Over the past year, several factors have influenced the need for changes to infrastructure planning and delivery: sociopolitical developments, trade tensions, a global pandemic and fast-evolving tech innovations. These create both opportunity and risk while yielding new possibilities for innovation in capital flows and investment models. Many of these factors are not new, and similar trends have been talked about for years. What has changed, however, is that the pandemic has accelerated the need for governments and investors to adopt policies that reflect these priorities.
Infrastructure in 2020 was defined by three Rs – resilience, renewables and recycling. Power and utilities infrastructure has shown incredible resilience during the pandemic, and it was promising to see essential services functioning so effectively to keep the lights and internet on! The transition from a physical work environment to a virtual one was almost seamless, thanks to the accelerated adoption of digital technology and a much more agile way of working.
Renewable energy was the clear winner this year given the confluence of maturing technology, conducive policies and grid parity. Vietnam led from the front by achieving a quantum leap in additional renewable energy capacity, whilst Indonesia launched pioneering solar and battery project partnerships with the private sector.
Recycling and refinancing became a reality, with institutional and alternate capital, as well as local bank financing, playing a defining role. Toll road monetisation in India and further momentum in monetisation of bank infrastructure debts through structured bonds are clear signs of an emerging trend in new financing mechanisms and a deepening infrastructure finance market. Issuance of green bonds in various sectors and linking of cost of debt to the ESG performance of projects are some of the innovations this year that will define the future course of infrastructure financing.
2020 will be remembered as a turnaround year for ESG and digital transformation, themes that were on top of the agenda for most CEOs. Increased focus and resources are expected to be diverted to these two priorities in the coming years. The KPMG 2020 CEO’s Outlook highlights some of the issues discussed here as top priorities for the CEOs across the globe.
The slowdown in project execution and limited new project launches in 2020 have been an expected outcome of the pandemic. The delays in some of the projects have meant there will be a need for additional liquidity facilities and refinancing of stressed assets. We also cannot rule out a level of consolidation and shakeup in selected infrastructure sectors such as logistics and aviation.
The top five trends that will drive the infrastructure sector in the Asia Pacific region in 2021 are:
In this ever-changing global environment, governments, planners, investors, developers and operators will need to respond quickly and be ready to pivot as necessary to rapid changes in policy and spending priorities. The focus is clearly on risk-informed investment planning and decisions that prioritise capital deployments to address and mitigate disruptive risks, and ultimately ensure safety and resilience across the asset life cycle. Flexibility in approach, embracing change, leveraging technology will ultimately be fundamental to driving new ideas for a new era.