The Role of Infrastructure Stimulus in the Recovery—and Beyond

Related Expertise: Public Sector, Engineering, Construction, and Infrastructure, Economic Development

The Role of Infrastructure Stimulus in the COVID-19 Recovery and Beyond

By Santiago CastagninoSuresh SubudhiJavier Sogorb, and Pablo Colomar

In cooperation with the World Economic Forum and its Engineering and Construction Industry Action Group, BCG has developed a framework for developing effective stimulus plans for infrastructure. This article showcases some of these recommendations, illustrated by best-practice examples and lessons learned in discussions with global industry leaders. These lessons and recommendations are aimed at helping governments define packages for infrastructure that support economic recovery and provide relief from the COVID-19 crisis. The recommendations should also help governments reach long-term infrastructure objectives.

The engineering and construction industry plays an important role in the world’s economy, societies, and climate. Thus, it has the potential to be a critical contributor in the recovery from the pandemic. It is therefore crucial to define the scope and extent of infrastructure in stimulus packages and to have an open dialogue between the public and private sectors, as governments across the globe are now shaping their agendas.

Beyond solving for short-term economic and social priorities, effective infrastructure stimulus packages should also solve for long-term infrastructure challenges that extend beyond the outbreak as part of a wider transformational response. Aligning infrastructure investment and climate policy will be critical for decarbonization; promoting resilience beyond mitigation is key to being prepared for unforeseen events and climate risks driven by global warming; and finally, preparing for a digital future is also of paramount importance, since technological adoption is likely to continue at an accelerated pace in the postpandemic era.

In this context, we are pleased to share a framework for dialogue on potential infrastructure stimulus, illustrated by global best-practice examples that have emerged from discussions with industry leaders. The report incorporates key lessons learned from past infrastructure-based recovery packages; new ones should be designed with these lessons in mind (see “Valuable Lessons”). Government stimulus could help the industry better absorb the shocks of COVID-19 and step up its response to long-term challenges.

Valuable Lessons

Past infrastructure packages offer insights into what matters most for future ones. We have identified five main success factors that should serve as the basis for discussion for governments as they design and deploy stimulus packages:

  • Boldness and Long-Term Transformational Purpose. The pandemic has provided governments with the opportunity to make a sustained, lasting impact. In its wake, governments can move in a new direction by revisiting stimulus plans to align them with long-term objectives while simultaneously addressing urgent near-term demands.
  • Budget and Commitment That Support the Vision. To be highly effective, funding must suit transformational aims. The private sector must be brought into this effort.
  • Innovative Procurement Models for Accelerating Deliveries. Move project deliveries forward with new procurement methods that help projects avoid barriers to completion.
  • Comprehensive Scope That Includes Strategic Priorities. This is vital to solve problems that are complex and multidimensional. Governments must simultaneously address ways to build a more sustainable, resilient, and technologically advanced environment, while also creating jobs amid an economic contraction.
  • Partnerships with the Private Sector Across All Levels of Government. All levels of government can get the private sector to join the infrastructure effort by providing the right incentives.

On the basis of global lessons from infrastructure recovery packages, our report lays out an action agenda that focuses on three critical areas: sustaining (or accelerating) construction that is already underway; creating a new project pipeline that is consistent with long-term goals; and setting up enablers to ensure efficient and sustained stimulus implementation. Specifically, these enablers should provide immediate relief, simplify and accelerate current procurement schemes, solve for current infrastructure-funding issues, and support workforce redeployment to construction from the most-affected industries.

The Priority Objectives an Effective Infrastructure Stimulus Should Address

Infrastructure is a powerful vector for social and economic development, and its industry accounts for 6% of the global GDP and workforce. Government investment in infrastructure has an annual multiplier effect of 0.4 to 2.2 times GDP. Infrastructure can help create at least 10,000 total jobs for every $1 billion invested. With these numbers in mind, governments can support the infrastructure industry not just for its own sake, but also as part of the larger pandemic recovery effort. Stimulus packages could be transformational even beyond the immediate crisis; they could address long-term infrastructure challenge.

An effective infrastructure stimulus plan should focus on four key objectives:

  • Create sustainable, high-quality jobs. Balance immediate job creation against the need for upskilled, quality workers in the long run.
  • Contribute to the climate agenda. Make sure new infrastructure supports the clean energy transition and contributes to net-zero carbon targets.
  • Enhance long-term resilience. Deploy future-proof infrastructure, support economic and societal resilience, and sustain competitiveness.
  • Embrace new ways of working. Leverage the potential of technologies to boost productivity and effectiveness.

Already, governments across the world have put in place bold and visionary infrastructure stimulus plans to boost the economy, create jobs, and lay the groundwork for the recovery.

Embedding a Clear Action Agenda Based on a Comprehensive Set of Global Recommendations

As they work to design effective stimulus packages, governments can embark on a robust action agenda that will immediately serve the broader pandemic recovery and ensure that infrastructure will thrive in the longer term. (See the exhibit).

Maintain Ongoing Works, and Accelerate Shovel-Ready and Shovel-Worthy Projects

The crisis has prompted a wholesale review of many industries, and infrastructure is no exception. Now is the time to reassess infrastructure projects in the pipeline to bring forward deliveries, ensuring such projects meet government priorities and that they are designed for a postpandemic world. However, governments needn’t cancel preexisting contracts in favor of new ones—instead, they should take a broader, strategic look at potential developments.

Infrastructure plays a vital role in keeping the economy running. As such, governments should act to ensure those projects endangered by a liquidity shortfall and other crisis-related effects are still running, while also evaluating them for long-term criteria. For instance, governments should assess projects on whether they are hardy enough to withstand climate hazards, such as hurricanes and flash flooding.

At the same time, shovel-ready projects that could immediately boost the economy should be given the green light. Governments can accelerate such projects, which include road building, by fast-tracking procurement (for construction permits, for example), by streamlining environmental assessments, and by quickly signing off on projects with committed funding.

Shovel-worthy projects that help address long-term issues like climate change could also be identified and brought to bear. Two noteworthy ways to do this are by setting minimum energy performance standards and by fast-tracking climate projects, such as those for flood control and other related issues.

Another way the industry can boost the economy and create high-quality jobs is by undertaking renovation programs aimed at upgrading buildings and infrastructure—a strategy that has been proven in the past, which can further help society achieve sustainability and resilience targets. Energy efficiency projects, including heat pump installation and net-zero-carbon building retrofits, are particularly useful in this regard, as are projects that build societal resilience, such as updated water systems and rewilding schemes that prevent flooding.

Create a New Project Pipeline Aligned with Long-Term Infrastructure Priorities

The COVID-19 crisis offers an opportune moment to revisit infrastructure development plans. The coronavirus is rapidly changing how people move, live, and work; now is the right time for the industry to address climate goals through adaptation and mitigation measures. In this context, climate-resilient infrastructure will be more important than ever. Additionally, accelerated new ways of working (such as remote working or e-commerce) and the increased importance of digital technologies will require governments to reevaluate their infrastructure priorities.

Many governments have announced ambitious stimulus programs that include infrastructure investments—emphasizing climate change and technological upgrades—such as the European Green Deal Investment Plan (worth €1 trillion) and China’s massive technology infrastructure plan (estimated at $1.4 trillion). Meanwhile, initiatives and global collaborations, such as the C40 Cities network, already exist to help public authorities incorporate lessons from other geographic areas, accelerating the transition to more forward-looking infrastructure.

Governments can boost infrastructure construction today by cultivating public-private collaborations that stem from unsolicited proposals (which are initiated by private organizations instead of public tenders or government requests). Unsolicited proposals can help make up for the constraints on financial and technical resources sometimes found in the public sector when it comes to identifying, prioritizing, and procuring infrastructure projects.

These types of proposals are often used during natural disasters to speed up developments and typically give firms leeway in designing projects and finding solutions. To make their use effective, governments must institute systems—including those for rapid review and signoff—so that unsolicited proposals are transparent and competitive.

Set Up the Right Enablers to Ensure Efficient and Sustained Stimulus Implementation

An inherent tension exists between achieving faster delivery (and realigning strategy to meet industry goals) and a long-term transformation agenda. The following key enablers could make the process efficient and the impact sustained.

Enabler 1: Open a dialogue on immediate relief measures. The crisis has strained infrastructure. The industry has had to deal with a steep drop-off in activity volume and productivity, as well as supply disruptions, new costs associated with health and safety measures, and fast-changing demand to digital services—all while operating under challenging conditions.

Several governments have deployed fiscal stimulus measures to inject extra liquidity and help stabilize supply chains, but only a few have announced infrastructure-specific measures to provide relief from the pandemic. The construction industry needs to receive additional government aid to help it more fairly share the burden of the costs and risks associated with COVID-19. The sector would benefit from support for costs related to delays, shutdowns, and virus-related protocols. Governments could also give the industry some relief by releasing cash holdbacks early, advancing material-supply payments, rapidly settling change requests, and easing payment terms. In turn, by providing this aid, governments can lift economic activity, create jobs, and stabilize the supply chain.

It is also important for governments to recognize the essential role of the construction industry in keeping a country’s critical infrastructure secure and resilient, which will be an important aspect of postcrisis recovery and of living with the virus for an indeterminate period.

Enabler 2: Define faster and simpler infrastructure procurement models. The crisis put procurement to the test, and many governments were up to the task and sped up their procurement methods. These faster alternatives must now be standardized so that the construction industry can fully recover.

A range of new procurement practices have shown their mettle in the pandemic, including single-stage evaluations, the prequalification of bidders, and a single-point-of-contact structure. There are also new models to consider, such as the progressive design-build approach, which gives governments, contractors, and operators the opportunity to collaborate at the design stage. Likewise, the alternative technical concepts approach enables contractors to offer value-added services and technical solutions to solve infrastructure challenges. Project bundling of tenders also makes contracting more efficient because it allows crews to keep working while the design stage of the next project is being finalized.

Given the way the virus has driven a massive shift to remote work, investing in digitized procurement processes would make the system faster and more reliable. Steps include accelerating the adoption of building information modeling (BIM) in government tenders, putting the permitting process online, and facilitating inspections by drone or by augmented and/or virtual reality.

Finally, understanding risk imbalances in current procurement schemes, and backing the definition of new contract standards adapted to today’s fast-evolving circumstances, will be key for a sustained rebound. The pandemic has sensitized the world to how rapidly the situation can change, and procurement contracts should be refashioned to account for this reality. For example, underway construction projects have seen productivity losses of approximately 25% to 40% because of the need to adopt new health and safety measures. At the same time, risk-sharing language and force majeure clauses must be revisited to help parties better disclose and prepare for the risks of delays and cost overruns stemming from new safety protocols.

Enabler 3: Deploy new financing models to incentivize private-sector involvement. As the pandemic forces investors to shrink their debt load and risk profile in infrastructure at a time when extra resources are already tight, governments need to seek new funding and financing. Green bonds, which can also further climate goals, are one answer. Another promising source for infrastructure is to tie performance to at least one objective of the UN’s Global Climate Action Agenda. Multilateral development banks are also moving into this arena. For instance, in 2018, climate funds and multilateral and bilateral development banks raised $83 billion for green projects.

Value-sharing revenue schemes, made available by taxes on housing and commercial development, can benefit the places in which these funds are raised. For example, Australia financed the AUD$3 billion Parramatta Light Rail through a special annual levy and a land tax.

Private organizations are also turning to innovative financing schemes. Singapore’s Port Authority leases its rooftop warehouse to Sunseap Leasing, which finances, operates, and maintains the solar panels contained therein. In turn, the company generates revenue through selling the electricity produced.

Enabler 4: Support workforce redeployment to construction from other industries. Because infrastructure is an industry that can boost employment immediately, if given the right government support, it can be part of the solution for putting people from those sectors hit hardest by the pandemic back to work. Public-private academies, for example, can establish skilling programs to help make this happen. Likewise, governments can institute a tax program that would incentivize construction companies to hire recently out-of-work individuals. Public-private forums can also be set up to identify the skills the construction industry will need in the future, such as those related to data analytics and renewable energy.

The Way Forward

In these challenging times, the world needs leadership and decisive action at every level. Governments should view the current crisis as an opportunity to create advantage in building a better, more competitive, resilient, and sustainable world.

To further the development of forward-looking, recovery-boosting infrastructure stimulus, the World Economic Forum and its Engineering and Construction Industry Group have set up roundtables in several countries. At these roundtables, the industry group will discuss the role of infrastructure in government-directed stimulus packages—supported by proposed objectives and an action agenda—with key representatives from the public and private sectors. In the spirit of meaningful collaboration, the action group will update its findings and develop its current thinking based on the feedback it receives.

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The Role of Infrastructure Stimulus in the COVID-19 Recovery and Beyond

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