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How governments can accelerate infrastructure investment across Asia-Pacific?

The outbreak of COVID-19 has deeply disrupted every industry in the Asia-Pacific region and the world, and the infrastructure sector is not an exception. The crisis has created unprecedented disruption in the APAC leading to a major decline in demand and the associated operational impacts. In the past five years, according to GlobalData, the value of global infrastructure construction grew by an annual average of 3.2 percent. 

This growth is largely accredited by the Asia market, with infrastructure construction in South and South-East Asia growing at 6.8 percent, whereas North-East Asia growing at 5.4 percent. In the time of crisis induced by COVID-19, the market growth of infrastructure construction is seeing unprecedented falls largely due to government-mandated lockdowns in the region. 

It is expected that the construction industry in the region, excluding China, to grow by just 0.4 percent throughout 2020. Moreover, with high levels of government support to business and households, overall economic growth in the region will drop to just 0.5 percent this year, which is down from an average of over 7 percent in the past five years.

While the pandemic has deeply affected the infrastructure sector, this has created the need of significant approaches to business survival. In order to find out the answer to the success of businesses in this uncertain environment, KPMG identified resilience throughout the entire enterprise is the key. In its “COVID-19: A guide to maintaining Enterprise Resilience”, the firm has covered three areas, financial resilience – the ability to withstand the financial impact on liquidity, income and assets. Operational resilience – the ability to withstand operational shocks and continue to deliver your core business. Commercial resilience – the ability to respond to changing market and consumer pressures.

Infrastructure Investments

As the economic development relies majorly on infrastructure investment, the World Bank estimates that emerging APAC countries alone needs to invest US$26 trillion from 2016 to 2030, or US$1.7 trillion a year, to maintain its current rate of economic growth. On the other side, the Asian Development Bank reckons that 60 percent of the investment needed in emerging Asia Pacific before 2030 will have to come from the private sector.

In India, large investments in infrastructure have seen much impetus as overall private equity/ venture capital investment reached an all-time high of US$14.5 billion in 2019. The infrastructure sector in the country is a key driver of the economy, which involves power, bridges, dams, roads, and urban infrastructure development. According to the report, India requires US$ 777.73 billion (INR 50 trillion) investment in infrastructure by 2022, to drive sustainable development in the country. In 2019, the infrastructure sector in India seen seven M&A deals worth US$1,461 million.

When it comes to infrastructure investments, a majority of large global investors in recent years have expanded their footprints in the Asia market, setting up new credit funds with mandates to invest at least partly in infrastructure.