Infrastructure – badly needed
Southeast Asia has made immense development strides over the last 30 years but much more needs to be achieved, if countries in the Region are to reach their full economic potential. The challenge is most apparent in transportation, since ASEAN members still only have a fraction of the roads and railways found in OECD countries.
In fairness, however, the Region is a difficult area to develop, encompassing vast areas of land and sea. Extensive mountain ranges, tropical forests and huge rivers bisect many of the member states’ territory. Additionally, and the Philippines just got plenty of it, natural disasters regularly destroy infrastructure.
Building infrastructure is therefore a daunting, costly exercise and too great a task in many instances, for any one country to tackle on its own. Over the next decade, it is estimated that that Southeast Asian countries will need to spend a total of up to US$ 60 billion a year, to fully address their infrastructure needs.
ASEAN members, nevertheless, have made the development of infrastructure linkages one of the organization’s primary goals. In this, the aim has been to ensure cooperation and coordination of member states’ infrastructure projects and to ease economic and political barriers.
Vast expenditure will be needed in numerous sectors, including roads, railways, ports, energy projects, water and sanitation. During ECCP’s Water Challenge Forum on 8 November, the need for water and sanitation investments was highlighted and Water Czar Secretary Singson made it clear that only public-private partnerships will be able to address the challenges.
It is also obvious that political stability is essential for infrastructure projects, which typically take many years to develop. Power plants can take easily four / five years to plan, get them approved by government agencies and local governments, accepted by NGOs and the Church, and finally construct them. For capital intensive projects, predictability and consistency of government policies – both national and local – are vital for developers, so that they can calculate returns of investment.
Project execution is a big risk, with complex hurdles still to overcome, including issues such as land acquisition, right of way issues, temporary restraining orders or adverse ordinances of local governments.
More clarity in the legal framework and dispute settlement and a greater role for public private partnerships are needed for better development of infrastructure projects.
Private sector funding is becoming part of the mix for large scale infrastructure financing in Southeast Asia. However, the high degree of perceived risk on long term tenor infrastructure tends to deter private investment. The ASEAN Infrastructure Fund, created with ADB support in 2012, with initial equity contributions of US$ 485.2 million, could help mitigate these risks, providing financing for a portion of PPP. The AIF would help that governments don’t change the rules mid-stream and that integrity governs the process of getting projects approved and implemented.
Several ASEAN countries have already announced that they intend to apply for AIF financing for a range of developments, including an Indonesian shipping lane project and a cross-border project in Indonesia and Malaysia. The fund is expected to finance approximately six infrastructure projects a year. These are to be selected on the basis of sound economic and financial rates of return and for a potential impact on poverty reduction.
Establishing the fund is a watershed moment for the Region working together to finance infrastructure projects and ranks as the largest ASEAN-led financial initiative in the Association’s history. The fund will help forge road, rail and energy links that the Region needs to create a greater degree of well-being for its people and make the Masterplan on ASEAN Connectivity a reality.
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