Industry Trend Analysis - South Asia Flooding Underscores Regional Water Infrastructure Need - OCT 2017


BMI View: Catastrophic monsoon flooding across Bangladesh, India and Nepal underscore the region's urgent need for flood-mitigation and water infrastructure, especially in major cities and low-lying regions. These water projects will generate opportunities for foreign investors and companies that have specialised technology and expertise.

We reiterate our previous view that the collision of climate change and urbanization trends across Asia will lead to greater investment in flood-mitigation and water infrastructure ( see 'Water Infrastructure Demand Offers Growing Project Opportunities', October 11 2016). This will be especially pronounced in South Asia's infrastructure markets, which have traditionally underinvested in water projects compared to countries in South East Asia. As the strength and impact of monsoon floods are expected to worsen over the coming decades, we believe that there will be an increasingly pressing need for better flood defences and water facilities - which will generate contract and investment opportunities for firms that have specialized technology and expertise in the sector.

The devastating social and economic impact of monsoon flooding in Bangladesh, India and Nepal underscore the region's immense need for water infrastructure, especially in urban and low-lying areas. Recent floods across South Asia, said to be the worst since 1988, have killed at least 1,200 people and brought activity in numerous major cities to a standstill. Much of the human and economic damage is tied to the trend of informal urbanisation, where buildings are built in flood-prone areas and without adequate supporting infrastructure - in Mumbai, around 40% of the population lives in slums while the city's existing drainage system has received few upgrades since it was first built in 1860.

Growing Importance Of Water Infra
Selected Asian Markets - Water Infrastructure Industry Forecasts
f = BMI forecast. Source: National Sources, BMI.

Flood Threats Accelerating Water Infrastructure Investments

Water infrastructure is quickly becoming one of the top-performing segments across Asia's infrastructure markets, especially in emerging market cities that are struggling to cope with industrialisation and urbanisation trends.

Across most of Asia, growth in the water segment is forecast to accelerate as countries and cities invest in supply and treatment facilities to meet growing residential and industrial demand, and as governments invest in flood-mitigation facilities and technologies. The threat posed by flooding to major cities such as Mumbai and Dhaka will be a motivator for municipal governments to take the lead in investing in water infrastructure projects - significant seasonal flooding poses a serious deterrent for rising financial hubs such as Mumbai. Growth in India's water infrastructure sector is forecast to accelerate from 4.9% in real terms in 2017 to 6.5% by 2026, more than doubling in value nominally. Along with Bangladesh and Nepal, the three South Asian countries have a total of 78 water projects in the pipeline, with a combined value of more than USD32.0bn. This is in line with other flood-prone markets in South East Asia, such as Indonesia, Vietnam and the Philippines, that have expanded investment in flood infrastructure over the past decade.

Strong Project Pipelines
Bangladesh, India and Nepal - Water Infrastructure Project Pipeline
For projects in the planning, tender and construction phases. Source: BMI Key Infrastructure Projects Database

Opportunities for Specialized Firms

The region's increased focus on water infrastructure will generate opportunities for private and foreign companies that have expertise and specialized technology in the water sector. Given the large environmental, geographical and technological considerations of flood-mitigation measures, elevated levels of investment would provide openings for firms such as members of the Netherlands Water Partnership, as well as other planning and engineering consultants that have experience in the water segment. Ho Chi Minh City, for example, announced in 2015 a partnership with the governments of the Netherlands and Rotterdam to implement a VND97trn (USD4.4bn) plan to upgrade drainage systems and build flood-control reservoirs and treatment plants.