Boosting asset productivity means doing more with less
The development of new buildings and infrastructure fuels national economic growth.
From an airport that can open up new transport routes, to a dam providing water, or creating thriving communities through new schools, hospitals and housing, infrastructure forms the building blocks on which a country generates its wealth.
China’s thundering economic development since 1980 has been powered in the main by its buildings and infrastructure, so it is no surprise to see the country rank number one in terms of absolute returns from built assets in this year’s Global Built Asset Performance Index from Arcadis. China’s infrastructure – its homes, schools, roads, airports, power plants, malls, railways, ports and all other fixed assets – contributes US$10.4 trillion to the economy while the US ranks second at US$5.4 trillion, followed by India and Japan.
While China’s economy is clearly experiencing a slowdown, its GDP is still forecast to grow at around 7 per cent, and the country is expected to continue investing in built assets at an unprecedented level. China is now looking to new avenues to sustain its appetite for growth, with the One Belt, One Road initiative being one of the most high-profile examples. The programme seeks to link up Eurasian countries with China, with a “new silk road” through Central Asia and a “maritime silk road” linking Southeast Asia, Oceania, and North Africa. This continuing investment in buildings and infrastructure is playing a crucial role in supporting China’s economic diversification agenda as the country gradually rebalances towards services and consumption, as opposed to manufacturing and investment.
While Hong Kong generates the second highest built asset income per person in Asia, at US$21,400 per capita, second only to Singapore, it faces significant challenges from its peers to be one of the world’s leading financial and business hubs. In order to maintain its competitive edge, it is vital that the Hong Kong government invests in infrastructure and building assets. Hong Kong also needs to make it a top priority to align itself with China’s One Belt, One Road programme. By doing so, Hong Kong will remain relevant to China’s economic development even as other cities in China come to the fore.
At the same time, investors, asset owners, asset operators, and policy makers across the region need to explore new ways to boost asset productivity and help resolve the growth and sustainability challenges that the world faces. In the future, China, Hong Kong and its fast-growth neighbours will need a renewed focus on quality over quantity.
At present many emerging Asian nations continue to suffer from underdeveloped infrastructure, but as labour productivity, investment and population growth slows over the next decade, asset productivity will be crucial to economic growth and embracing more effective asset management models can drive better short and long-term returns.
Countries are under pressure to perform and built assets are central to powering performance to generate sustainable growth for economies. Therefore finding new ways to improve asset productivity is key to achieving long-term results. It is critical that each investment they make – be it new buildings and infrastructure, or upgrade and repair – considers the whole life cycle of these assets to deliver the built environment that their society needs. Worryingly, a global survey conducted by Arcadis in 2015 found that 80 per cent of asset owners said that they did not have a complete understanding of what assets they possessed, their condition, or the required maintenance activities and budget.
South East Asian countries have rich commodity endowments – Malaysia, Vietnam and Indonesia have large deposits of a range of commodities – but over long periods they have moved towards manufacturing. It is essential for their further development that they continue along this path. To do this they require reliable power, transport and communications.
Making better use of built assets can also squeeze higher, more sustainable financial performance from existing infrastructure, even if overall funding tightens. For instance, implementing asset management strategies such as building information modelling, analytics or visualisation technologies can maximise financial performance on existing assets from 15 to 20 percent.
Asian economies are working hard to achieve sustainable urbanisation and boosting asset productivity, but everyone involved with the process must recognise that the decisions we make today are laying the groundwork for success tomorrow. We need to future-proof infrastructure. Asset productivity is about doing more with less. In a finite world like today, and in the face of challenging issues such as sustainability and climate change, making the best use of what assets we have has never been more pressing.
Adam Sutton is the Asia regional leader of business advisory at Arcadis