COVID19 - Challenge and opportunity

COVID19 - Challenge and opportunity

The past few weeks have been challenging for all of us, adapting to the new realities of a fight against an invisible enemy. The effects of the coronavirus touch every one of us in every aspect of our daily life and we owe a debt of gratitude to the nurses, doctors and healthcare professionals who are working so hard to deliver the services on which we all depend.

We have thought carefully about what we want to say to all our friends and partners, investors and stakeholders. We have deliberately taken our time to assess the incoming news, the response from governments around the world, and how to best fully align our operations in the current situation. We have examined and affirmed the resilience of our business and want now to share our assessments more widely.

Like you, we have given priority to the safety of our colleagues, our families and loved ones. Fortunately, the world is now better connected than ever, and though we at ThomasLloyd are working remotely where appropriate, we are not working alone. We are a team and we stay strong together.

The current crisis highlights the need for reliable infrastructure and energy security. All our electricity plants already in commercial operation continue to supply electricity to the grids. Construction on new sites is being slowed according to relevant emergency legislation and we remain committed to the health and safety of all our workforce. An unscheduled short-term delay of a few weeks or even months to a plant with an operating life of 25 years or more makes no material difference to our investments and to our business.

We remain committed to our core values as an impact investor, and as the crisis comes to an end, to get people back to work, to create new jobs and to invest in more sustainable infrastructure.

We take our communication with you very seriously and will keep you updated as necessary in the coming weeks.

The world around us is changing rapidly.

But it is not ending. For sure, economic activity is slowing; sometimes even to a halt. As we all practice ‘social isolation’, distancing ourselves from friends, families and the workplace, so a whole range of industries are suffering badly. Most obviously and most rapidly, travel, tourism, restaurants, hotels and bars. Then discretionary spending – fashion, leisure, cinema, theatre and gyms. As disposable incomes become stretched through lack of work, so we look at new ways to reduce expenditure, preserve cash and increase precautionary savings.

To some extent, the shortfalls in income can be alleviated by government action. Already, we have seen a fiscal response in the European Union, the United Kingdom and the United States. The Philippine Congress has announced a stimulus package of at least two hundred billion pesos (USD3.93bn), India is planning a stimulus of at least INR1.5 trillion (USD19.6bn) and elsewhere across Asia we see measures to support hard-pressed businesses and consumers.

Government help is both welcome and necessary. It helps confidence and builds resilience where cash-flows are uncertain and often precarious. Unfortunately, it is often difficult to target help in a timely fashion where it is most needed and there will be many cases of genuine hardship which simply cannot be eased by broad-based increases in public spending.

In the short-term, the economic situation is certain to get worse before it begins to get better. As well as the ‘demand-shock’ from lower incomes – corporate and household – there is a ‘supply-shock’ as globalised trade comes up against newly erected borders and interruptions to the free flow of people, goods and services. The first quarter of 2020 will be weak, but the second quarter looks set to be substantially worse with many countries suffering a drop in GDP far greater than was seen even at the depths of the GFC in 2008 – 09.

It would be easy – but wrong – to despair. The enormous volatility in stock markets and the resultant destruction of wealth provide daily reminders of turbulent times for investors. What seemed secure now seems fragile. Paper profits have not just gone unrealised, but have turned to losses. Savings plans are being reviewed, pension contributions reconsidered and investment strategies reassessed.

Importantly, however, we should remember what hasn’t changed. We still need food, water, electricity, communications and sanitation. Economic growth may have slowed but population growth hasn’t and nor have the demands which this places on infrastructure.

Changing patterns of work and socialising highlight our reliance on high-speed internet, mobile communiations, electricity and sanitation. Home life has changed dramatically, even over the last decade and ‘self-isolation’ would be significantly worse without our smartphones, laptops and social media to keep in touch with friends, families and colleagues. We expect clean running water, an uninterrupted power supply and efficient waste disposal.

We cannot know how long these current challenges will last. But as we take time to reflect what is truly important in our lives, we can see that a modern infrastructure – fit for purpose in this 21st century – is absolutely central to it. This is as true in Asia as it is throughout the Western world and across all the countries of G7.

Infrastructure is not something we should just take for granted. It must and will play an active part in the economic recovery we can all look forward to. The development of infrastructure is both capital and labour-intensive. It requires a lot of money and creates a lot of jobs. The Impact Reports we have produced for the Philippines and India show the multiplier effects of infrastructure spending; increasing incomes, supporting business and improving the quality of life in the communities in which we operate.

We all have our own examples of services that could be improved; a road or a school that needs repair, a hospital which must be expanded, and a significant increase in the supply of affordable housing. All of these need a stable and secure energy supply, raw materials, knowledge and money. There is a role here for both public and private capital, working together at scale to mobilise labour, create employment, increase houshold incomes and provide the financial security which the events of 2020 have so cruelly threatened.

A better life – for ourselves, our children and grandchildren – is what drives us to work, to innovate, to invest, to build and to provide financial and physical security. Clean and reliable energy, improved sanitation, better housing and improved outcomes for health, education and welfare can all be delivered as part of a global post-virus economic stimulus package.

Governments are beginning to announce their own economic stimulus programmes. In most cases they are, understandably, statements of intent rather than specific measures. Nonetheless, these words matter, as do their aims and as will their deeds.

At ThomasLloyd we are proud of what we have already delivered with our direct investment in infrastructure projects across Asia. Both for our investors and for the the communities in which we operate, our mantra remains “Invest where our money makes a difference”.

As we face the future, we must invest even more, at scale and at an even greater pace.

The challenge – and the opportunity – is for everyone to come together with the same purpose.

Together, it can be done.