With traditional assets being overvalued and new investment vehicles popping up every day, where can we draw the line between valuable and over-saturated? A possibility that checks off all the boxes, infrastructure investments have become something of a rising star for companies large and small to leverage and expand their growth.
How the Pandemic has Affected Infrastructure Sector
The demand for infrastructure in both developed and emerging markets is continuously growing, more so in 2021. Due to its strong correlation with economic growth and employment, many governments have partnered with the private sector to help with the financing and delivery of such projects. According to the Asian Development Bank, an annual 1.7 trillion USD will be needed by a developing Asia up till 2030 to maintain its growth, combat climate change, and erase poverty.
The pressing issue at hand, and why governments rely on the private sector for financing and delivery is largely a result of the double whammy of strained government finances as the financial focus is diverted to immediate issues such as healthcare spending and government subsidies to keep businesses afloat. Should the powers that be rely on themselves, they face further delays in infrastructure project pipelines which again leads to a bottleneck and a self-fulfilling vicious cycle.
These barriers must be addressed and flipped as an advantage in the emergence of infrastructure as an asset class so that all stakeholders involved may fully benefit from the joint partnership between the government and private sector.
How Can Investors Make the Most of the Future of Infrastructure?
As an investor reading this, you might find yourself wondering “How can I make the most of this? What are some ways I can start investing in infrastructure?” The answer is no simple one, as it spans multiple realms but I do have some ideas of how you might get your feet wet in this endeavour.
The first comes in the form of financial sustainability. Judicious investors will note that due to logistical disruptions from the COVID-19 pandemic, many infrastructure projects were left wanting and incomplete. Funding for these aforementioned projects is often limited and most have a limited run-way when it comes to how long they can be delayed. At various points of development, stakeholders involved might be looking for partnerships that present more financial sustainability in return for greater rewards. A simple yet practical approach to getting started in infrastructure investments would be to keep a keen eye out for these sorts of projects and jump on the chance when presented.
The next way to make the most of the future of infrastructure would be through technological transformation. A slightly more niche approach, but one that rewards investors who have a background or ties to tech solutions. By leveraging on their expertise, they bring a valuable new dynamic to pre-existing infrastructure projects that benefit from increased resilience and more efficient delivery. From construction monitoring to planning and performance, there are many stages in the project lifecycle where technology can be made used to gain maximum value.
Finally, targeting the new sensitivity to Environment, Social, and Government (ESG) values, upcoming investors that understand the need for such ethics will curry favour with financial institutions that prioritise compliance, disclosure, and transparency. This approach becomes even more favourable when engaging with Emerging Markets as investors deploy capital towards long-term infrastructure investments. Working hand in hand with multilateral agencies (MLA), private investors can work to reform tariffs and regulations to reflect a more responsible ecosystem for business.
Whichever approach you decide to go with, it is key that you first conclude your own due diligence and understand the type of value you bring to each likely partnership. Daunting as it may be to step foot into a whole new realm of assets, the premiums to be gained are astronomical if one makes the right strategic moves.