In the first part of this interview, Isabel Chatterton, who heads the infrastructure and natural resources practice in Asia for the International Finance Corporation, a member of the World Bank Group that’s focused on private-sector development in less developed countries, talked about the growing focus in Asia on infrastructure as a service.
In this second part of our conversation, Ms Chatterton talks about the role of infrastructure in Asia’s economic recovery, the promise of digitalisation and the various conversations around the greater use of artificial intelligence for different purposes.
Unravel: Can you explain the importance of infrastructure development in leading the region towards an economic recovery?
Isabel Chatterton: Infrastructure is what moves the economy. I do think that through history, economies have been built on infrastructure. China is an example – in the past four decades, it has successfully lifted over 850 million people out of extreme poverty and this was done through many strategies, but building infrastructure for the future was one of them.
Infrastructure will always lie at the core of Asia’s economic development. Infrastructure alone, however, will not be enough. There is a long road from building infrastructure assets to economic development reaching the eventual beneficiaries. The manufacturing and financial sectors are very important. Infrastructure alone is therefore necessary, but not sufficient.
I think we need to look more closely at the nexus between infrastructure and the capital markets. By this I mean we need to encourage private sector investment and flows through capital markets to infrastructure. There is a lot of money in the private sector that is willing to take infrastructure risk, but we need to crowd in pension funds and institutional investors who want to invest in the sector to diversify risk.
Second, we need to adopt novel financing approaches. We need to understand that the rules of the game are changing, and while some infrastructure assets may provide long-term, stable cashflows, today many are faced with short-term liquidity issues due to the uncertainty resulting from the pandemic. For instance, you would see an infrastructure asset such as an airport, with a 25-year concession agreement with steady cashflows, and that would be a great investment option if the long-term prospects of the airport were fantastic. But the current situation has forced us to look at short-term problems too, and it is contributing to the development of interesting, innovative financing structures that take into account these uncertainties in the short term. For example, we are seeing mini-perms, typically payable in three to five years. This is a type of short-term financing often used before projects become profitable.
Unravel: Digitalisation is an area of great promise in Asia, and it is having a positive impact on societies across the region. We’ve seen the region benefit from technological leapfrogging in terms of the pace at which new technologies have been adopted. One of the most commonly cited examples is Asia’s move to mobile broadband almost completely bypassing wired internet connections. We are now seeing digitalisation support the region’s economic recovery, but all of this has brought its digital infrastructure in focus. Is the region equipped well enough in terms of its digital infrastructure to truly reap the benefits of the digital economy?
Ms Chatterton: It is difficult to say. We’re asking ourselves the same question. When we look at this whole space, my sense is there are three broad areas we need to look into – one is what we call digital transformation, the second is traditional digital infrastructure and the third is artificial intelligence. I am sure others in the industry will have different ways of classifying it, but this is how I look at this space.
In the area of digital transformation, we are starting to see companies set up separate entities to develop consulting and advisory services for infrastructure. This entails more of a consultant-led approach, with many companies working with governments to enable the digitalisation of businesses and the like. We’re also seeing increased specialisation in this space with some focused on financial services, while others focused on supply chains, or on social infrastructure including digital health, education and so on. This is a space we are seeing a lot of activity in.
The second space is what I call traditional digital infrastructure. Here, we are starting to see investment partnerships coming together to coinvest in digital infrastructure assets across the region. This includes things like telecoms, data centres, fibre networks. There is a lot going on in this space in India, Indonesia, Thailand and Vietnam among the markets we look at. We’re also seeing big interest for this sort of investment in Bangladesh.
And third is artificial intelligence (AI). We are seeing companies setting up in-house teams to look specifically at AI, and they’re bringing in data scientists and putting together AI teams that are coming up with innovations in the embedded finance space, for example. Many of us see embedded finance as the next frontier after fintech, whereby value propositions of infrastructure as a service are significantly enhanced or transformed through the associated financial products and services embedded within. There is a nexus between an infrastructure service and a need to have the data to serve individual customers. We are seeing interesting challenges coming out of these themes. The companies looking for investments in this space are taking an old problem that is very well known, taking an old solution and bringing a really practical AI-based approach to make that solution more efficient and effective today. It isn’t the industrial revolution all over again – but it will transform lives.
Unravel: Are there concerns or challenges around the increasing use of AI?
Ms Chatterton: AI has really opened up this whole deep debate around inclusion, governance and ethics. Many of us expect our personal information to be handled appropriately, in a legitimate, fair and transparent manner. The misuse of AI can have serious implications, including the exclusion of parts of populations from service provision.
Then there are challenges around data security that persist. If people are gathering data, how are we sure that data is not going to be misused? The whole aspect of how do we internalise concerns around data security in the design, operation and maintenance of infrastructure is important today. We have to therefore be careful about where we store data and what we do with it.
The third issue is just around ethics more generally. When you have access to all of that data, it isn’t just about governance any longer. It is about individual rights as well. Protecting personal data not only mitigates privacy risk but is the right thing for a responsible organisation to do.
These cannot be ignored.
Isabel is IFC’s regional industry director, Infrastructure and Natural Resources, Asia and Pacific, based in Singapore. For seven years prior to her current role, Isabel was the Regional Manager for PPP Transaction Advisory Services, initially for South Asia based in Delhi, and subsequently in Singapore. Before joining IFC, Isabel held various positions in World Bank operations in the urban sector in the Middle East and North Africa region, the water sector in Latin America, and the transport, power and urban sector in South Asia. Before joining the World Bank in 2001, Isabel worked in emerging markets and Western Europe for WS Atkins in the UK as Senior Management Consultant; working on infrastructure finance in Thailand, Argentina, Barbados, Qatar, the UK and Europe.