Investing in infrastructure for sustainable recovery and growth

As economies worldwide slowed due to the COVID-19 pandemic and related lockdowns, many governments have turned to infrastructure investments to stimulate sustainable and climate-friendly economic recovery.

Infrastructure's multiplier effect has made it the go-to remedy for governments battling economic slowdown, with every $1.00 spent adding $1.50 to the Gross Domestic Product (GDP). Infrastructure investments generate jobs and incomes across all stages of an asset's lifecycle, from planning, design, and construction to operation and maintenance.

Refinitiv data showed that 2,664 infrastructure projects were announced worldwide in 2020 with a total value of $751.8 billion. This was eclipsed in the first quarter of 2021 when 653 projects worth a whopping $1.2 trillion were announced.

Last year, the Middle East and North Africa (MENA) region accounted for 134 projects with a total value of $51.3 billion. The tally for the first quarter of 2021 stands at 61 projects with a total value of $49 billion with oil and gas, and power in the top-performing sectors.

The diversification plans of the energy-rich GCC countries are opening substantial investment opportunities in the sustainable infrastructure sector. For example, Saudi Arabia's ambitious $500 billion NEOM smart city will include a 100% renewable energy system.

The region played a leadership role in renewables by bringing solar tariffs on par with fossil fuel-based power, thanks to its access to 365 days of sunshine, supplemented by advanced technology and lower financing cost. The UAE, for example, has been a front-runner in solar with the Mohammed bin Rashid Al Maktoum Solar Park and the Noor Abu Dhabi projects setting world record low tariffs.

Arab Petroleum Investments Corporation (APICORP) has forecasted that MENA is expected to see an investment of $250 billion going into the power sector over the next five years, with renewables soaking up 40%.

But infrastructure is more than solar or oil and gas. Iraq, Egypt, the UAE, and Saudi Arabia have wind, railway, port, and airport projects in the planning or implementation stages. Bahrain is planning to build a national metro network using the Public-Private Partnership model. Many countries in MENA are also investing in Electric Vehicle charging infrastructure and public transportation projects.

COVID-19 stimulus has also opened opportunities for rebuilding and future-proofing existing and old assets suffering productivity challenges or vulnerable to climate change in a sustainable manner through programs like building retrofits and smart cities.

Last month, the UN said that investments in sustainable infrastructure to the tune of $120 trillion would be needed over the next 30 years if the target of zero carbon emissions by 2050 is to be reached.

In emerging markets, public spending and investment are likely to be limited in the coming months, as the focus remains on getting countries through the pandemic with healthcare systems intact.

Refinitiv data shows that the number of projects announced saw only a slight decrease of 2.56% in 2020, but the value of deals financed fell by 28.44%, indicating that the infrastructure funding gap persists. In the MENA region, the total value of the deals financed was $4.06 billion.

The World Bank has estimated that Middle East needs to spend 8.2% of its GDP to fill the infrastructure gap by 2030. COVID-19 also underlined that shortfalls in social infrastructure like primary healthcare, education, and housing have enormous economic and social ramifications. The fiscal constraints imposed by the pandemic mean most governments will seek to mobilize private capital in a big way to undertake the required infrastructure investments.

While investors will need to pay close attention to country risk rankings, access to reliable and transparent data will make it far easier to qualify regional opportunities. Infrastructure 360 from Refinitiv, currently tracking more than 46,000 projects globally, offers a complete workflow on deal structuring, financing, risk profiling, regulatory compliance, and lender, investor, and advisor profiles to enable informed decision-making that maximizes returns.