The Association of Southeast Asian Nations (Asean) should establish macroeconomic and political stability to meet an estimated $60 billion a year to address the region’s infrastructure needs, a senior official of the Asian Development Bank (ADB) said.
Diwakar Gupta, ADB Vice President for Private Sector and Cofinancing Operations, noted that there is a huge amount of money available but flows into infrastructure is barely one percent.
“Basically because investors will only send in money where they are comfortable sending it. In the other words, you need to therefore create a matrix where the risk for investing is commensurate with the return,” he said during the second day of the recent Asean Business and Investment Summit (ABIS) 2017.
To attract investments into infrastructure, Gupta thus underscored the need for Asean to create conducive market conditions, establish effective dispute resolution and enact dependable laws.
He also proposed undertaking deeper capital market reforms, such as through innovative instruments, rating agencies and information communication technology (ICT), to establish a stronger local capital markets.
“Those are the things that we will need to do. Governments will have a very large role to play,” he added.
Gupta also cited the important role of public-private partnership (PPP) arrangements in increasing infrastructure investment requirements.
“And then there is running business, which the government can’t do, that has to be in private sector hands where efficiencies in execution can be leveraged. And I think that’s really the way forward,” he said.
“Philippines is doing very well on PPPs, (it has) put together a very large amount in the last 15 projects,” he added.
Tycoon Enrique Razon Jr., Chairman and Chief Executive Officer of port operator International Container Terminal Services Inc. (Philippines), said his company is focusing on the Philippines rather than other Asean members.
“I’m more concerned about the Philippines since we have a lot to do and a lot of catching up to. There are certain infrastructures which governments have to do and there are certain other infrastructure projects which the private sector can do and participate,” he said during a panel on infrastructure development.
Jaime Augusto Zobel de Ayala, CEO of conglomerate Ayala Corp., said multilaterals and foreign investments can also come into infrastructure.
“I think it is important to us to be able as a country to attract the investments necessary to bridge the gap in the kind of funding that it is needed to get our infrastructure up to its different level. That means cooperation from all us, (and) a set of standards that we could all live across Asean would help tremendously in creating that comfort level,” he further said.
The Philippines is expected to remain the fastest growing economy in the Asean this year through 2022, supported by the government’s infrastructure push and robust domestic private spending.
The Organization for Economic Cooperation and Development ‘s (OECD) Economic Outlook report for Southeast Asia, China and India projected the Philippine gross domestic product (GDP) growing 6.6 percent this year and averaging 6.4 percent from 2018 to 2022, about 50 basis points higher than 2011 to 2015.
“Consumption and fixed investments… will continue to fuel economic growth until 2022, mainly underpinned by robust remittance inflow from overseas workers, planned big-ticket infrastructure projects and the resilience of offshoring and outsourcing industry,” it said.
The report underscored the need for the Philippines to attract additional capital and efficient investments to keep up with demand for infrastructure development in the fast-growing economy.
“While the bond market could provide an alternative source of financing, these markets need further development; the ratio of the total outstanding value of local-currency bonds to GDP remains relatively small,” it said.
The report added non-traditional tools, such as levies to capture the appreciation in land value resulting from infrastructure development, could also be considered to raise revenues.
The OECD gave a rosy economic forecast of the Philippines which, along with Viet Nam, were expected to lead in growth among Asean-5 from now through 2022..
Asean-5 also includes Indonesia, Malaysia and Thailand.
Southeast Asia is poised to achieve average growth of 5.2 percent between 2018 and 2022, relatively unchanged from 5.1 percent between 2011 and 2015.
Among the bloc’s 10 member countries, Cambodia, Lao PDR and Myanmar are projected to grow the fastest from now through 2022.
“Growth prospects of Asean are anchored on robust domestic private spending and on the infrastructure initiatives presented by a number of governments,” the report said.
Over the medium term, however, China’s growth rate is expected to slow to an average of 6.2 percent amid its structural reform challenges; while India’s average expansion rate in the next five years will remain robust at 7.3 percent.