Salar Shemirani, Manager, Global Infrastructure Advisory, KPMG in Canada
But it's important to heed past lessons and adopt innovative new solutions.
As we consider how to address the huge infrastructure gap in emerging markets, we should pause for thought. Following the same path that's been trodden in more mature economies simply won't deliver the step change that's needed.
Over the past decade and more, KPMG's annual Global Construction Survey repeatedly finds infrastructure development projects going over time and over budget, with a majority of project owners and contractors suffering significant failures - especially with major projects, which are increasingly complex.
To take a fresh look at such challenges, we spoke to two technology pioneers from very different sectors, both of whom bring unique experience and insights on innovation. Karl Westvig, CEO of South African financial services company Retail Capital, has successfully delivered solutions that bypass traditional channels and ways of working. And, as CEO and founder of global technology solutions company Finger Food Advanced Technology Group, Ryan Peterson is at the forefront of exciting technologies like robotics, machine learning, virtual and augmented reality and blockchain.
Karl Westvig feels that starting from a lower infrastructure base actually presents a great opportunity to do things differently: “In South Africa we had a major water crisis in the Cape region, which led to a lot of corporates putting their own infrastructure in place to become more self-sufficient. It's been a similar story with solar and wind farms to secure off-grid electricity, given the unreliability of the national power service.”
Such an enterprising approach stems from thinking first about the services needed, rather than the infrastructure itself. “Everyone needs lights, TV and other household appliances, but it's very expensive to deliver electricity across vast countries” says Karl. “Instead we're seeing more decentralization, with prepaid solar power, either from rented panels on your own property or via a nearby mini solar farm.”
An example of this trend is Kenyan solar energy company M-Kopa, which has acquired hundreds of thousands of business and consumer customers throughout Africa using its advanced pay-as-you-go platforms. This ability to use technology to connect customers with infrastructure is a growing trend.
“Infrastructure is ripe for disruption,” says Ryan Peterson of Finger Food, which works with organizations across industries including infrastructure, oil and gas, telecommunications, manufacturing and retail — in both mature and emerging countries. “You can’t treat it as an old-world business problem — you need to learn the hard lessons from more developed markets and look for completely fresh ways of doing things.”
Such thinking is reflected in KPMG's 2019 Global Construction Survey, where the top 20 percent of `future-ready' organizations are embracing disruption from strategy to execution. These companies are learning how to pilot projects and `fail fast', investing in innovation without fear or uncertainty - and achieving superior performance.
One of Finger Food's projects, with Enbridge, involved the use of holograms to visualize underground oil and gas pipes and identify areas of potential concern. This avoided the need to visit pipelines in inaccessible locations like mountain ranges.
“You can't treat it as an old-world business problem - you need to learn the hard lessons from more developed markets and look for completely fresh ways of doing things.”
Infrastructure can look to other sectors for inspiration. Mobile financial services have taken off in a big way in countries where a large proportion of people have traditionally been unbanked. Karl Westvig's company Retail Capital, which provides loans to small-to-medium organizations, has grown fast on the back of the cellphone boom.
“Mobile payments have heavily disrupted the banking and financial services market and our business has moved swiftly to an app-based service. There’s no face-to-face, and no documents change hands. Most consumers can’t travel long distances on poor roads to a bank, so the lack of infrastructure is in fact driving creativity in services. The engineering and construction industry could similarly embrace digital technology to drive efficiency,” explains Westvig.
It's not just financial services that is blazing a trail. Many other sectors - like healthcare, manufacturing, retail, media and telecommunications - have bypassed traditional infrastructure like road, rail, cables and grids to serve their customers and employees better and reduce their carbon footprint. According to Finger Food's Ryan Peterson, “Infrastructure companies need an innovation group that's really thinking deeply about how technology is going to affect their business model.”
One infrastructure sub-sector benefiting from new ideas is tolling. As KPMG's 2019 global tolling benchmark paper Open opportunity (PDF 2.86 MB) reports, the most forward-looking operators eschew cash and use Open Road Tolling (ORT) and Electronic Toll Collection (ETC). Tolling is relatively rare in emerging markets and such technologies can accelerate the efficient development of roads.
“Mobile payments have heavily disrupted the financial services market and the engineering and construction industry could similarly embrace digital technology to drive efficiency.”
Of the many new technologies, Ryan Peterson is especially excited about 5G. “It's a game changer - it's the next internet. In mining, for instance, machine-to-machine communication enables autonomous vehicles and other automation, which will save lives and increase efficiency in remote projects.”
And Ryan thinks 5G may hasten the development of less mature markets. “Those countries that embrace 5G first are going to leapfrog developed nations - some of whom are, frankly, a little sleepy in joining the race. It's that profound. This kind of technological adoption will help create brand new exports.”
Ryan also cites data analytics as another vital advance for the sector. “Engineers currently spend far too much of their time just finding information and they rarely get the insights they need. With IoT available to collect vast amounts of data in real time, it's vital to have a system that digests the data and gives relevant reports to guide capital expenditure choices.”
Ultimately, infrastructure owners and developers in emerging markets have to reimagine what they really stand for. Are they service providers - like M-Kopa - or more traditional infrastructure developers, builders, supporters or operators? And are they able to disrupt their own cultures, to become technology led organizations that deliver improved performance and returns?
Investors, like infrastructure funds and banks, have an important role to play in supporting emerging markets, encouraging the use of technologies to improve productivity and certainty over project outcomes. Non-profit funds are active in this space; Fusion Foundation has partnered with social enterprise i4SD to work on projects in South East Asia and sub-Saharan Africa, including smart meters and solar mini-grids and water access, using mobile pay-as-you-go technologies.1
If the sector gets it right, the emerging world could leapfrog more mature markets and hasten in a new age of fast, efficient and safe digital project delivery, which benefits infrastructure players and the countries and communities in which they operate.
Karl Westvig concludes with a word of advice for infrastructure organizations that want to radically transform their business model. “In my experience, you need to foster a culture of change and risk-taking. It takes a strong and visionary leader to steer the business in a different direction, but the results can be exciting and well worth the effort.”
“Technology can inspire industries like financial services, power and energy to reduce or even eliminate their reliance on traditional infrastructure such as road, rail and networks.”