Infrastructure investment to lead South-east Asia's recovery

INFRASTRUCTURE development will be critical in leading South-east Asia towards a robust economic recovery as well as a more sustainable and resilient future, according to a joint report by Deloitte and Infrastructure Asia (IA).

This is because infrastructure development has a strong multiplier effect in terms of boosting economic activity and creating jobs, which means the final impact it has on economic output is greater than the initial injection of spending, the report said.

At the same time, infrastructure investment is crucial for creating a positive legacy of economic growth that is more resilient, sustainable, and productive, it added.

This comes as the pandemic has demonstrated the importance of infrastructure to improve public health such as sanitation, and adequate access to clean water and waste disposal services, the report said.

"As difficult as the recent months have been on our economies and societies, it would have been much worse if we had not enjoyed access to efficient telecommunications networks and logistics infrastructure," the report's authors wrote.

While Covid-19 has also uncovered other vulnerabilities, investing in logistics and supply infrastructure to improve existing intensive care in hospitals, as well as ensuring testing and essential equipment are available quickly, will be important aspects of preparation for future crises of similar nature, according to the report.

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Infrastructure development could take three phases in leading the recovery from Covid-19, the report suggested.

In the first phase of "respond", the immediate disruptions caused by Covid-19 can be minimised by filling urgent infrastructure gaps. For example, Malaysia's economic stimulus package including funding to provide free internet access to lower income groups during the its movement control order.

The second phase of "recover" could see infrastructure spending being brought forward, with priority being given to maintenance and upgrading of existing infrastructure as well as accelerating pre-approved projects. For example, Vietnam's National Assembly approved public investment into three sections of its North-South Expressway project, shifting the financing format away from public-private partnerships.

The final "thrive" phase is about ensuring sustainability and that recovery embraces a low-carbon future, which can help to reduce the level of future economic shocks.

At the same time, investments based on environmental, social and governance (ESG) criteria have been growing, even before the pandemic. According to research by investment management firm BlackRock, a majority of ESG-tilted investment portfolios have outperformed non-sustainable counterparts during the Covid-19-led downturn.

"Given the human and social elements involved with disruptions such as the Covid-19 pandemic, investment in socially impactful infrastructure will be the right match for investors looking to allocate their capital to initiatives that generate broader benefits beyond just financial returns," Marcus Ng, financial advisory director at Deloitte, said.