I often have to laugh when I hear people talk about ‘Asia Pacific’ as if it were one homogenous region. Yet nothing could be further from the truth; try comparing the development challenges now facing Indonesia or the Philippines with those of Australia or Japan. Indonesia, the Philippines and many other countries in Southeast Asia are dealing with significant development objectives and seemingly unstoppable urbanization. Australia and Japan, on the other hand, are experiencing aging populations, shifting economic trends and calls for infrastructure renewal as well as new investment.
This means the drivers for infrastructure development vary from country to country and city to city across the region. Even the diversity between neighbors can be dramatic (North and South Korea offering a prime example). Many countries in the region are largely focused on responding to pressures created by rapid urbanization and population growth. Those with burgeoning middle-classes are facing the pressure of growing consumerism and demands for more ‘livable cities’.
Economic and development goals also play an important role in defining the infrastructure environment in many countries within the Asia Pacific region. As our article on Myanmar and Mongolia shows, some are clearly working towards developing their economies through massive infrastructure investment programs. But the region is also starting to see the foundation of their economies shift as cost of labor rises in some countries, creating competitive advantages for others. As a result, we are seeing countries invest in infrastructure as a means of shifting their economic base (see our article on Singapore for a case in point).
One thing that is common across the region, however, is a growing sophistication in the way governments are planning, funding, delivering and operating their infrastructure. After decades of little to no ‘innovation’ in infrastructure delivery in many countries, the region has become a veritable hot-bed of change and new approaches.
Over the past few years, we have seen a remarkable increase in the number of projects being brought to market as public-private partnerships (PPPs) or private finance initiatives (PFIs). As our article on Indonesia notes, it had a book of almost US$50 billion-worth of PPP projects in 2013. Our interview with Professor Sun Jie, Secretary-General of the Public-Private Partnership Research Committee within the Public Finance Academy of China’s Ministry of Finance, demonstrates China’s renewed commitment to developing the quality and quantity of their PPP-led projects.
In other markets, we are seeing governments conducting secondary asset sales as a way to recycle capital back into new infrastructure development. Australia is an obvious example of this (see our interview with Sir Rod Eddington, the former Chair of Infrastructure Australia, for more on this), but other markets – Japan and Indonesia, for example – are also starting to look towards asset sales as a way of funding their infrastructure needs.
Governments are also starting to consider how they might start shifting the cost of their infrastructure to the consumer through user-pay approaches and tolling. However, affordability remains a key concern, particularly in countries where many still live on less than a dollar a day. As a result, many are now thinking about how to bridge the ‘viability gap’ between the cost of the service and the ability to recoup investments.
Observers of the region will also have noted a significant increase in regional investment, both in-bound and out-bound. China, South Korea, Japan and – increasingly – Australia have been enthusiastic investors, not only in greenfield projects, but also in secondary asset sales within the region. The formalization of the ASEAN bloc will only increase the pace and size of those investments as regional integration takes hold.
While progress has largely been positive and admirable, there are still some significant challenges facing many of the countries located within the region. For one, governments will need to engineer a quantum transformation in their capability to manage, identify and deliver the massive pipeline of projects now being planned. Without stronger capabilities – particularly in planning and structuring PPPs – few will be able to deliver on their infrastructure objectives (a sentiment echoed by Professor Sun Jie in our China article).
Policy reform will also be key in many markets as governments strive to improve their PPP environments and strengthen regulation in areas such as dispute resolution and contract certainty. Policy reform will also be key to improving the efficiency of markets, as illustrated by Japan’s current energy market reforms.
More than anything, governments across the region – regardless of their stage of development – must take some time to reconsider how they incorporate population and demographic shifts into their infrastructure planning and prioritization. As the main content of this edition of Insight clearly shows, it will be shifting populations that will largely drive the demand for infrastructure: and nowhere is this truer than in Asia Pacific.
To read the rest of our Spotlight Report on Asia Pacific’s infrastructure market, view the publication.