MANY emerging markets are turning towards infrastructure projects to stimulate the economic recovery from the coranvirus pandemic, with a particular focus on green and sustainable developments.
Despite the broader downturn last year – which the IMF says resulted in the global economy contracting by 3.5 per cent – the number of newly announced infrastructure projects actually increased by five per cent, according to analysis from global financial data company Refinitiv. In total, 2,550 new projects were announced in 2020 with a combined value of US$739 billion.
Of these, 56 per cent were classified as sustainable, primarily made up of renewable energy projects in the solar, wind, biomass and hydroelectric segments. This was the fourth consecutive year in which the number of sustainable projects increased, rising from 808 in 2016 to 1,437 in 2020.
A majority of infrastructure projects announced last year were in the power sector (63.7 per cent), followed by transportation (11.4 per cent), leisure and property (7.9 per cent), and oil and gas (5.6 per cent).
While the majority of these projects were in Western Europe (604) and North America (419), 297 were announced in Latin America and 257 in Southeast Asia.
In terms of the latter, Vietnam connected more than 9GW of solar power to the national system over the course of 2020 – increasing the country’s overall solar capacity eight-fold relative to 2019 levels. Meanwhile, in June the government approved a further 7GW in wind power projects.
Sustainable development to drive growth
Looking ahead, growth in the volume of infrastructure projects is expected to continue into 2021, as restrictions ease and governments look to stimulate their economies.
An example of a potential infrastructure-led recovery is US President Joe Biden’s proposed multibillion-dollar “Build Back Better” plan, which aims to repair much of the country’s physical infrastructure – such as roads, bridges and airports – while also investing significant amounts in new broadband internet developments and green energy projects.
From a global perspective, green developments are once again expected to be one of the major drivers of infrastructure growth, spurred on by growing demand for renewable energy and governmental efforts to meet carbon reduction targets.
As OBG has outlined, the value of green bonds defied the Covid-19 economic slowdown to reach a record high of US$269.5 billion last year, according to the Climate Bonds Initiative, a figure that some suggest could be as high as US$400 billion to US$500 billion this year.
Global examples of major sustainability-minded infrastructure strategies include the EU’s one trillion euros European Green Deal plan, which envisages massive investment in sustainable projects to ensure the bloc is climate neutral by 2050, and China’s Belt and Road Initiative, which is placing greater emphasis on sustainable infrastructure in the wake of Covid-19 through its Green Silk Road plan.
Elsewhere, significant investment is also expected in telecommunications infrastructure following the rapid uptake of digital services throughout the pandemic.
As global demand patterns shift, renewed investment is necessary to bridge the ongoing infrastructure gap. Despite an increase in projects last year, the world has long been underinvesting in infrastructure.
According to the Global Infrastructure Hub, a G20 initiative, the world is facing a US$400 billion gap in infrastructure investment this year, a figure that could cumulatively grow to US$15 trillion by 2040 if current rates of spending continue.
Asia leading the way
Emerging markets are expected to be a key engine of growth for global infrastructure investment in the years ahead.
According to projections from insurance company Swiss Re, of the US$66 billion in infrastructure spending expected between 2021 and 2040, some US$43 billion is to come from emerging markets. Much of this will be driven by emerging Asia (including China), which will account for US$35 billion in infrastructure spending over the period.
The region is also expected to see a spike in infrastructure projects in the short term.
After Covid-19 prompted an 8.5 per cent contraction in the South and South East Asian construction market in 2020, UK data analytics firm GlobalData has projected the sector will experience a significant rebound in 2021.
One country looking towards infrastructure as a major economic growth driver is the Philippines. While many projects under the flagship ‘Build, Build, Build’ plan were delayed last year, the government has made attempts to revitalise them in 2021.
In January it was announced that a Chinese consortium would finance the US$940 million Subic-Clark cargo railway project, while in March the Department of Public Works and Highways said it had hired an additional 1,000 engineers to fast-track a series of “Build, Build, Build” projects.
Infrastructure development across the region is also expected to be supported by international institutions. In March the Green Climate Fund announced that it would allocate US$300 million to the Asian Development Bank-managed green recovery programme, which will provide technical assistance and concessional loans to 20 green energy projects across Southeast Asia.
This opinion piece was produced by the Oxford Business Group.
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