The infrastructure sector sits at a collision point of global disruptions, including shifts in capital availability, evolving social and environmental priorities, and rapid urbanisation. However, the emergence of COVID-19 introduces an altogether new set of challenges. The full impact of the pandemic will take years to play out. Yet in the near term, we believe it will reshape the industry in four ways, intensifying its focus on operational resilience, the affordability of infrastructure, the deployment of new technologies and the need for sustainability. Successful infrastructure delivery demands close alignment and collaboration between a wide range of participants, each with its own agenda and interest. The result? No single player acting alone can effect real change in the sector.
In the rest of this series, we look at the overarching forces that will influence the future of the infrastructure industry, including
In October 2019, we asked infrastructure CEOs across the world to look ahead to 2020. Though most said they were expecting the pace of economic growth to slow during the year and were planning their growth strategies accordingly, nobody could have anticipated the COVID-19 pandemic. Given the crisis sudden sharp impacts and a long potential duration of intensity, the economic fallout of the crisis will test the resilience of the infrastructure sector.
The forced cessation of travel, disruptions to supply chains and changes in consumer behaviour are among the COVID-19 impacts that are affecting every sector of infrastructure. Lockdown measures have resulted in a sudden decline in public transport and road infrastructure usage, causing formerly stable demand and revenues to diminish overnight. Against this background, transport asset owners are wondering whether the sudden move to remote working will lead to a permanent shift in working patterns, with consequent impacts on other industries, such as real estate. The shutdown could also lead to a shift from mass transit to micro-mobility options, which would affect future infrastructure planning.
Questions are also being raised about the air travel and freight industries. If usage of air transport declines significantly, will the aviation sector need to consider fundamental changes in how airports are designed and built? And what would a switch to more localised supply chains do to volumes and demand for port owners and operators?
The power sector is not immune either. In the UK, for example, overall demand for electricity has declined due to the lockdown. As a recent PwC study has highlighted, the coincidence of COVID-19 with an oil price crash in March 2020 is likely to affect the transition to renewable energy in the short term, with cheap oil lessening the attractiveness of investment in renewables, because oil-run generators will be more cost-effective.
It’s impossible to map out how the crisis will ultimately affect the infrastructure sector as a whole. But we believe the most immediate effects will be felt in four areas: operational resilience, technology adoption, affordability and sustainability.
The COVID-19 outbreak has brought operational resilience into sharp focus, particularly by exposing the fragility of supply chains. The Western reliance on Asian manufacturing has never been more apparent, as companies have had to quickly identify secondary suppliers, preferably local ones, because logistics options were also closed off.
Supply value chains cannot be established overnight — especially complex, globalised material supply chains of the kind required for large-scale capital projects. And the redesign of supply chains is likely not feasible in the current disruptive environment. Yet once the immediate crisis has passed, infrastructure CEOs will need to rethink their supply chains to build in as much resilience to global shocks and disruptions as possible.
Alongside some more obvious steps — such as a shift away from sole-supplier relationships (be they with individual countries or companies) — we could see developments such as
In addition to rethinking their supply chains, management teams will also need to re-examine their approach to project delivery and maintenance. COVID-19 led to the closure of construction sites around the world as employee safety plans were activated. Travel bans have had a direct impact on the availability of labour. The construction industry’s workforce is particularly vulnerable to labour restrictions, given that most of the work must take place onsite. However, the disruption to onsite staff operations could also accelerate new types of project workflows, such as modular and offsite production.
Taking construction offsite or into a manufacturing environment opens the door to more standardised designs, streamlined processes and automated production techniques that incorporate technologies such as advanced robotics and the Internet of Things. And advocates say that modular construction is faster, safer and more efficient than onsite building and assembly.
 For example, Tesla recently announced a strategic partnership with Chinese manufacturer CATL to supply electric vehicle batteries for Model 3 production in China, shifting away from its sole-supplier relationship with Panasonic.
 Modular building removes 80% of the construction activity from the actual site location.
As PwC thought leadership has shown, infrastructure is relatively underinvested in advanced technologies compared to other capital-intensive industries. In the current environment, pressure from reductions in capacity and rising costs may encourage asset owners and project managers to accelerate the adoption of technologies such as artificial intelligence and robotics. There is also an opportunity to reduce maintenance capital expenses using technologies such as intelligent drones. These drones reduce the need for onsite workers, thus increasing safety, and they can dramatically improve preventative maintenance — inspecting and scoping work faster than existing methods and providing more detailed information about required repairs.
More broadly, the shift to remote working arrangements across many industries has underlined the growing need for secure, resilient, cloud-based technologies and connective infrastructure. Growing usage of cloud technology will boost demand for data transmission and storage assets — including fibre networks, data, and edge data centres and telecommunication towers — that are already popular among infrastructure investors.
 The market capitalisation of online conferencing provider Zoom stands at US$42bn as of April 2020 — more than eight times the market capitalisation of British Airways and some of the major US airlines.
The industry already faces a significant shortfall in infrastructure spending globally, particularly in developing economies. Undoubtedly, the measures taken to shore up economies will have an impact on infrastructure investment, as spending earmarked for construction may now be channelled into social initiatives such as unemployment benefits and healthcare.
But there are also signs that some larger economies are considering spending on labour-intensive infrastructure projects as part of their stimulus efforts. These initiatives are likely to focus on ‘shovel-ready’ projects that can quickly boost economic output. The main challenge for the infrastructure sector may be identifying those projects that provide significant long-term contributors to economic livelihood — and address priorities that have surfaced through this pandemic, such as the need for greater digital connectivity, robust utility infrastructure and healthcare provision. The limited capacity for the construction industry to deliver such projects may be another challenge.
For projects financed through public–private partnerships (PPPs), demand-based contracts — typically used for assets such as airports and toll roads — are proving vulnerable to shocks, while those under an availability-based structure are exposed to reduced government budgets. The current crisis is likely to prompt a reassessment of investment risk and stress testing, as well as increased demand-side forecasting and planning (together with a move toward more conservative PPP deal structures) and risk allocation.
Risk aversion in the private sector will likely be high for the foreseeable future, and governments’ interventions in mitigating the disruptions arising from the crisis will have an impact on the risk perception of infrastructure going forward. Fiscal positions have deteriorated, but infrastructure needs have not. Narrowing the infrastructure gap just became even more challenging. The reality is the gap was unaffordable; too many commentators had focused on “financing” for plugging the gap rather than how it was to be repaid. In an overtaxed and overborrowed world, affordability is key.
Some may view the pandemic’s effects on emissions as the type of impact that climate change activists have been seeking for decades: closed factories and grounded airplanes reducing pollution levels and revealing landscapes previously assumed lost. Of course, the respite is temporary and arrived in an unsustainable manner, and it merely distracts from existing campaigns to find solutions for shifting to a cleaner economy. The climate consequences of the pandemic are not an environmental panacea. Greenhouse gases are still being emitted, carbon dioxide levels in the atmosphere are still at a record high and the planet is still in a race to limit climate change.
The transition to low-carbon, climate-resilient infrastructure assets remains a key aspect of those solutions. Estimates show that about 70% of the increase in future greenhouse gas emissions will come from infrastructure that is yet to be built. In an ideal world, any infrastructure-related stimulus should be focussed on activities that reduce carbon consumption: the progression from fossil fuels to renewables; incentives for cleaner, greener construction methods; and the promotion of environmentally friendly modes of transport. In other words, recovery efforts can create an opportunity to advance the decarbonisation agenda.
That agenda also aligns well with the significant pools of capital increasingly allocated to investments with a positive environmental impact. In response to increased pressure from a range of stakeholders, many infrastructure investors are strengthening their environmental, social and governance (ESG) focus, and want to invest in environmentally sustainable assets. In addition, several standards and frameworks have emerged to integrate climate-related factors into investment decisions and redirect capital to environmentally sustainable projects. As ESG reporting becomes more mainstream and policy pressure increases, it is reasonable to anticipate further demand for such assets in the future.
The pandemic and climate change are both global problems, and in responding to the former, there is an opportunity to build resilience for the latter.
In sum, although COVID-19 has put the infrastructure industry to the most severe of tests, the sector remains as essential as ever and will respond in line with underlying demand. By understanding how the pandemic has changed industry dynamics, leadership teams can position themselves to capitalise when the rebound comes.
Global Capital Projects and Infrastructure Leader, PwC United Kingdom
Tel: +44 7764 235 239
Capital Projects & Infrastructure, Senior Manager, PwC United Kingdom