This is how we can "build back better" post-COVID-19
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The United Nations’ call to “build back better” after COVID-19 seems to encapsulate the opportunity facing the world as it emerges from this pandemic.
At Swiss Re, we see a need to both stimulate economic activity and at the same time build resilience to future shocks because our economic research anticipates that a V-shaped recovery is highly unlikely. This makes the case for further investing in infrastructure in Asia to drive global growth and hasten a return to the post COVID-19 "new normal".
Investment in infrastructure is one engine that can drive a sustained recovery and serve a dual purpose of making the region more resilient to future shocks while also serving as an attractive investment opportunity.
The World Bank calculates the net benefit of building more resilient infrastructure in low- and middle-income countries will be USD 4.2 trillion, delivering USD 4 of economic benefit for every dollar spent. Better infrastructure will be key to improving productivity as well as resilience.
In some instances, the net benefit of infrastructure spending will be immediately visible: more hospitals; better supply chains; cleaner cities. This is directly related to what we faced in the first half of 2020 during the peak of the coronavirus outbreak.
The future of infrastructure: smart and green
The insurance industry is well positioned to support infrastructure development in emerging markets. As an investment opportunity, it offers attractive yields that match long-term liabilities and asset diversification. It’s also a chance to invest responsibly in green, circular and low-carbon projects.
Swiss Re Institute's latest sigma forecasts that of the USD 2.2 trillion expected annual infrastructure spend in emerging markets over the next 20 years, USD 1.7 trillion will be in emerging Asia, with China alone accounting for USD 1.2 trillion of that total.
In 2018, Asia has been the largest recipient of investment in renewable energy, accounting for 51% of global spend.
China contributes to 60% of that and steady growth is similarly observed in Southeast Asia. In 2019, the first solar plant in Vietnam came online and government data shows that more than 120 solar projects have been approved countrywide. In the Philippines, they have begun recognising that they can harness the wind power that brings typhoons to their shores annually.
The investment isn't only in the very visible, large-scale projects typical of infrastructure projects that we're accustomed to. Infrastructure investment today – and in the future – will also comprise unseen digital networks, and faster connectivity that make us smarter citizens in smart cities.
Six out of the 12 emerging Asian economies already have smart-city strategies in place. In Two Sessions 2020, China has highlighted smart cities, smart transportation and other digital technology infrastructure as key focus areas to be refined into its national strategy. The country's smart-city project will require investment of USD 350 billion by 2025, accounting for 16% of the global infrastructure market. Its digital economy will account for an estimated 50% of GDP by 2030, up from 35% today.
This heightened focus on digitalisation takes infrastructure development out of the traditional "bricks-and-mortar" context. In an increasingly digital world, a smart ecosystem and 5G networks will help cities function better and create a better quality of life. This technology is a clear enabler that leads to more dynamically underwritten insurance policies and pushes insurers to create a digital end-to-end journey for its customers.
Building climate resilience
Climate change is complicating the global risk landscape, and the effect is multiplied with Asia's growth, industrialization and urban migration patterns. Asia's growing population in low-lying coastal zones are exposed to flood risk that is exacerbated by climate change. These include China, India, Indonesia and Vietnam, which have large populations massed on their exposed coastlines.
According to the Asian Development Bank (ADB), four out of five people affected by natural hazards live in Asia, and the region's developing economies are most vulnerable. Last year, the Asia Pacific region experienced a third of the world's natural catastrophes, resulting in total economic losses of USD 71.9 billion from damaged property, infrastructure and the loss of life. Close to 70% of that is unprotected, leaving a huge financial burden for governments, businesses and individuals to bear.
In contrast, our sigma report estimates that insurance premiums from infrastructure development in the seven largest emerging economies will reach USD 50 billion over the next decade. Therein lies the opportunity for our industry to help build societal resilience by investing in infrastructure.
Forward- looking infrastructure projects can defend vulnerable Asian communities against such disasters. And insurers play a key role in providing protection that mitigate these risks in emerging Asia. This mitigation comes in the form of expert advice and input on sustainable infrastructure development as well as more traditional risk transfer.
A more resilient society
Resilient infrastructure is the key to improving the lives of billions of people across Asia. It’s no surprise that one of the United Nations' Sustainable Development Goals specifically calls for its development.
As insurers, we are uniquely placed to support the region's economic growth, delivering societal resilience that will bring prosperity and enhance the lives of everyone in nations we invest in and help protect.