Conclusion: The Future of Cross-Border Infrastructure in Asia

Economic growth and poverty reduction in Asia are closely tied to its ability to reap benefits from regional economic integration. Though logistics have not yet become a serious constraint, action will be required to enhance both the quality and quantity of infrastructure to improve overall efficiency. Growing cross-border economic activities in Asia have important implications for the demand for infrastructure development in the region. Infrastructure needs for feeder seaports and logistics services, among others, will continue to rise rapidly.

With the emergence of the PRC and India as important destinations for exports and sources of imports, cross-border connectivity with different regions of these countries features prominently in Asia’s infrastructure development plans. For the neighboring economies in Southeast Asia, South Asia, and Central Asia, export-related transport and logistics will be particularly important, especially those geared toward serving the PRC and India. For poorer countries and poorer areas within countries in which infrastructure is a major constraint to expanding economic opportunities, improved access to larger regional markets will be key to economic success. The efficiency of cross-border infrastructure connectivity will be an important determinant of a country’s prospects for economic growth, employment creation, poverty reduction, and social improvement.

Through greater investment in logistics and infrastructure, Asia can further strengthen its productivity and competitiveness. It can gain more from improved connectivity—such as cross-border transport corridors on land and a series of feeder ports and regional hubs—for promoting exports and imports. Connectivity can be increased by improving overall efficiency: by building, rehabilitating, upgrading, and modernizing infrastructure services, equipment, and facilities; supporting capacity building for asset management and maintenance; coordinating cross-border services and harmonizing regulations, procedures, and standards; and facilitating trade and customs. Various stakeholders need to work together to ensure success in this difficult area.

Governments

Asian governments need to play an increasingly important role in cross-border infrastructure, even when projects are handled by the private sector. Their role includes planning at the regional level, coordinating policies and procedures, creating credible legal and regulatory policy regimes, strengthening infrastructure governance (transparency and accountability in financial management), and sharing risk. Cross-border infrastructure requires harmonizing rules and regulations covering the environment and social aspects and crafting policy regimes for private- sector participation.

Asian governments can take several steps to ensure these considerations are taken into account. First, candidate projects and programs for cross-border infrastructure should be identified that enhance the region’s trade and integration agenda. Strong political leadership is needed to support such cross-border infrastructure arising from a vision of regional cooperation and integration based on improvements in transport and logistics efficiency and market expansion for the entire region. Asian governments need to reorient existing partnerships to deliver greater regional connectivity.

Second, Asian governments should integrate cross-border infrastructure projects and programs into their countries’ own development plans, to demonstrate their willingness and commitment to support such initiatives. They could then establish institutional arrangements to support collaborative cross-border infrastructure projects for technical coordination, legal and regulatory coordination, and risk sharing that are inevitable in such projects and programs. It is important for governments to develop a strong, credible partnership, based on mutual trust.

Third, Asian governments could strengthen their collective work to mobilize a large pool of regional savings for "bankable" regional infrastructure investment. Strengthening national and regional bond markets—though such initiatives as the Asian Bond Markets Initiative and the Asian Bond Fund—is one of the first steps in creating a viable source of infrastructure financing to tap these Asian savings. At the same time, governments can make joint efforts to help create bankable projects through concerted national reforms to improve policy and regulatory environments and infrastructure governance.

The Private Sector

Though the role of the private sector in cross-border infrastructure has been somewhat opportunistic, the sector has brought real "additionality." Several successful cross-border infrastructure projects demonstrate that where relationships are governed purely by commercial considerations, differences are more easily resolved. Given the public sector’s resource constraints, the private sector will have to play an increasingly important role in cross-border infrastructure. There are substantial financial rewards to be derived from regional or subregional cooperation in such sectors as energy, telecommunications, and transport.

The private sector is expected to play a critical role in this process, in several ways. First, it can bring additional financial and technical resources for cross-border infrastructure. Together with governments and other development partners, it can undertake commercially viable cross-border infrastructure investments with an acceptable risk profile.

Second, the private sector can provide the enormous resources needed for improving cross- border connectivity through national and cross-border infrastructure investment projects. To dispel the past perception that these partnerships are often opportunistic and not based on mutual trust, the private sector should be encouraged to act as a reliable and dependable partner. It needs to develop a long-term view of returns and rewards, as infrastructure projects and concessions are long-term business ventures.

Third, there is no better strategy for risk sharing than to reduce the overall risk for the project. Due market and financial diligence remains fundamental to a successful cross- border infrastructure.

Civil Society

Most cross-border infrastructure projects and programs are high-profile investments. Civil society organizations are often critical of them or even oppose them, for several reasons. First, these groups often have serious concerns about the environmental and social costs associated with large infrastructure projects or programs. Second, the asymmetric distribution of costs and benefits among stakeholder groups induces them to pay greater attention to the people who bear the brunt of the costs in terms of loss of land, property, and livelihood rather than the majority of people who benefit from the project. Third, unlike national projects or programs, cross-border projects involve no single jurisdiction. It is thus difficult to ensure a fair system of compensation and processes.

Civil society organizations have a useful and constructive role to play in enhancing the overall outcome of cross-border projects. Most important, civil society can provide a rigorous system of screening and monitoring cross-border infrastructure to ensure that transparent processes are in place for project planning, design, and implementation and for a fair distribution of costs and benefits among different groups of stakeholders. In this way, civil society can give voice to stakeholders who are adversely affected by projects.

Multilateral Institutions

Regional connectivity is a public good with high externalities. Hence multilateral institutions have a crucial role to play in cross-border infrastructure projects. In the European Union, financial instruments are available to identify and design cross-border projects, in order to develop a large internal market and strengthen intraregional connectivity and regional competitiveness. The European Community budget finances part of these costs using "structural funds" at below market rates, involving some form of subsidy, to promote cross- border infrastructure; the European Investment Bank plays a significant role in funding the projects.

In the GMS, the ADB has provided financial resources and capacity building through its technical assistance program. Multilateral institutions like the ADB can play a special role in ensuring that cross-border infrastructure complements the work being done by local governments and other stakeholders in all areas identified in the framework. They can help in the process of integration, regionally and as part of the larger globalization process.

The role of multilateral institutions in cross-border infrastructure includes many facets. As financiers, multilateral institutions can provide loans and other risk mitigation instruments, such as guarantees, and help mobilize resources from other development partners, including the private sector. As knowledge partners and technical advisors, multilateral institutions can be provide expert advice, share lessons learned regionally and globally, and tailor knowledge to the specific needs of and conditions in the countries involved. As capacity builders, multilateral institutions can help developing countries and regional or subregional bodies strengthen their institutional and human capacity to manage cross-border infrastructure, particularly for strengthening infrastructure governance (for example, financial management) and supporting software and institutional aspects. Perhaps most important, as honest brokers, multilateral institutions can play a catalytic role in cross-border infrastructure projects, bringing countries and other stakeholders together impartially and facilitating the dialogue and discussion process so that countries can reach political convergence to strengthen cross-border connectivity.

Financial and technical appraisals are important inputs for multilateral institutions, but so are environmental and social appraisals to ensure the mitigation of negative impacts and a fair distribution of costs and benefits among different stakeholder groups in the project design. Many regions have also benefited from specialized funds to support the identification, design, planning, and even financing of such projects. The success of the GMS program can be attributed, in large measure, to the ADB’s sponsorship of financial and other technical resources that supported the collective processes.

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Comment(s)

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1. Cristela Goce Dakila
   (posted 08 October 2007 / 04:59:52 PM)
   
   Overall, the focus of the paper , which is cross-border infrastructure for Asian development is very timely, relevant and far-reaching in terms of perspective.
   
   The paper is rich with valuable insights which are useful for policy planners and implementors. It also provides academic researchers with a multidisciplinary framework useful in addressing the urgent concern for Asian regional cooperation.
   
   Among the infrastructure types mentioned,transport infrastructure investment, I think, is the most vital in establishing inter-country connectivity via trade in goods and services and investments.
   
   I wish to suggest the usage of a spatial computable general equilibrium model as an analytical tool to examine the impact of cross-border infrastructure investment on both producers(firms) and consumers (HHs) and other stakeholders in a specific Asian sub-region.