Connectivity counts

Mark Rathbone, Advisory Asia Pacific Capital Projects & Infrastructure Leader at PricewaterhouseCoopers, discusses Southeast Asia’s connectivity needs

June 23, 2014

Mark Rathbone, Advisory Asia Pacific Capital Projects & Infrastructure Leader at PricewaterhouseCoopers, discusses Southeast Asia’s connectivity needs

What are the biggest infrastructure challenges?
The very substantial infrastructure deficit that currently exists in Asia requires around $2 trillion of investment per annum over the next 10 years. The deficit exists across all aspects of the infrastructure market – such as transport networks, power and utilities, water infrastructure, housing, healthcare and education.
Where do you see main obstacles?
At a basic level, there is a lack of capacity and experience across the emerging markets in government procurement departments, advisors, constructors and operators. Although there is capital available in the market, inequitable risk allocation and non-viable projects with no government subsidies will result in less projects coming to market successfully.
The regulatory frameworks across the emerging markets are not developing fast enough and capital is migrating to markets that address concerns of investors by structuring projects effectively – a lack of progress in the emerging markets will result in less capital being available for emerging market infrastructure and reduced levels of growth due to either ageing or non-existent infrastructure.

Photo: supplied

Are Asean member states ready to form the Asean Economic Community (AEC) with regard to their infrastructure?
The AEC will act as a catalyst for more robust infrastructure investment. Is there sufficient infrastructure across all Asean countries to allow efficient flow of people, goods and capital across borders? No.
A lot needs to be done to improve infrastructure stock across the Mekong region, the Philippines and Indonesia to more effectively connect these territories.
Which infrastructure sectors are most attractive?
Power and water predominantly – mainly because there is precedent on past deals with relatively clear tariff structures and relatively well thought through risk allocation.
The transport sector offers some strong opportunity, but projects are generally complex, highly capital intensive and struggle to get off the ground.
As is normal for emerging markets, the main focus area of infrastructure development in governments is “economic infrastructure” – the infrastructure that powers an economy, such as power and utilities, water, transport networks.
However, too little attention is given to social infrastructure like housing for the less well-off, public education and public healthcare – the majority of regional emerging market governments do not have the appetite to divert capital to these sectors at this stage.
Will Asean be able to attract enough funds?
If Asean countries address some of the existing barriers to investment, then they should attract capital. However, a failure to better address the needs of investors will result in capital being diverted to markets that are more investor friendly.

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