemming from its banking business, according to the Wall Street Journal. Not only is the company undergoing restructuring, but Rice added that the nature of the company’s infrastructure work is changing as well, with GE playing “matchmaker” between financing sources and the governments that are pursuing large projects.
Part of the reason for this new role? The decline of European banks, who are often the primary financiers of big infrastructure projects. Nowadays, Rice says, it may take as many of six different banks to finance one project, whereas prior to 2008′s economic crisis it may have been just two banks financing a project, according to the Wall Street Journal.
Rice stresses the importance of working around the new challenges: “we’ve got to fill the void,” he said. “We are doubling down on our financial teams” in order to help get deals through. He added that if GE can continue to play matchmaker and help projects find financing it has an advantage in the infrastructure marketplace.
The vice chair says that another difficulty is that many governments still haven’t come up with a good way of encouraging maximum investment in new energy projects; “the challenge is for governments everywhere to make mid- and long-term decisions on a short-term election cycle.” Rice added that for it’s part, China’s government is making “more aggressive actions on the environment, corruption, and state-owned enterprises than it gets credit for,” and “there are no shortage of growth opportunities in China.”