COVID-19 and a new resilient infrastructure landscape

 Societies cannot be resilient without resilient infrastructure

In the current crisis, the extent and quality of infrastructure related to health such as hospitals, water, and sanitation have proven to be important for the effectiveness of responses. Furthermore, there may be scope to consider where infrastructure can play a role more generally in support of healthcare value chains, for example through more efficient trade and transportation infrastructure to support delivery of essential goods. The importance of broader social and economic infrastructure, such as transport systems and communication infrastructure, was also demonstrated.

Notably, the crisis has brought renewed focus on social or “soft” infrastructure, which is sometimes overshadowed by hard infrastructure like energy and transportation in the context of resilience. These infrastructures that maintain the economic, health, education, cultural and social standards of a population are critical elements of modern societies. Hospitals were at the frontlines of impact and response to the pandemic yet are part of healthcare systems that only function well when all aspects are resilient. Preparation and response to the crisis was demonstrated in a number of areas, including setting up temporary hospitals in some jurisdictions to handle the influx of patients, prioritising care, or even “telehealth” solutions where care and information can be administered remotely through telecommunication services.

Besides impact in healthcare, education was also widely impacted during the pandemic. Education services have demonstrated remarkable resilience and flexibility, having established strategies for education continuity, in extremely challenging conditions. While education has been disrupted, a number of creative solutions have been implemented to continue learning, with observations from many jurisdictions, particularly in the use of technologies for distance learning (OECD, 2020l).

Yet the ability and capacity of government response has been uneven across countries or among regions and municipalities within countries. The capacities of emerging and developing economies to invest in the health response have been limited, given tighter borrowing constraints as a result of the spill overs of the crisis. Critical support is needed in some parts of the world in order to bolster health response and limit the spread of the virus. Despite increased mobilisation after the 2014-2016 Ebola crisis, investment in pandemics preparedness and response has been insufficient. In light of the “global public good” nature of such spending, it is in countries’ own interest to spend more and better on infrastructure that supports pandemic preparedness in other countries, as controlling the spread of the virus everywhere can help to lower risks of resurgence (OECD, 2020j).

Within countries, COVID-19 affects the populations and economies of regions and cities differently, with the ability of subnational governments to respond also differing. In most countries, regional and local governments are tasked with critical aspects of healthcare, social services, economic development and public investment, putting them at the frontline of COVID-19 crisis management. Across OECD countries, subnational governments are responsible for nearly 60% of public investment, including investment in infrastructure. Ensuring that subnational governments have what they need to meet this (e.g. improved procurement or planning capabilities, needed fiscal transfers), and other responsibilities, can minimise generating or further entrenching disparities in regional resilience to shocks and crises (OECD, 2020k).

 Impact on infrastructure has been varied, and in some cases, severe

Due to the direct impact of COVID-19, as well as confinement measures, disruption has occurred in all sectors, linked to a number of reasons, including disruption in supply chains, the availability of workers for infrastructure projects (construction) and operations, delays and cancellations, demand shocks, as well as interruptions to investment processes and procurement (see Box 1 for an example on airports). Infrastructure projects relying on single-source supply chains may consider back-up or secondary sources of supplies, where possible, in the event of future interruptions.

While disruptions have eased as restrictions on movement have gradually been lifted, further disruptions could be possible in the event of changes to policies for confinement, travel, and containment. On the other hand, some services have seen an increase in demand, such as communication services. In this regard, spare capacities to handle increased demand for internet connectivity, or scaling up bandwidth has helped to prevent congestion (see Box 3).

The public and the private sector have responded with various support measures, working to ensure the continued delivery of essential infrastructure services. Some governments have developed targeted responses for non-health infrastructure, such as the provision of grants or payment waivers (such as rent) for airports or public transportation, to support operating expenses, debt servicing, and in some cases capital expenditures. Development Finance Institutions (DFIs) and International Finance Institutions (IFIs) have responded to the pandemic through various support measures for emerging and developing economies. The private sector shows varied responses, one example being internet service providers allowing bonus broadband data allowances for customers.

 Insights into contractual and business models, and effective responses to the pandemic

Some lessons may be emerging from the pandemic on what types of contractual models or investment frameworks were able to withstand volatilities in markets, including demand, and also how systems, assets and projects were able to manage risks or shocks. For instance actions taken to prevent the default of an infrastructure company, or flexibility under PPP arrangements in order to ensure continuity of services while maintaining guarantees, may have helped through periods of stress. In this regard, impacts can be mitigated with modest success through compensation clauses, using bridge financing, capital injections, renegotiation of key project parameters, and introduction of regulatory flexibility on performance indicators, among other measures. If the pandemic’s impacts are limited to the short or medium term, project credit risk and access to financing may not change substantially (WBG, 2020a).

In a few instances, force majeure clauses were invoked in infrastructure projects or services, which calls into question how such clauses should be interpreted or applied in the context of the pandemic. Additionally, force majeure clauses can vary significantly between projects, some being narrow in scope or specifying certain events, while others broadly cover any event beyond the control of contractual parties. Advisory services, for example through the Public-Private Infrastructure Advisory Facility and the World Bank Group, have been made available for technical assistance, where governments can request support for taking stock of COVID-19’s impact to PPP portfolios, including the need to understand the impact of declining revenues (including expected duration) in projects financed through PPP contracts, especially where guarantees are provided (WBG, 2020b). In the future, more consideration could be given to how losses are absorbed during crises, including the role of insurance or re-insurance.

 Reliance on communication infrastructure has increased, yet accessibility and quality varies across regions

Reliance on communication infrastructure (i.e. telecommunications, broadband services) has increased substantially, with operators experiencing as much as a 60 per cent increase in internet traffic compared to before the COVID-19 crisis (OECD, 2020g). Businesses have deployed digital solutions and channels to enable communications among staff and with customers. Governments and schools have as well. This has led businesses and public institutions to expand the availability of digital content or transform content into digital format. Yet not all can do so with equivalent flexibility or ease. Access to communications services has been uneven across regions, territories, and populations, depending on quality of connectivity services, network capabilities, and devices to access services (e.g. personal computers, tablets, smart phones).

 The costs of a crisis may far outweigh incremental investment in resilience

The COVID-19 pandemic has triggered the deepest economic recession in nearly a century, threatening health, disrupting economic activity, and hurting well-being and jobs. Due to the direct effects of the pandemic and confinement measures, the latest OECD Economic Outlook reports a forecasted a drop in real GDP across G20 countries of 4.2 per cent in 2020. Widespread job losses are also a result of the crisis, particularly in service sectors; the impact on jobs has been ten times greater than during the global financial crisis of 2008-2009 (OECD, 2020e).

Investment in infrastructure resilience can avoid economic losses, the need for expensive repairs, as well as preserve lives and protect the environment. In low- and middle-income countries, disruptions or outages of power, transport, water, or communications cost firms and households approximately USD 390 billion annually (WBG, 2019).

While in many cases better resilience investment would imply higher upfront costs, a life-cycle approach to analysing the cost-benefit of investing in infrastructure resilience can help to clarify the benefits of higher upfront spending by recognising longer-term value, such as the avoidance of costly repairs. Effective planning for resilience could also reveal ways of spending better, not necessarily spending more. For instance, locating critical infrastructures away from flood zones can be a simple low-cost solution to improve resilience. Furthermore, spending more efficiently and effectively on infrastructure can significantly reduce waste and efficiency losses. Recent IMF research reveals an average country loses up to 30 per cent of the value of its public investment through inefficiencies in its public investment processes, and that almost half of these losses can be made up for through stronger infrastructure governance (IMF, 2020) —that is the institutions and frameworks to plan, allocate, and implement public infrastructure (OECD, 2020m).

Effective planning could unlock opportunities to improve resilience, while providing options for governments and investors to improve asset life-span and value. Prioritisation of resilience investment could be considered, in order to allow capital and resources to flow to areas most in need.

 Elements of infrastructure resilience

The following section provides an overview of key elements to consider when describing resilience in infrastructure, which applies to both “normal” usage of the infrastructure facilities which need to be resilient to time, usage, obsolescence, environmental effects, as well as “abnormal” shocks or disruptions, including natural hazards, pandemics, and other human-induced threats such as terrorism, cyber-attacks, or industrial accidents. The system-wide impacts caused by COVID-19 and the key role played by infrastructure in sustaining economic and social activity have heightened the need to consider infrastructure resilience at a broader level.

 

Figure 1. Elements of infrastructure resilience

 Some strategic considerations

Management of resilience risks is a continuous process in increasingly complex infrastructure systems. It is a cradle-to-grave process for engineering, building, and operating a fault-tolerant, safe, secure, smart, efficient, and sustainable infrastructure system (Volpe, 2013). Resilience is a risk-based and lifecycle process for addressing the vulnerabilities of critical infrastructure systems, making the system work smarter and better able to adapt and react to known risks and unexpected challenges (Volpe, 2013).

Understanding how infrastructure is interconnected and interdependent can shed light on critical elements (OECD, 2019a). Responsive infrastructure is agile, flexible, scalable, and can react to or mitigate crises as well as be adaptable to the evolving nature of risks, especially in a climate change context. Regarding healthcare, the ability to scale services to meet extraordinary demand has been a feature of effective responses during the pandemic (OECD, 2020a). Innovative solutions, like telehealth, or at-home hospitalisation, are also examples of responsive infrastructure. Flexibility and scalability were also demonstrated in instances where demand declined, maintaining the need to cover fixed costs while reducing variable costs. In public transportation, passenger numbers in cities around the world were down 70 to 90 per cent during the height of the pandemic (WBG, 2020c). Cities and municipalities have responded by adjusting service schedules, operating hours, routes, and service frequency to maintain an adequate level service while minimising overcrowding.

Figure 2 provides a high-level overview of resilience as a process. Such processes include measures put in place to anticipate and prevent risks, monitor performance, and mitigate the effects of failures when something goes wrong, allowing rapid recovery.

 

Figure 2. Resilience as a process

 Could abnormal shocks become more frequent?

Critical risks, including those that could be considered as high-impact, low probability events present challenges to infrastructure resilience. It is also important to consider that events or risks that were previously thought as low-probability might actually become higher probability in the future – we recognise the possibility of increased exposure to novel viruses as our contact with nature is changing. Climate-related risks are projected to increase given current trajectories. Data from the National Centers for Environmental Information show that in the United States, billion-dollar (CPI-adjusted) disaster events have been increasing in frequency compared to previous decades (NOAA, 2020). Digital threats are constantly evolving and becoming more sophisticated. In order to fully comprehend such risks, and to help build resilience and preparedness, data, reliance on science, and experts may be needed to build a strong evidence base to identify exposures to risk, how risks are evolving, and find solutions. Long-term risks can also be difficult to quantify or analyse, heightening the need to augment tools, data, resources, and information for resilience decision making.

 Environmental risks

In the medium to longer-term, major expected threats – both slow onset and sudden in nature – are expected to be linked to environmental risks. Slow onset risks include inter alia natural hazards, pollution, rising temperatures, rising sea levels, biodiversity loss, as well as desertification. Aside from the physical aspects of these risks, transition risks could also affect infrastructure as decarbonisation of industry and economies could impact asset values. Significant research and literature exists on these effects, and the central role that infrastructure plays in mitigation and adaptation measures.

Natural sources of resilience could be considered in the broader context, such as forests and wetlands or other nature-based solutions that can help to absorb adverse effects, acting also as reservoirs of biodiversity (OECD, 2020h). Enhancing environmental health through better air quality, water and sanitation, waste management, along with efforts to safeguard biodiversity, will reduce the vulnerability of communities to pandemics (OECD, 2020f). A better understanding of the role of environmental health as a crucial component of overall health priorities will help to inform policy responses in the recovery from the current pandemic and preparedness for future shocks.

 Broader sustainability and inclusiveness considerations

Infrastructure is part of the future that younger generations will inherit - investment decisions made now will have lasting impact and strongly influence development pathways. Modern civilisation that is in balance with nature, achieves objectives for sustainable growth and development, promotes resource efficiency, and that supports intergenerational equity and fairness can be supportive of resilient societies. This includes infrastructure that is resilient to numerous risks already mentioned, but that is also transparent, fair, and equitable for users and for those paying for services, either through taxes or otherwise. Building awareness about how crises impact various populations is needed, along with how to mitigate effects through the provision of supportive infrastructure services in order to support inclusiveness. The pandemic, for instance, has had differing economic effects on men and women, thus a gender perspective on resilience can support greater inclusiveness.

Social risks and tensions are simmering in many parts of the world, for example, disparities in wealth and prosperity persist between global cities, peri-urban and rural areas, contributing to social and political divides (OECD, 2019b). Infrastructure investment that unlocks opportunities for growth and development, particularly for disadvantaged populations, can be supportive of resilient societies. Infrastructure that is transformative, particularly by revitalising degraded or under-utilised urban spaces can support greater social inclusion. Avoiding overbuilding infrastructure is also important, in order to avoid waste and to not deprive basic resources that could be used for other purposes.

 Technology and innovation

It is impossible to not include the subject of technology, innovation, and data when speaking about resilient infrastructure. Given the pace of change and the fact that technology is impacting nearly every facet of our lives, considerations are numerous in the context of infrastructure. There are two elements, for the purpose of this note, to highlight in this regard. First is the expected impact of various technologies on the infrastructure landscape itself. What we consider infrastructure is changing - one often thinks about the physical aspect of infrastructure, but increasingly this could also include digital layers that interact with physical infrastructure and enable service optimisation through e.g. enhanced data analytics and digital applications. New forms of infrastructure, such as communication networks, data storage, new forms of energy generation and storage, and electrified transport are changing the contours of infrastructure. Disruptive technologies and business models are impacting infrastructure markets. Second, technology solutions could be considered more broadly to meet resilience challenges (see Box 4. for examples). A number of use cases exist, for instance, new ways of modelling physical structures, harnessing big data to analyse infrastructure operations, or mobile apps for consumers.

The G20 Riyadh Infratech agenda, along with supporting reference notes from the GI Hub and World Bank Group provide further context on the potential benefits of technologies in infrastructure, including resilience aspects.

As a cross-cutting theme for all infrastructure sectors, technology will be an important tool for building long-term solutions to infrastructure challenges, including resilience. The education sector can be looked at as an example. The need for “smart infrastructure” became acutely more urgent during the confinement period. Most countries closed schools in order to keep the virus in control, transitioning to online education. In this sense using technology for increasing the accessibility of online education allowed learning to continue, while important challenges remain regarding access for all students and closing the “digital divide”. Smart infrastructure strategies in cities, allowing real-time analysis of data and decision-making can improve resilience, supporting flexible and adaptive solutions. This was demonstrated during confinement when physical spacing became a priority to limit the spread of COVID-19.

 Demographics and consumer preferences

Important long-term trends in demographics, e.g. aging populations in some countries, urbanisation, and migration will affect demand for infrastructure services, along with informing policy responses, requiring an understanding of such trends when planning and conceiving infrastructure. In Western Europe, 1 in 5 people are older than 65 and this is expected to rise to 1 in 4 in the next decade (UN, 2019). In 2018, an estimated 55.3 per cent of the world’s population lived in urban settlements. By 2030, urban areas are projected to house 60 per cent of people globally (UN, 2018).

COVID-19 affected territories differently, but many policy responses were place-blind and uniform, highlighting the need for place-based and people-centred approaches (OECD, 2020b). Furthermore, the health crisis turned into a major economic and social shock, and the exposure and recovery of regions and municipalities depends on industrial composition, labour market breakdown and trade openness. The crisis also exposed inequality across people and places, especially in large cities, where vulnerable groups such as migrants, the poor, women and the elderly were hit hard.

Consumer preferences, work habits, and spending habits are another large driver of demand for infrastructure services. Increased consumer demand, for instance for electric vehicles, will spur demand for public electric charging infrastructure. Broad based investment in energy efficiency could impact long-term demand patterns in energy markets. Rideshare apps like Uber and Lyft have impacted urban transportation options. During the pandemic, a number of trends have emerged, due to confinement and limitations in movement, which could have longer-term implications in infrastructure (see further section for greater detail).

 Expected increased importance of communication infrastructure in the economy and the need to ensure its resilience, quality of service, and accessibility

The crisis and governmental lock-downs on movement and activities have resulted in some major rapid shifts in behaviour and consequently demand for infrastructure services, with usage of communication infrastructure for both work and leisure expanding significantly (see Figure 3). While trends related to demand for data storage, cloud services, connectivity, and quality (higher speed data such as 5G) were already increasing before the pandemic, an increased focus has resulted, with shifts in demand that could well become permanent (such as the rapid growth of e-commerce, videoconferencing). Demand for cloud computing and services, in particular, accelerated significantly during the pandemic, with implications as well for the public sector. The pandemic sparked public sector innovation in the form of small pilots and large-scale transformations – though they were the result of an emergency, many of these ideas have the potential to effect lasting change in public sector services far beyond the crisis (WEF, 2020).

Further investment in broadband infrastructure and expansion of 5G, particularly in underserved areas, could be an outcome of the pandemic and enhance future resilience. This will mean that the resilience of communication infrastructure, and related applications and distribution of content, will become increasingly important. Accelerating a transition from copper to fibre networks can address congestion issues and improve service for households and businesses. While transitioning from copper to fibre takes longer-term planning, broadband providers could be encouraged in the medium term to deploy fibre deeper into their networks to gradually phase out older technologies. A currently ongoing review of the 2004 Recommendation of the OECD Council on Broadband Development addresses these aspects.

Further enhancing communication infrastructure, such as through datacentres, will also be needed to support demand for digital services, particularly related to cloud-based applications. Policies to address the “digital divide” are also a product of the pandemic, where cities have, for instance, enacted policies for students to have access to broadband and devices.

 

Figure 3. Internet bandwidth at internet exchange points, by country

Source: OECD based on data from Packet Clearing House. http://www.oecd.org/coronavirus/policy-responses/keeping-the-internet-up-and-running-in-times-of-crisis-4017c4c9/

 Transportation and urban mobility

Transportation in all sectors has been significantly impacted during the crisis. In airports, airline capacities dropped 70-80 per cent at the height of lockdowns and travel restrictions. Going forward, a reassessment of business models may be needed, as well as what measures are needed to make air travel safe and resilient to future pandemics. Touchless technologies in airports can save time by moving passengers through security checkpoints faster, and with less human contact to spread infection. The travel industry is looking further into using ultraviolet light to sanitise surfaces in busy airports. Regarding the airport business model, a pivot to non-passenger revenues could be a result in the near-term, such as through air freight.

Widespread telework may remain a permanent feature of the future working environment, catalysed by the experiences during the COVID-19 crisis, although the ability to telework is not open to all, especially for jobs that require physical presence. This is certainly a trend to closely watch for implications in infrastructure, as city transportation systems would need to adapt to shifting commuting patterns. More people teleworking from home, or close to home in shared work environments may shift demand for more localised, rather than centralised infrastructure, closer to where people live rather than work. Structural changes in demand for air travel may also result as business travellers conduct meetings virtually.

In response to these trends, large scale and costly investment in public transportation (such as subways), or increasing airport capacity, may be re-evaluated given the changing context, while more flexible approaches, such as through bus rapid transit, could be considered, although a long-term perspective is needed to understand longer-term implications.

 Flexible and responsive energy systems

While some parts of the energy value chain have been more directly impacted by the pandemic (fossil fuels in particular due to a sudden drop in demand), use patterns in energy, particularly electricity, shifted significantly, along with volatilities in demand as commercial and industrial activities became suspended, and people stayed home during confinement. Having a reliable power supply is currently ever more important to keep healthcare services and food supplies uninterrupted, while expanding access to clean and affordable energy is a top priority and an essential element of resilience. Issues related to energy may be complex, yet some important areas related to resilience may emerge such as energy efficiency, resilience of smart, renewable and decentralised power solutions.

According to the International Energy Agency, energy investment is set to fall by one-fifth in 2020, partly stemming from declines in revenues due to lower energy demand and prices, as well as more uncertain expectations for these factors in the years ahead. Across all major regions, the power mix has shifted towards renewables following lockdown measures due to depressed electricity demand, low operating costs and priority access to the grid through regulations (IEA, 2020a). Putting clean energy transitions at the centre of economic recovery and stimulus plans is an opportunity to meet clean energy investment objectives.

Improving electricity security – and by extension resilience – could become a focus in the recovery phase from the pandemic. Multiple transitions are occurring in the electricity sector, which are leading to a new system in the future; encompassing electricity security brings together actions taken at the technical, economic and political levels, with the goal of maximising the degree of short- and long-term security in a context that simultaneously comprises energy transitions, cyberthreats and climate impacts (IEA, 2020b).

 Partnership to achieve resilience goals

What may be necessary as infrastructure systems evolve are investment frameworks that are equipped to react and respond to resilience challenges. A key policy consideration may be that enhanced open collaboration, partnership, and dialogue is needed between public and private stakeholders, in preparation for, and in response to, critical risks. Strengthening critical infrastructure resilience requires trust between government and operators by securing risk-related information-sharing, and building partnerships to agree on a common vision and achievable resilience objectives (OECD, 2020m). Also, there may be scope for examining issues regarding risk allocation and risk sharing between the public and private sectors in light of COVID-19 experiences, and in light of the need to attract long-term investment post-COVID-19. A top-down and bottom-up process could effectively mobilise central governments, local governments, private sector stakeholders such as investors and operators, involving also civil society. The private sector, for instance, could bring innovative solutions allowing the development of service provision that can be more flexible in the type and quality of services provided. Identifying – and prioritising – resilience investment could help capital and resources flow to where it is needed most, underscoring the need for shared vision of resilience goals.