These 5 areas of infrastructure will help rebuild the global economy

With countries around the world being encouraged to “build back better” to create more resilient and sustainable societies, it is increasingly clear infrastructure will play a key role in restarting the global economy.

The Swiss Re Institute's latest sigma report Power up: investing in infrastructure to drive sustainable growth in emerging markets highlights how infrastructure investment – particularly in China and emerging Asia – will be central to the recovery.

Emerging markets will spend USD 43 trillion dollars on infrastructure over the next 20 years, with an average annual spend of 3.9% of GDP. Emerging Asia will lead the way, with China spending 4.8% of GDP, followed by India with 3.3%.

Much of this will be focused on five key areas.

1. Urbanisation

More than half the world’s population – 4.2 billion people – live in urban areas, and this is forecast to increase by around 2.4 billion by 2050. The total urban built-up area will expand by 1.2 million square kilometres, the World Bank predicts.

Much of that growth will occur in emerging markets, the sigma report shows, with 1.6 billion more people moving to cities, spurring a need for major infrastructure boosts.

Cities generate more than 80% of global GDP, improve productivity and foster innovation. But their expansion creates demand for jobs, affordable housing, transport infrastructure and basic services, particularly for the nearly 1 billion urban poor who live in informal settlements in or near cities.

Projects will range from big-ticket infrastructure including airports, high-speed rail and mass transit to essential utilities such as electricity, gas, fresh water distribution, sanitation and waste management.

Urbanisation rates vary widely across emerging markets, from 40% in Sub-Saharan Africa and 49% in emerging Asia to 81% in Latin America and the Caribbean, according to the sigma report. India is forecast to add 405 million to its urban population and China 235 million.

2. Digitisation and smart everything

One of the reasons people move to cities is to enjoy a higher standard of living. But delivering this quality of life for everyone in fast-growing urban areas will depend on them becoming smart cities.

As well as the personal benefits to citizens of living in smart homes that they can monitor and control remotely, digital technologies will improve how cities function and guard against natural threats.

Smart-city technologies are already proving their worth in monitoring and managing transport networks, power supplies and healthcare provision around the world. Physical infrastructure embedded with Internet of Things sensors allows city managers to make better decisions and spot issues before they become major problems.

In Vietnam, where the city of Da Nang is at risk from flooding caused by typhoons, the Climate Change Coordination Office has developed an early-warning system to forecast water levels and identify areas that could be affected.

China plans to increase spending on “new infrastructure” almost fivefold by 2030, including investment in 5G networks, the industrial Internet of Things, artificial intelligence, data centres and electric vehicles. By 2030, the nation’s digital economy will contribute half of GDP, up from 35% today.

3. Resilient and sustainable infrastructure

Disruption to infrastructure costs households and companies in low- and middle-income countries as much as USD 647 billion a year, according to the World Bank, and that’s on top of the misery of being without basic services.

Much of the disruption is caused by natural disasters such as extreme weather events, which are becoming more frequent and severe due to climate change. Four out of five of the world’s population at risk from natural hazards live in Asia, according to the Asian Development Bank.

Proofing infrastructure against these risks will mean upgrading existing facilities and building new ones. And the long-term benefits will outstrip the costs, the World Bank says – making infrastructure resilient in low- and middle-income countries would create four dollars in benefit for every one dollar invested.

Delivering resilient infrastructure is central to achieving the UN’s Sustainable Development Goals by 2030. Goal 9, Industry, Innovation and Infrastructure, explicitly calls for resilient infrastructure. Other goals cover clean water and sanitation, affordable clean energy and sustainable cities.

4. Renewable energy

Developing Asia not only has the natural resources to power green energy plants, like solar and wave, but it is already investing heavily, with China playing a leading role. India, meanwhile, invested USD 15.4 billion in renewable energy in the decade to 2018.

Total emerging market investment in renewables reached USD 158.2 billion in 2018, growing at 12% a year compared to just over 3% for advanced economies. Emerging markets now account for 55% of all investment in renewables, with Asia the largest.

China alone accounts for a third of all global and almost two-thirds of Asian investment in renewables, helped by government policy to reduce its dependency on the fossil fuels that have powered its economic growth in recent years.

Wind and solar power will be cheaper than coal and gas across most of the world by 2030, the International Energy Agency (IEA) says, offering emerging nations plentiful low-cost energy to power economic growth and meet rising demand from an increasingly prosperous population.

The IEA expects the percentage of global power consumption generated from renewables will more than double by 2040. It says wind and solar together will account for almost 50% of the global electricity generation by 2050 and estimates USD 10 trillion will be invested in renewable energy over the next 20 years.

But making this a reality is not just about generation. Power distribution needs to be upgraded and made resilient. Millions of people in Indonesia’s capital, Jakarta, were left without power when technical grid issues led to a city-wide power cut last year.

5. Health

COVID-19 has put a spotlight on shortcomings in national healthcare systems around the world. The Asia region, with its recent experience of the SARS and MERS outbreaks, was in some ways more prepared than many western nations.

But a rapidly ageing population is likely to continue to put pressure on its health services.

The Swiss Re Institute estimates that in 2018 the global health protection gap stood at USD 616 billion (premium equivalent), with more than 67% coming from emerging markets. Emerging Asia was the most stressed area in terms of both the size of the gap and resilience and, although governments have traditionally taken the lead in healthcare provision, private investment will be needed to close the gap.

Planning and management of healthcare infrastructure needs to be improved and public-private partnerships can play a significant role in improving facilities. In a complex modern society, other investments such as clean water and waste disposal systems are vital for healthcare to be effective and meet rising demands for a higher quality of life.

Countries that have previously relied on international aid in this area are realising they can have long-term sustainable investments by involving the private sector. Whichever funding approach is chosen, the Sigma report says health infrastructure will need to be an integrated part of social planning.

"Emerging Asia is the most stressed area in terms of both the size of the gap and resilience," the report concludes. "There has been progress in implementation of universal health care schemes, but with the region's rapidly increasing ageing population, pressures will likely remain."


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​sigma 3/2020: Power up: investing in infrastructure to drive sustainable growth in emerging markets