Infrastructure has been an unsung hero of the COVID-19 crisis. Despite the complete disruption to how our economies operate and how we live our lives, infrastructure key workers have ensured the operation of critical services including power, water and most transport systems- true to its word infrastructure has literally kept the lights on throughout the pandemic.
We have seen innovative infrastructure solutions in response to COVID-19 including the rapid development of medical facilities and adaptive use of space (such as hotels transformed into housing facilities for those displaced by travel restrictions and unemployment). We are also seeing escalated roll-out of connectivity solutions as working, socializing and shopping habits become virtual and social distancing requires digital means of accessing, paying for and maintaining infrastructure.
In addition to keeping the lights on, infrastructure is being looked to by governments to play a key role in their recovery strategies. Many are calling for shovel-ready projects that can help to stimulate economic growth as the global economy faces what some are calling the worst economic recession since the second world war.
What do we mean by shovel-ready in the current context of COVID-19? Government clearly plays a key role in fostering an environment that enables the escalated development of infrastructure. This is discussed in my recent podcast – A path to green economic recovery – where I share my views on what governments should be doing now to rebuild economies in a way which is sustainable and resilient.
Now let’s also look at this at the project level and what it means for a project to be considered shovel-ready in this new reality. What are the enablers that can best place projects for selection? What are the outcomes that governments should look for in these projects to deliver both immediate and long-term benefits, and what is the role of investors in this prioritization process?
Shovel-ready is a phrase much used by politicians keen to be able to be seen to act fast in stimulating their economies through infrastructure investment. . It is usually associated with projects that have been through the required planning and approval processes and can initiate construction upon securing investment. It also refers to projects that will have immediate impact on employment rates and the economy.
Identifying shovel-ready projects in the context of COVID-19 however, requires a broader range of considerations both at the project management level and the promised outcomes of the project on society.
In addition to the standard robust project planning expected for a project to be classified as shovel-ready the COVID-19 pandemic has raised additional critical factors that need to be addressed – for a project to be shovel ready it now needs to be COVID-19 relevant and pandemic proof.
Some questions to consider in the selection process include:
In a recent survey (published results forthcoming), KPMG professionals reached out to approximately 80 senior public sector officials across Latin America. When they were asked about the major challenges to effectively apply stimulus packages, they highlighted slow approval processes, and lack of project readiness to receive the funds as the top issues that they are facing.
We also need to consider the promised outcomes – in both the short and long term – against existing risks to society, continued risk of COVID-19, and the emerging requirements of the new reality of the world as a result of the pandemic. The emphasis on project outcomes is especially key in some developing markets where an increased focus on project preparation and a strong ESG criteria are likely to be critical to limiting project and financial risk – all the more so in times of COVID-19.
Short term considerations include:
Long term considerations include:
When asked what would significantly improve infrastructure delivery in their countries, Latin American public sector officials agreed that, in addition to implementing cost-benefit analysis methodologies, increased transparency, and establishing and applying directives, projects also need to be prioritized against ESG criteria.
Whilst consideration of all these factors is important, there is also risk in overlaying too much analysis or complexity at the project assessment stage at the cost of quick decision making. A robust and clear prioritization methodology which also recognizes the environment we are in, is key.
Developing a framework that allows comparison between projects in a range of sectors, regions, with different benefits is complex. Project selection should link to underlying policy objectives and target those most impacted by the COVID-19 pandemic.
The global cost of COVID-19 has been estimated by the Asian Development Bank1 to be between US$5.8-8.8trn, and as high as US$82trn based on a recent study by Cambridge University.2
Regardless of the precise figure, the financial implications are clearly significant, particularly in emerging markets that may have been in financial difficulty even prior to the pandemic, where governments alone have little capacity to fund projects and corporate balance sheets are strained. As the World Economic Forum argued in their recent publication encouraging greater use of unsolicited proposals,3 increased innovative private sector participation and the support of multilateral development banks will be key.
Infrastructure players will need to get creative by increased use of innovative finance solutions including blended finance, sustainable innovation funds, and green bondsto unlock capital to the right projects.
Investors can also influence the type of projects that are re-prioritized through robust ESG criteria and the development of targeted funds.
There are many aspects of our lives today that remain unpredictable as we cope with the ongoing effects of COVID-19. Infrastructure projects need to be able to withstand this uncertainty in order to be viable and to deliver long term benefits. Robust business case assessment, risk mitigation andproject management can help ensure that the projects promising the most benefits to a post COVID-19 world are prioritized.
Increased participation of the private sector in developing, funding and delivering projects can help to increase the efficiencies needed at a time where resources are stretched. Collaboration, connectivity, risk sharing, investment and a deep alignment with the needs of evolving societies – while addressing current concerns about the impact of this crisis on inequality – can help ensure that infrastructure not only keeps the lights on, but paves the way for societies that are reinforced by sustainable and resilient growth.