A new survey has revealed that investors across the globe are ‘extremely positive’ about the Asia-Pacific infrastructure market yet they may need to drown out some of the ‘noise’ around certain countries and sectors and explore where the genuine opportunities lie.
From rural farmlands to modern megacities, the Asia-Pacific (APAC) is one of the most dynamic regions on the planet, but its need for infrastructure investment is acute.
The Asian Development Bank estimates that the region needs US$1.7 trillion of infrastructure investment by 2030 to keep pace with climate change and economic growth.
With these sentiments in mind, international law firm, White & Case, in partnership with Inframation Group, surveyed 100 senior-level direct equity investors and financial services firms from all parts of the world who had developed, funded or invested in at least one APAC infrastructure project in the past 12 months, with a value in excess of US$100 million.
The results proved to be illuminating, as a number of the findings go against the grain of current popular thought.
Among the report’s key findings, several intriguing themes emerge:
Regional positivity trumps global uncertainty.
Despite the infrastructure gap, the threat of trade wars and global political instability, the outlook from respondents was overwhelmingly positive — 88 per cent of firms are expanding their teams in the region in 2019.
No-one surveyed is predicting any contraction.
Hit the roads.
If 2018 was the year for investment in renewable energy, then 2019 appears to be the one for transportation — in particular, roads.
The necessity for road investment was outlined in a May 2018 report from the Asian Infrastructure Investment Bank (AIIB) which stated that investment across the region is expected to be focused on road infrastructure, which comprises nearly 70 per cent of total estimated required investment.
The dominance of road transportation is carried out by figures from the AIIB report, which estimate that the share of journeys by road will be 70 per cent (compared to 19 per cent by rail and 11 per cent by air) in 2030.
The 600-kilometre Ganga Expressway in India is just one project on an expansive list of road schemes planned across the APAC region.
In the Philippines, the US$500 million Mindanao Road Project has been backed with loans from the ADB, while Australia has its own large-scale road construction plans including the WestConnex Toll Road in Sydney and the North East Link in Victoria.
Stable income beats risky returns.
The respondents’ top choices for investment destinations cut through recent noise about the rise of some developing APAC countries.
While investors are eyeing up prospects across the region, the research reveals that the majority are looking at countries with healthy economies, stable political systems, reliable and trusted legal frameworks, and decent investment track records.
Australia topped the ranking as the most likely destination for investment, according to 54 per cent of survey respondents. India was next (48 per cent), followed by China (39 per cent) and Malaysia (36 per cent).
Meanwhile, APAC countries with perceived higher political/systemic risk such as Sri Lanka, Pakistan and Vietnam appear to have drifted down the priority list as investment destinations for many investors.
Above all, the surveyed investors see APAC as a land of opportunity.
When asked about the greatest benefits to investing in the region, opportunity crops up in several different guises.
Over half see a ‘wealth of opportunity’, more than a third envisage ‘development of knock-on/secondary opportunities’, and a third are looking forward to the ‘consolidation of related opportunities’.
The director of investment of a pension fund in China believes that investments in infrastructure in APAC will yield stable returns and at the same time support the economic growth of the country and region significantly.
Aside from all this, the research also addresses barriers to investment such as political risk, issues with public-private partnerships and the threat of trade wars but, overall, the general feeling among respondents is that the significant benefits on offer outweigh any challenges.
The full Cutting through the noise: Infrastructure in Asia-Pacific 2019 report can be found here.