Technology will be key to Asia’s new infrastructure build out, especially transport and power
- McKinsey estimates that the world will have to spend US$57 trillion on infrastructure between now and 2030
While virtual goods are making up an increasing amount of global GDP, physical infrastructure, especially in a rapidly urbanising world, is still essential.
McKinsey estimates that to keep pace with projected global growth between now and 2030, the world will have to spend US$57 trillion on roads, bridges, ports, power plants, water facilities, and other forms of infrastructure. “That is nearly 60 per cent above the amount spent in the last 18 years and more than the estimated value of today’s infrastructure,” the consulting firms says.
This expenditure will be a mix of replacing existing infrastructure, mainly a developed world problem, and also building brand new infrastructure to accelerate growth in the developing world.
Replacement of ageing infrastructure in the developed world has become even more critical as much of it was developed in the rapid economic growth periods of the 1950s and 1960s and is coming to the end of its useful life. Recent tragedies such as the deadly collapse of a stretch of Motorway in Genoa, Italy, highlight the fact that infrastructure does have an end-date and the concern over effective inspection and maintenance is becoming a very relevant issue.
For many in this rapidly evolving digital age, it may come as a surprise to know the definition of “regular inspection”. In the city of Westminster in the UK, home to many famous landmark bridges, it means a principal, very detailed, inspection every six years, with superficial inspections carried out yearly.
Today, these timelines seem quite protracted and probably a little scary but in the 50s and 60s this was very much the accepted norm simply because of the labour element involved both then and now.
In a developing Asia immense stresses are being placed on brand new infrastructure needs through rapid urbanisation. According to Frost and Sullivan, between 2011 and 2030 power demand will increase by 60 per cent and demand for new urban mobility solutions by 68 per cent – in turn causing urban dwellers to spend 50 per cent more time in traffic jams.
Projects such as China’s ambitious multi-country focused Belt and Road Initiative and more localised efforts such as “Build Build Build” in the Philippines are great examples of how countries are rising to meet these demands.
So what is the role of technology in making Asia’s new infrastructure safer, more efficient and longer lasting? How can Asia avoid the problems facing developed economies and lead the world in the use of technology in infrastructure design and maintenance to power the great economic opportunities ahead?
The two largest focus areas for the region are going to be transport and power, which will attract more than 80 per cent of the US$3.3 trillion projected to be spent annually by 2030.
In looking at these huge undertakings, efficiencies can be achieved throughout, firstly with the design and build but also from the ongoing monitoring and maintenance. The potential savings in dollar terms are staggering. In project design, it is estimated that up to 10 per cent of the overall project cost could be saved by using technologies such as Building Information Modelling (BIM) and Internet of Things (IoT), as well as 3D, 4D and now even 5D renderings, to incorporate sensors at the design stage.
As construction progresses, smart designs enable real time monitoring of the building process and when completed there is the added benefit of monitoring the asset second by second throughout its life cycle – a huge difference to every one to six years! BIM start-ups focusing on digital technology are expanding rapidly and attracting huge investments. In the first half of 2018 alone more than a US$1 billion was poured into construction sector start-ups by venture funds.
Making the most of assets employed in infrastructure has been identified as a huge area for cost avoidance. Predictive maintenance solutions for infrastructure are accelerating rapidly, with companies such as Uptake becoming the first of many unicorns, valued at over US$1 billion, driving efficiencies in infrastructure.
Connected infrastructure also comes with the risk of devastating cyberattacks. After the attacks on the Ukrainian power grid in 2015 the risks to infrastructure are even more apparent and large investments in cybersecurity should come as no surprise to anyone.
However, to date much of the technology being designed is originating from developed economies and employed in infrastructure as an afterthought.
With the huge opportunity that now presents itself in Asia, there needs to be more focus on investing in Asian start-ups focused on infrastructure related solutions that can maximise the advantages of co-innovation in these huge projects to drive the next wave of IPOs.
Technology adoption at the financing stage has the greatest potential for cost savings but often the financing agencies simply look at short term costs and use historical data as benchmarks rather than forward looking disruptive technology solutions.
As pension funds and insurers are increasing their allocations globally to infrastructure, much of it is starting to be aimed at the Asian region. While traditionally these investors have focused on brownfield, or existing infrastructure, with established track records and cash flows, there is a realisation that huge opportunities exist in new projects if they are well planned and structured – and technology is playing a huge part in this.
Institutions such as the Asian Infrastructure Investment Bank (AIIB), that were born in the digital age, are starting to develop new views on technology and are investigating new ideas on how technology can be employed in their investment ventures. New funds are also being raised, such as the Hong Kong based Infrastructure Technology Fund, focused on investing in technologies that will transform the infrastructure sector.
The opportunity for Asia to drive these technologies is huge. The four key technologies of the next decade – IoT, blockchain, artificial intelligence, and augmented and virtual reality – are going to be the building blocks. The market is certainly there and targeted investment is starting to become available.
There is no reason why technology start-ups should not align to these regional priorities so that the next round of unicorns in the region come from infrastructure technology.
Matthew Smith, is the Managing Director of Digital Insights (HK) Limited and the prior Global Head of Market Development, Internet of Things, at Cisco Systems, where he worked in a variety of senior roles for 18 years.