Wiebke Schloemer, an infrastructure expert at the International Finance Corporation, discusses the challenges arising from the region’s pressing need for improved connectivity
To what extent do infrastructure issues shape developing countries’ economic growth path?
Infrastructure connects people, countries, and markets and is therefore critically important for development. Infrastructure alleviates poverty, creates jobs, enables growth and is central in the fight against climate change.
The needs are enormous and the financing gap is huge. Some estimates put Asia’s overall infrastructure investment needs at $8 trillion between 2010 and 2020. But the main challenge isn’t that money isn’t available.
The main challenge lies in putting the available money to work for commercially and developmentally sustainable infrastructure. The key task is to structure bankable projects with acceptable risk and return profiles that enable investors to finance these in an efficient manner.
What needs to be done to achieve this?
Challenges in the regulatory and business environment need to be addressed. Clear requirements and strict adherence to regulatory frameworks would increase investor confidence. Governments need to be fully committed to private sector involvement in large-scale infrastructure projects. Finally, the ability by governments and other stakeholders to manage significant infrastructure projects needs to be built.
Which sectors need investments most urgently?
Balanced investment across all types of infrastructure generally makes sense. Looking at Southeast Asia, areas with scope to do more include urban mass transit and enhanced cross-border energy connection.
Are the region’s connectivity goals for the Asean Economic Community (AEC) realistic, in particular with a view to a more liberalised flow of skilled workers, the open skies plan and other connectivity objectives?
The goal of Asean is the free flow of goods, capital and people. The free flow of labour will depend on how cooperative countries will be in relaxing immigration rules and issuing work permits in a timely fashion.
There is also a lack of skilled professionals from engineers, surveyors, legal, accounting all the way to electricians, carpenters, plumbers, etc. Moreover, in the infrastructure sector, there often is a limited understanding of international safety standards.
A large majority of Asean countries import lead project management roles from developed markets abroad. Local labour is mostly used for basic work, particularly across the Mekong delta, Indonesia, Myanmar, Thailand, etc.
Governments’ infrastructure investments traditionally compete with expenses for health care and education. Would it be advisable to get more private investors on board e.g. with Public-Private Partnerships (PPPs)?
Yes, PPPs, if structured right, can bring financial stability by bringing a commercially minded private investor into a project while at the same time delivering the public goods governments need to provide to their citizens. Relative to some other regions, Southeast Asia is underweight on PPPs. There’s room to do a lot more.
What other funding sources – apart from PPPs – should be tapped into?
It’s always advisable to have access to the broadest possible range of funding sources. Healthy sovereign, sub-sovereign and corporate capital markets can each play a valuable role.
What have governments and enterprises to do to ensure that Asean’s economies keep abreast of rising connectivity needs?
Clear government policies and consistent commitment to those policies are extremely valuable in mobilising private sector participation. While this may sound simple, it can prove quite challenging in practice.
How can governments address the huge difference in connectivity between urban and rural areas?
Part of the answer lies in using smart infrastructure that connects people with markets in an easy to use, cost-efficient and reliable way. The telecoms revolution in the Pacific is one example where mobile phone penetration jumped to more than 60% today from less than 10% in 2006, yielding enormous benefits for trade and commerce among this vast region, with producers and consumers spread across more than three million square miles.
Directly linked to mobile technology is modern financial infrastructure, which makes banking services available in regions with sometimes no bank branch within a hundred-mile radius. In Papua New Guinea, for example, where no more than a fifth of the population has access to banking services, IFC and partner Bank South Pacific have helped to link up farmers with technology that now allows them to be paid electronically through mobile phones or tablet computers.
It’s cheap, fast, and safer than transporting cash by road where crime is rampant.
To what extent could the Fed’s monetary policy tightening hamper Asean’s target to enhance connectivity?
While any dislocation in the global capital markets would impact the region, Asean tends to have considerable sources of funding while experiencing a shortage of viable PPP projects.
Is Southeast Asia too dependent on foreign investors and donors?
Many Southeast Asian economies took a hard knock during the Asian financial crisis in 1997. Since then, many have taken steps to strengthen domestic banking and capital markets. Some markets are now dominated by local commercial banks and locally listed companies – with foreign investors and donors catalysing new areas and acting somewhat as a safety net.
Should Asean focus more on building up green infrastructure and how could such – usually more expensive – investments be financed?
Going too far with technologies that require subsidies carries real risk. While big economies may be able to place larger, medium- to long-term technology bets, Asean member states may wish to focus on technologies that are already commercially viable, or on the cusp. This is a growing list.
What role do language barriers play in connectivity?
Among the political and business communities in Asean, English is quite common. However, connected markets reach deeper than just the elites. In the Mekong countries, also in Indonesia and Myanmar, education is often poor and English language skills are lacking, posing a competitive disadvantage.
How will the Southeast Asia-Western Europe submarine cable, which will dramatically increase internet speeds, provide opportunity for development in the region?
Reliable and affordable access to data is one of the main priorities in the region as governments are aware that investments in broadband infrastructure and expanding broadband services are a powerful economic ‘equaliser’ that enables better access to knowledge and opportunities, driving productivity improvements for individuals and enterprises and boosting overall economic growth.
In this sense, the new cable will play a major role as it will increase the data transmission capacity in the region.