The Asian Infrastructure Investment Bank (AIIB) is keen to invest alongside institutional investors and the private sector into infrastructure funds to step up healthcare financing after the pandemic showed inadequacies in health systems.
Principal economist Jang Ping Thia said investing in infrastructure funds with the private sector is one of four ways to scale up healthcare, citing the bank’s previous commitments to vehicles including India’s National Investment and Infrastructure Fund (NIIF). Its Philippines-headquartered peers Asian Development Bank (ADB) and NIIF have on March 30 announced plans to invest up to $100 million in the NIIF fund of funds.
The other three strategies under consideration include forging public-private partnerships, working directly with countries in need of emergency health financing, and co-financing together with other international organisations. Last Friday, the bank pledged an initial $5 billion crisis recovery facility that aims to finance both public and private sector entities seriously impacted by the pandemic.
Thia said the bank is “thinking in months, not years” to bring about such plans.
This is potentially the most effective route in bringing in much-needed institutional capital from asset owners in the sector because investors normally go through fund managers for their infrastructure allocations, Thia said in a phone interview.
However, the bank has not started engaging with fund managers."Healthcare is a relatively new sector to us. Hence, we need to work with high-quality fund managers who understand the sector well," said Thia.
Still, the pandemic has already led the bank to step up financing for social infrastructure, which includes public health, healthcare and ICT (information and communications technology).
“We are working very fast to finance the healthcare infrastructure in China that arose because of Covid-19,” Thia said. AIIB proposed earlier in March a project to provide emergency assistance to China's public health facilities.
Overall, AIIB’s new financing efforts will likely translate to more bankable infrastructure projects for asset owners, particularly in the healthcare and telecommunications sectors, including development of fibre optics and data centres, an investment manager at a European pension fund told AsianInvestor.
“They have a developmental angle, so for projects that aren’t commercially viable yet they can fill the funding gap,” the executive said. He likened AIIB’s role in financing greenfield projects to that of angel investors in funding start-ups, adding that institutional investors can step in with their investments when the projects mature.
According to a 2017 estimate by ADB, rising infrastructure needs in Asia will require as much as $1.7 trillion per year. The potential returns from funding these projects, such as water sanitation in South Asia and Indonesia, can be “extremely high”, Thia said.
The returns of healthcare and public health projects can be as high as 20% because these projects tend to be huge, he said. These facilities will not only improve people’s quality of life but they will also lead to more economic activities in the surrounding areas.
However, official spending on infrastructure may be subdued in the short term as governments prioritise stabilising their economies during the outbreak, mending supply chain disruptions and protecting the financial markets, Thia said.
“But I think, once the peak of the crisis passes, hopefully in the second half of the year, policymakers will start to think very hard about scaling up infrastructure spending because Covid-19 has really underscored the importance of this type of infrastructure,” he said.