Investment in infrastructure development is set to be one of the main drivers of sustainable growth in the emerging markets after the COVID-19 crisis subsides, according to Swiss Re’s latest Sigma report.
Emerging markets are expected to invest $2.2 trillion in infrastructure annually over the next 20 years, equal to 3.9% of gross domestic product (GDP), according to estimates in the report.
The energy sector, in particular renewable energy, smart and resilient infrastructure, and healthcare facilities are expected to attract strong investment.
The sigma report estimates that emerging market infrastructure represents an annual investment opportunity of $920 billion for long-term investors, including insurers.
The construction and operational phases of infrastructure projects will also generate new demand for insurance solutions, with engineering, property and energy lines of business set to benefit most.
“Spending on infrastructure could be one of the ways to kickstart parts of the economy after the COVID-19 pandemic and help drive strong and sustainable growth over the next decade,“ said Jerome Jean Haegeli, Group Chief Economist at Swiss Re.
“Most infrastructure spending will be in emerging Asia, which we also expect to be the engine of global economic growth.“
Based on current spending trends and economic growth forecasts, sigma estimates that the largest share of the estimated investment in emerging markets will be in energy infrastructure (34%), with a core focus on renewable energy.
As many countries increase their efforts to reduce their greenhouse gas emissions, investment is expected to pivot toward smart and resilient infrastructure – in which data and digital technology come together to improve monitoring and managing of connected networks such as public transport, utilities and waste disposal systems, as well as facilities like power stations and grids.
Building and upgrading of existing infrastructure to become more resilient to climate change impacts will also be a key area of sustainable investment.
The sigma report estimates that total infrastructure investment in emerging Asia will average USD 1.7 trillion annually over the next 20 years, or 4.2% of GDP and USD 35 trillion in total.
“In the coming years, Asia will invest more in infrastructure than anywhere else in the world, with the region’s emerging economies accounting for more than a third of associated spend,“ said Russell Higginbotham, Swiss Re Chief Executive Officer Reinsurance Asia.
“Critically, infrastructure will enable sustainable growth by fostering improved productivity; while rising incomes and a continuing trend of urbanisation will mean that the composition of infrastructure needs will also evolve.”
