Infrastructure After COVID-19: Five Predictions
(Infrastructure and Viruses, Part II)
The coronavirus has taken over lives and headlines in the two months. We still know relatively little about the ultimate course and toll of the pandemic, while being pretty sure it will continue to dominate both lives and headlines for at least several months. Yet we can already hazard a few predictions as to how life will be different “after” COVID-19 – at least for the infrastructure world. This second column in Infrastructure Ideas’ two-part series on “Infrastructure and Viruses” (see Part I, on cyber viruses) will make five predictions.
On the way to some infrastructure predictions, let’s look at some very broad contours of how life may be different after the coronavirus. With the caveat that duration of both the crisis and subsequent recovery remain unknown, so the “after” of after COVID-19 is best left in quotation marks for now.
• Global unemployment will be combined with large fiscal deficits at national and city levels. As of this writing, the US Congress is still battling over a trillion-dollar stimulus package, or maybe it will be a $4 trillion package, and the markets are not greatly impressed. Stock markets are off more than 30% from the beginning of the year, and there is no end in sight. Many businesses are closed by government order, while stay-at-home mandates have consumer spending falling off a cliff. Many small businesses will fail to make it through this period, and unemployment – especially among those working informally, in retail businesses, or in “the gig economy” – will be massive. Supply chains for larger businesses will take months, if not years, to recover, as different countries exit the pandemic at different times. Governments will spend extraordinary amounts of public money in trying to cushion the blow and speed economic recovery, at the same time as income and taxes will decline sharply. Cities will be very hard hit economically, being on the front line of extra health-care spending, while local revenues will be disproportionately affected. The world is likely to see a long period of both high unemployment, and large fiscal deficits.
• Virus risks may not “go away.” Both the “end” and chances of recurrence of COVID-19 are unknown, while the risk of other pandemics is continuing to rise due to climate change. This is likely to permanently alter perceived risks of some basic activities – namely anything affecting shared spaces, and transit – both of people and of goods – across borders. Conversely activities that can be undertaken remotely will look relatively “safer” for some time to come.
• Global emissions will come down – at least temporarily. The striking effects of COVID-19 driven closures in major cities around the world, in reduced traffic, reduced economic activity, and reduced air pollution, are being illustrated for us in real-time by Mapbox and others. We have seen in previous years the link between Greenhouse Gas emissions and economic activity. The major recession we are headed into will provide at least some short-term relief on emissions. That may, however, be offset before long by the effects on climate negotiations (see below), and by whether China chooses to relax domestic emissions rules to protect jobs in the coming months.
With these broad contours in mind, let’s look at five predictions for how the infrastructure world may be different after COVID-19.
1. Decreased infrastructure spending by central governments and by cities. A ton of public money is now being pushed at the coronavirus, while the tax base is shrinking drastically. That’s public money which will not be available for governments to increase infrastructure spending – or even, in many cases, to maintain it. Whether central governments, states or cities, officials will have to choose between postponing investments, and letting infrastructure services deteriorate, or finding ways to channel more private capital into infrastructure investment. The collective choices made on this by governments will set the face of the infrastructure world for the next several years.
2. Cheap energy gets… cheaper. Owners of solar farms and wind parks may have to worry in the next few years about a slowdown in electricity demand – for merchant plants – or of higher counterparty default risk. But technology will keep advancing, and solar and wind power will be continuing to get cheaper. In parallel, the current battle for control of oil production markets will be making life very difficult for producers of natural gas – for whom demand will be depressed both by the recession and by substitution from temporary cheap oil. No chance of rising natural gas prices ahead. So energy consumers, who have the winners of the past several years as energy prices have been dropping, will continue to be winners.
3. Bleak times ahead for airlines, airports, and railways, but high times for logistics. It will be a shock if we do not see several airlines in bankruptcy as the crisis progresses. It is also difficult to see airline traffic recovering to previous levels for some time. Concerns about virus transmission are likely to continue among passengers and governments for some time. Airports will be affected by reduced landing fees, and reduced ancillary revenues. Passengers will not be paying for parking and buying in concessioned shops if they’re not traveling. For passenger rail, where the economics are difficult to begin with, extended concern from potential passengers about virus exposure by being in close quarters with other travelers is likely to dampen enthusiasm about rail travel. Rail companies will be trying to dig out from the 2020 financial hole caused by the pandemic, and are likely to reduce service in the near term, which is likely to further reduce demand. It’s difficult to see anything promising for airlines, airports, or passenger rail the next 3-5 years. On the other hand, there is one clear winner, and a BIG winner from the current upheaval: logistics. Companies specialized in delivering packages to consumers, and getting the packages from production locations to those who deliver them to consumers, cannot hire fast enough at the moment. Amazon, UPS and their counterparts elsewhere have never seen so much demand. The surge in revenues will help them buy new technology and further drive costs down, positioning them well for the post-pandemic world. And the post-pandemic world will be filled with consumers who have gotten used to having items delivered to their doors. Look for a golden age for logistics companies ahead.
4. Uber, micro-mobility, and mass transit: dawn of a new alliance? The COVID-19 pandemic is really bad news for shared transport services of all kinds. Much as for airplanes and trains, shared vehicle services such as Uber and Lyft are likely to face higher perceived risks from consumers who have until now only focused on economics and convenience. Same goes for shared bikes and scooters, who have been the darlings of venture capital over the past few years. And same goes for mass transit. The American Public Transit Association has said that transit systems in the US would lose 75% of revenues to September, and that they would spend some $2 billion on extra cleanings for trains, buses, and stations (see “In a Week, the coronavirus razed US transit and rail systems,” from the Washington Post). The post-coronavirus fiscal position of governments will also make it less likely that mass transit receives the same level of subsidies it has received from local governments in the near future. As framed by Vox, “the risk is that even as the most acute phase of the coronavirus crisis hopefully abates, transit will enter a death spiral of lost revenue, service cuts, and ridership losses from which it’s incredibly difficult to recover.” The best way out for everyone? Much closer future coordination between ride-sharing, micro-mobility and mass transit. Look for the pandemic to be a catalyst for these different urban transport modes to start working much more closely together – most likely at the behest of regulators.
5. Even less likelihood of a global climate deal. The past few years have not been kind on efforts to achieve a global deal on climate change. As noted by Infrastructure Ideas and others, climate-related projections continue to get more dire, and keeping temperature rise below 2 degrees – or perhaps even 3 – will require taking existing coal-burning plants out of commission before the end of their technical life (see our Money for Coal column). The upcoming recession will not be enough to turn things around on emissions, but it will make it far harder to implement plans to pay emitters, workers and affected regions to move faster away from coal. Emissions may be down in the short term, but look for things to get worse in the medium-term.