Firm Foundations for Growth

In Asia it’s all about building things from the ground up – from offices to shopping malls and roads to bridges as more people and goods move beyond their immediate locations within and across national borders. This article looks at the pace of growth and how demand seems set to increase.

Asia’s governments are under pressure to replace existing and develop new sustainable infrastructure programmes at all levels to keep pace with the region’s economic and population growth.

According to the 2015 UN Development Programme’s Asia Pacific Human Development report, the number of inhabitants in the region is expected to reach 4.8 billion by 2050. Some 3.8 billion of them will be living in cities.  Whilst efficient transport and energy strategies are key to any country’s ability to fulfil its economic potential, people also need housing, places to work, clean water, sanitation and energy which, according to the Asian Development Bank (ADB), need investment of as much as US$26 trillion over the next 13 years.
 
The world’s eight biggest cities are in Asia; yet despite recent infrastructure development across the region, the ADB warns that there is still a substantial infrastructure gap with 1.5 billion people still lacking basic sanitation, more than 400 million having no electricity and 300 million lacking safe access to potable water.

With limited funding as the region faces current fiscal challenges and static markets, the demand for effective infrastructure is far outstripping current supply.  However, in the long-term, Asian economies are set to strengthen and grow.

Private investors are needed to plug this gap and help build modern ports, airports, roads and railways to improve connections with larger global and domestic markets, creating a further demand for building and construction materials and services.  

To attract them, governments are being urged to upgrade and advance their regulatory and institutional reforms to not only encourage economic growth, but also respond to global challenges such as climate change and security.  Appropriate economic, social, political and ecological safeguards need to be established as early as possible to ensure the greatest social and economic returns.

Under the UN’s Paris Agreement, up to US$100b is earmarked for the funding of climate change alleviation projects in developing countries. Renewable energies and other green innovations will have to form part of any infrastructure development.

Like the rest of the world, Asia is facing heightened security threats. There is a need to incorporate security measures aimed at protecting critical infrastructure and buildings, and improving resilience as part of any future developments. In addition, new strategies and systems are needed to protect critical infrastructure - which is increasingly connected to the internet - from the threat of cyber-attacks.

The Chinese have already seen the need of and potential for investment in infrastructure in Asia. Last year they launched a new international development bank, the Asian Infrastructure Investment Bank (AIIB), to rival the US-led World Bank. Its’ stated aim is to invest in projects that are "high-quality, low cost" as well as legally transparent and protect social and environmental interests, without the kind of free-market practices favoured by the IMF.

A number of US allies have ignored opposition from Washington and joined the AIIB in recognition of China's growing economic clout. They include Britain, Australia, the Philippines, Germany, Italy, and South Korea.

Singapore has also recognised the critical need for infrastructure in the region. Having gained expertise in developing its own infrastructure over five decades of urbanisation, it is working to develop itself as Asia's ‘Infrastructure Exchange’ - the "go-to place" where infrastructure demand and supply can connect and develop bankable projects to mobilise private sector and institutional investments.

The magnitude of the need for building and development projects to ensure Asia’s future economic growth and success looks set to continue for decades, providing a wealth of investment opportunities.

This article by Anna Averkiou first appeared on CityWire Active Insight for wealth managers in April 2017.