Asian Emergence

Asia is a dynamic, rapidly growing region that strives to manage effectively with both its diversity and its growth. A major focus in the region, and an engine for growth, is trade. East Asian economies have the highest trade to gross domestic product (GDP) ratio in the developing world, which stands at 75% excluding Japan. From 1990 to 2005, East Asian trade, excluding Japan, grew by over 11% per annum while the Association of Southeast Asian Nations (ASEAN) experienced a per annum growth rate of just over 10% (Table 1 [ PDF 15.1KB | 1 page ]). In contrast, over the same period trade expanded by just over 6% in the European Union (EU), nearly 7% in North American Free Trade Agreement (NAFTA) member countries, and Mercado Comun del Sur (MERCOSUR) countries trade grew by 8.7%. Intra-regional trade grew by even greater amounts in Asia. East Asian intra-regional trade grew at a per annum rate of 13.4% and trade within ASEAN grew by 12.4%. Thus, increasingly, the fuel for trade growth is coming from within the region.

In addition to trade, there has been a substantial increase in the movement of people (for work and tourism) within the region. For example, intra-ASEAN travel increased from 11 million tourists in 1994 to 23 million in 2004 (Nangia 2006). As Asian integration, and hence interdependence, deepens, the demand for physical connectivity will only increase. However, Asia lags behind other regions in terms of infrastructure investment, casting doubt on its ability to meet this demand.

As shown in Table 2 [ PDF 17.4KB | 1 page ], Asia’s total road network grew at a much slower rate than that of Group of Seven (G7) economies, despite G7 countries having more established road networks. Among developing regions, Asia has a fairly strong road network. By 2003, 32.3% of roads were paved in East Asia and the Pacific compared with 26.8% in Latin American and the Caribbean, 53.9% in South Asia and only 12.5% in Sub-Saharan Africa (World Development Indicators [WDI] 2007). However, these relatively strong numbers mask the diversity of the Asia region. For example, in 2003, only 14% of roads were paved in the Lao People’s Democratic Republic (Lao PDR), and 22% in the Philippines, while in Malaysia, 81% of roads were paved.

Net electricity generation has grown rapidly in the region (6.7%), yet it still lags behind Latin America in terms of power consumption (in kilowatt-hours) per capita. Telephone usage in Asia – telephone and cellular lines – has increased faster than the world average, yet again, the region lags behind Latin America. Indeed, with the recent exception of paved roads, the Asian region lags behind Latin America on most infrastructure measures (Figure 1 [ PDF 18.3KB | 1 page ]).

The sustained growth in the East Asia and Pacific region of over 7% annually for the past 15 years has steadily increased the demand for infrastructure. This demand has varied in nature and magnitude depending on the evolving structure and rates of growth of specific economies. Growth in urban populations, and the need to feed those populations, increases pressure on transport, water, and sanitation systems. It is estimated that over the next five years, Asia will require some $37 billion annually for investment in transport alone (Sharan et al. 2007).¹ Asia makes up more than half of the world’s anticipated annual infrastructure investment needs (Table 3 [ PDF 13.9KB | 1 page ]).

While, land transport has increased across the region, much still needs to be done. The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) estimates that $18 billion is needed to develop and upgrade the 26,000 kilometers of roads necessary to complete the Asian Highway (ESCAP 2006); an additional $13.5 billion is needed to close the 13 “missing links” in the trans-Asian Railway. As inland sites are increasingly developed through inland container depots (ICDs) and intermodal connections expand and upgrade, a level of investment of close to $5 billion will be required for the continued construction of these ICDs (ESCAP 2006). India alone has widely reported its need for transport upgrades will exceed $500 billion over the next five years.

In addition to roads, the rapid growth of trade in Asia has been accommodated through the introduction of larger container vessels and the expansion and diversification of feeder services that is logistics services that support the movement of goods in the region. While container port investment is expected to rise substantially in the next ten years, bottlenecks, primarily in public ports, have hampered the opportunity for further trade expansion. In addition, bureaucratic processes have delayed the necessary expansion of infrastructure investment. From 2000–2005, developing economies in the Asia-Pacific spent only $1.7 billion on investment and maintenance of container ports. However, that number is expected to increase almost 40% between 2005 and 2010, and to double between 2005 and 2015 (ESCAP 2006). Viet Nam alone plans to spend US$4.5 billion on new port facilities over the next five years.

The changing geographic distribution of people also puts pressure on infrastructure systems. Cities account for some 70% of the region’s GDP growth and this trend is likely to continue. By 2025, East Asia will absorb almost 500 million new urban residents and achieve urbanization rates of over 50%. In 1990, 33% of Asia’s population lived in cities; by 2006 it was 41% (ESCAP 2007). Increases in population and the pace of motorization, coupled with a rise in incomes and accelerated, unplanned suburban growth, will disproportionately affect the mobility and living conditions of the poor, who are often rural migrants with limited access to motorized transport. Growing numbers of supermarket chains, characterized by central procurement and distribution systems, a broader geographic range of operations, and fewer but larger volume suppliers, reflects pressure to keep food costs relatively low while coping with the complexities of the urban environment. The ability to deal effectively with these trends will drive the region’s economic performance. Lowering transport and logistics costs remains the key challenge for countries if they wish to stay competitive. For example, logistics costs accounted for approximately 10% of the United States’ (US) GDP in 2002, while they comprised 17.9% of GDP in the People’s Republic of China (PRC), and 17.4% in India. Further, logistics costs in both India and the PRC have increased since 1997, while those in the US have fallen (Rodrigues et al. 2005).

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