The acceleration of digital
Two areas have been at the forefront of this transformation: technology and infrastructure. But while these areas appear distinct on the surface, if you dig a little deeper it is not hard to see that significant future change is being driven by one thing – the digital revolution.
Yet, the transference of so many of our daily habits from the physical to the digital world has enabled the already dominant technology titans to become even bigger, and in the case of online retail, even more dominant. Recent earnings reports have shown that the five biggest technology companies made a combined $75 billion in after-tax profits in the second quarter of 2021 alone. That figure is nearly 90% higher than the previous year and exceeded already high expectations1.
The tech titans haven’t had it all their own way, however. New companies have become household names during the pandemic, especially those offering video conferencing services and other remote working technologies. And the monopoly on television streaming services was broken down by the emergence of several new entrants into that field – although some of these were arguably already household names.
Interestingly, the ease of remote working has also meant that Silicon Valley’s stranglehold as a technology hub has been disrupted. Amid global lockdowns, successful new software and technology companies have emerged in remote corners of the world as cloud technology means they are no longer forced to be in specific locations.
The success of biotechnology in developing new techniques around genomics and messenger RNA (mRNA) were quick to create Covid-19 vaccines. But this technology can and will be used to develop other vaccines as well as address other medical issues. The tech transformation of medicine is only just commencing. Additionally, the day-to-day delivery of medicine has also been revolutionised during the pandemic. Doctors are now using telemedicine in their daily practice to provide medical assessments and advice in a transition that could be particularly transformative for emerging markets.
The pandemic also led to an uptick in automation, particularly among service industries where social distancing kept many workers away from their places of work. However, the legacy of this acceleration in automation may have a negative impact on jobs in these areas.
As with each generation of the digital evolution, 5G is set to transform how we use technology as its improved speed and scale is expected to open up the market for smart connectivity, the increased use of big data, artificial intelligence and the automation of vehicles. Estimates suggest that 5G could unlock around $4.3 trillion in value globally3. Previously, the roll-out has been held up by concerns about using Chinese-backed providers in the core 5G infrastructure, but other – less contentious – companies can provide these technologies so the promise of 5G could soon become a reality. A significant step forward will be President Biden’s infrastructure proposal in the US, with the slimmed down $1 trillion just having received approval in the Senate.
The provision of satellite broadband is also well underway, which promises to extend global internet coverage to rural and remote areas of the globe that are not currently well-served by existing services and could be particularly transformative to those in the developing world.
Governments may need to reconsider existing planned infrastructure projects, such as airport expansions or changes to public transport systems to reflect the long-term reduced demand for such facilities. Instead, their attention may shift away from centralised infrastructure projects to support an upturn in localised needs.
Transport is a key area for transformation that could be highly disruptive. Aside from the much-discussed need for more environmentally friendly electric vehicles, the concept of transport-as-a-service will require significant infrastructure changes. If fewer people actually own their own vehicles, then car parks could be turned into communal charging stations and could eventually form part of the electricity grid in a bid to smooth out supply bottlenecks. Improved connectivity through 5G and greater use of cloud technology could help cities optimise waste and water management systems, as well as introduce smart mobility solutions to ease traffic congestion and reduce pollution.
However, any new infrastructure development will also need to place heavy emphasis on sustainability. ‘Build back better’ rhetoric will need to be backed-up by using sustainable building materials with an aim to reduce the environmental impacts of any new projects. Smart Infratech has the potential to create a better, cleaner more efficient environment for city dwellers and this opportunity should not be wasted.
At BNP Paribas Asset Management, we believe it is essential for investors to distinguish between which of these opportunities will turn out to be short-lived fads or will become solid transformational trends. The answers will present opportunities for investors that might be difficult to imagine today. That’s why we look to the future and investigate before we invest.