Greater private sector participation in infrastructure urged

MANILA, Philippines — With public funds not enough to meet infrastructure needs, European businesses are calling on governments in Southeast Asia to create a favorable environment to encourage greater private sector participation in projects.

In a report titled “Bridging the Gap: Funding of Sustainable Infrastructure in ASEAN (Association of Southeast Asian Nations),” the European Union – ASEAN Business Council, which serves as the sole voice for European business in Southeast Asia, offered recommendations on how to fund infrastructure projects in a sustainable manner.

While infrastructure demand in Southeast Asia is expected to grow further due to urbanization and an increase in economic activity until 2030, public funds are insufficient to address the need for new infrastructure or even upgrade or maintain existing infrastructure.

Citing estimates from the Asian Development Bank, the EU-ASEAN Business Council said average annual infrastructure spending in ASEAN is estimated at $184 billion and there is a current funding gap of nearly $100 billion.

In the Philippines, the government is implementing the Build Build Build program, with infrastructure development among its top priorities to create jobs and achieve sustained inclusive growth.

The council said the private sector could play a key role in financing infrastructure development in the region.

“There is no doubt there is a significant interest from both financial institutions, such as banks and insurance companies, and infrastructure construction and operating companies, to be more involved in the region. However, governments still need to ensure that the right conditions are in place to attract private sector support,” the council said.

For public-private partnerships, the council said these should provide a win-win for all stakeholders.

“To achieve this, a general principle for arriving at the best available structure is to apportion the risks to the stakeholders best able to handle them. In order to do so, the nature of inherent project risks in the first place must be identified,” the council said.

As banking regulations discourage banks from making long term loans or equity investments in infrastructure due to risks for individual banks and the sector, the council said capital market development and non-bank funds would provide alternatives to financing projects.

Given available funds in the global capital markets, the council recommends standardization of reporting, documentation, and benchmarking in ASEAN to make financial markets investable.

The council also proposes the creation of a regional capital market hub to build critical mass behind a new infrastructure asset class.

To encourage greater participation by insurers in long-term investments, the council said there is a need to improve investment conditions and offer non-discriminatory regulatory regimes.

EU-ASEAN Business Council said it, likewise, wants to see more initiatives to expand blended finance, which will involve sharing of key risks between the public and private sectors, to get more funds for infrastructure projects.

The council said ASEAN could collectively work with the private sector and development banks to develop an ASEAN blended finance tool box to help standardize instruments to address common risks associated with sustainable infrastructure projects and meet the investment requirements of different sources of financing.

Amid the coronavirus disease 2019 or COVID-19 outbreak, the council said the recommendations are timely as having the right infrastructure would help facilitate further investment in ASEAN in a post-pandemic scenario.

“Investment in sustainable infrastructure will drive a ‘green recovery’ from the pandemic, not only creating jobs but also improving health and mitigating climate change,” Donald Kanak, EU-ASEAN Business Council chairman and Eastspring Investments chairman, said.

“Investments in physical and social infrastructure, including education and digital health, will also help close financial and development gaps and position ASEAN for inclusive growth in the post- COVID hyper-competitive digital economy,” he added.