A wealth of opportunities is emerging in Southeast Asia and beyond in the midst of de-coupling between the US and China, said panellists at a session titled ‘How to play Asia’s infrastructure supercycle: Digitalisation, Decarbonisation, and Deglobalisation‘ at the Asia PE-VC Summit 2023 in Singapore.
The crucial factor, however, is not just the supply of capital but ensuring that the opportunities are readily accessible, they concurred.
Takeshi Sasaki, partner at Advantage Partners, said: “As a region, ASEAN is quite large and growing rapidly. But it is more like a tapestry, with different markets and economic situations, because of which a local partner is required in each region. It is, therefore, possible that the speed of rollout will take some time, and regulatory illustrations will be different.”
Kyle Shaw, founder & managing partner at ShawKwei & Partners, pointed out that Southeast Asian businesses enjoy a number of advantages, one of which is their ability to source from China.
“For example, we still source a tremendous amount from the Chinese bases, while the final processing is done in Southeast Asia before being shipped to North America and Europe. This is a necessity, as there is no infrastructure here. However, this is changing, with Southeast Asia gradually building a more robust supply-chain infrastructure.”
“For instance, one of our portfolio companies, ICONS Beauty Group, used to rely on China for 70% of its supplies and Taiwan for the rest 30%. To mitigate risks and adapt to changing trade dynamics, we initiated local production in Thailand, acquired a business in Australia, and recently purchased a factory in North Carolina. This strategic expansion allows us to diversify production locations, reduce transportation emissions, and cater to customers with a growing concern for carbon footprint reduction,” Shaw explained.
Delphine Voeltzel, Managing Director of OMERS Infrastructure, said, “It’s not a move away from China as it is more about examining the potential investment opportunities in these countries. From an infrastructure perspective, Asia, especially countries like India, is an attractive region for our company.”
She credited this to the regulatory system as well as political stability and other incentives the governments in these regions provide for infrastructure investors.
The India factor
The Indian government has been proactive in addressing issues such as high taxes, power costs, infrastructure, etc., according to Sanjay Gujral, Chief Business Officer, Everstone & Eversource Capital.
Economic growth and formalisation will continue to throw up opportunities to build all kinds of infrastructure in India and SE Asia. “We continue to see strong demand on the logistics side. The China Plus One strategy, coupled with proactive government action like the PLI [Production-Linked Incentive] scheme in India, is throwing up another set of opportunities. The PLI scheme aims to strengthen the country’s production capabilities,” said Gujral.
Furthermore, the government of India is pursuing building blocks for local manufacturing, which may present an exciting opportunity; for instance, in all IoT devices. “Whether it fructifies in the immediate term remains to be seen, but these building blocks will nonetheless gain momentum and should continue to grow steadily,” he added.
Energy shift & digitisation
There is also the opportunity in energy transition which is being capitalised on by each of these players.
However, as Vogeltzel explains, the regional thesis in this sector differs from that in Europe and North America. Typically, the goal is to replace fossil fuels in Europe and North America, while in Asia, the goal is to build new, clean-energy capacity.
“In India, for example, there has been a significant increase in the use of renewable energy over the last eight years. Southeast Asia is relatively new in the field, but the governments are willing to invest more in it. As countries begin putting in place frameworks that allow investors like us to invest without risking their funds, I believe it will attract more investments in the region related to energy transition as well,” she added.
Shaw also alluded to the importance and emphasis their customers place upon reducing their carbon footprint. In his opinion, this will also begin to take place in the next several years, as infrastructure and supply chains will begin to reorient to other areas very quickly over the next several years.
The climate imperative, according to Gujral, has been building up. He believes climate change is a global problem that needs urgent and multipronged approaches.
According to Sasaki, capital for green energy transition projects cannot be funded by the government alone. In his opinion, private investors may also play an important role in this segment.
Shaw pointed out that harnessing solar power is an important aspect of clean energy. The firm, he said, is also focused on the solar space. Hydrogen is another area where there is a huge opportunity, he added.
Digitisation is also a big component of an operating playbook across all strategies for the industry. And this does not happen in isolation. One aspect of this is the physical infrastructure component — it requires building out support for EV infrastructure, batteries, mobile devices, data centres etc.
For instance, in Europe, OMERS has invested in platforms that expand fibre networks, while in Australia, they have supported a business that builds and manages telecom towers. And these are the types of businesses that OMERS perceives will be established in India and Southeast Asia. “The huge push towards digitisation in India and Southeast Asia spells huge opportunity for us,” said Voeltzel.
