ASEAN Infrastructure Development: Issues and Callenges

Infrastructure facilities (e.g., airports, seaports, roads, bridges, etc.) are important to a country in terms of attracting investment (especially FDI) and business. It influences where a company decides to locate an investment, build a factory, and establish a regional office, among others. A country's accessibility, the modernity and efficiency of its infrastructure is also major considerations.

ASEAN is rapidly developing, and thus its infrastructure, particularly transport sector is constantly changing. Economic cooperation and integration among diverse ASEAN countries is characterized by flexibility and pragmatism. Countries have often put aside political issues and differences, and have also continuously adapted to changing global conditions. In some ways, these characteristics also influence the pace of infrastructure development in ASEAN member countries.

The effective development of CBI is crucial to achieving the ASEAN Economic Community. As discussed earlier, overall infrastructure, especially CBI, has several important benefits. First, by enhancing physical connectivity in the ASEAN region, intra-regional trade and investment; and international competitiveness and productivity can be increased through lower production and trade costs. Second, it can narrow the development gap among ASEAN economies by providing poorer, land-locked countries with access to a larger regional market and regional production networks and supply chains. Third, it can satisfy basic needs by sharing scarce resources. Lastly, it can sustain high economic growth.

According to the ASEAN plan, the main focus is to integrate energy, transport, and communication networks (ASEAN 2008b). However, accelerating infrastructure development as well as integration is hampered by a number of issues that include: (i) geographical diversity; and different levels of economic and infrastructure development; and country capacity (e.g., the infrastructure of newer ASEAN members is relatively underdeveloped; on the other hand, the more mature ASEAN countries may have more developed infrastructures, but the cost of linking them can be prohibitive due to geographical barriers); (ii) asymmetric distribution of regional infrastructure costs and benefits across participating countries; (iii) synchronization of national and sub-regional infrastructure planning and financing; and (iv) massive financing requirements.

Addressing these difficulties will require the following measures: (i) creation of an enabling environment for cross-border infrastructure investment, (ii) effective coordination among multiple stakeholders (central government, local government, the private sector, and civil society) for CBI development, (iii) identification, development, prioritization, and preparation of “bankable” or commercially-viable projects; (iv) mobilization of ASEAN member countries' private savings to finance “bankable” projects; (v) evaluation of capital intensive projects in terms of symmetric distribution of cost and benefits; and (vi) identification of the limitations of traditional infrastructure financing.

The current global economic crisis will pose additional challenges to infrastructure development in ASEAN. As the current crisis continues, demand from advanced economies for ASEAN exports has decelerated, slowing production. Singapore is already in recession due to a steep fall in export. In fact, output in Malaysia and Thailand is projected to contract in 2009 due to a drop in exports and investments. High and undiversified dependence on exports of electronics, oil and crude palm oil are falling sharply in Malaysia and combined with its relatively small domestic market, underpins the projection of real GDP falling by 1% in 2009. In the case of Thailand, a slump in exports, exacerbated by the increasing political uncertainty is set to cause output to contract by twice as much. Moreover, some of the lowincome countries are hardest hit by the crisis. For example, the decline in growth in Cambodia from is projected to be the steepest in developing East Asia. The economy is affected by decreasing export orders for garments (which actually accounts for almost 80% of exports, mostly shipments are to the US), a drop in construction, and an abrupt fall in private capital inflows and sharp decline in tourist arrivals (World Bank 2009). In order to mitigate, the medium-term consequences of the ongoing crisis, ASEAN countries should bring forward and step up infrastructure investment, particularly in regional infrastructure, in order to enhance regional demand.

ASEAN should take note of the lessons of the 1997–1998 Asian crisis, where public and private infrastructure investments substantially declined in many Asian economies. In fact, infrastructure programs were among the first to be cut in Indonesia, the Philippines, and to a lesser extent, Malaysia. Indonesia and the Philippines are still suffering from a large infrastructure deficit due to this collapse in infrastructure investment, and poor infrastructure has kept growth rates below their potential in both countries (Greenwood 2006).

To mitigate the medium-term effects of the on-going crisis, ASEAN needs to offset the decline in global demand by increasing regional demand. This implies greater investments in national and cross-border infrastructure that would support ASEAN production networks and supply chains for intraregional trade. CBI connecting to larger markets like PRC and India would also be important.

The current crisis presents an opportunity to enhance infrastructure development. Several ASEAN member countries have been trying to stimulate domestic demand, and alleviate the impact of the spiraling crisis, by setting aside resources for infrastructure investment under their stimulus packages (Table 7 [ PDF 37.6KB | 1 page ]). For example, Singapore, which is expected to be hit hard by the current crisis, plans to spend between US$11.9–13.2 billion on infrastructure projects (such as a new cruise liner terminal, new roads and parks, upgrading of schools, sports facilities and public housing estates) in 2009 (Nopporn 2009). ASEAN economies should seek to implement their fiscal stimulus packages in a coordinated manner and ensure significant spending on infrastructure, particularly CBI. Towards this end, enhanced regional infrastructure cooperation can be an important way to complement country-level efforts.

It should be noted however, that new infrastructure programs are often very difficult to commence in a short period of time. Instituting large-scale changes in government investment programs require considerable political consensus and extensive local-level consultations, actions which take time that is lacking during a crisis.

The unique strength of the ASEAN lies in its formal institutional structure, characterized by binding agreements among its member countries. Institutionally, however, it is important to note that the ASEAN's main focus is economic integration through the ASEAN Free Trade Area (AFTA); infrastructure development remains just a part of this overall initiative.

Similarly, other Southeast Asian subregional cooperation programs such as the GMS, IMTGT and BIMP-EAGA have CBI development as only part of their objectives.

In contrast, initiatives in Latin America and Europe have created dedicated institutions for CBI development. Latin American countries have established two institutions: the Initiative for the Integration of Regional South American Infrastructure (IIRSA) and Plan Puebla Panama (PLPP). IIRSA is an informal institution made up of 12 Latin American countries (Argentina, Bolivia, Brazil, Chile, Columbia, Ecuador, Guyana, Paraguay, Peru, Surinam, Uruguay and Venezuela), supported primarily by the Inter-American Development Bank (IDB) with the aim to build better regional connections.⁴ PLPP, on the other hand, is composed of 9 countries (Belize, Columbia Costa Rica, El Salvador, Guatemela, Honduras, Mexico, Nicaragua and Panama) in Central America, with the aim to create a trade and development corridor in the region.⁵

In the European Union,⁶ the European Commission (EC) created a subsidiary called the Trans-European Networks (TENs) to deal primarily with infrastructure network development. The legal basis for TENs is provided in the Maastricht Treaty of 1992, which recognized that inadequate cross-border infrastructure acts as a barrier to trade and labor mobility. The Treaty defines EU's responsibilities - establishing guidelines for identifying projects of common interest; implementing measures necessary for network interoperability; supporting projects of common interest; contributing financing through Cohension Fund; and promoting coordination among member countries. The planning and financing of TENs has been managed suprantanationally. Three types of infrastructure networks have been established: the Trans European Transport Networks (TEN-T), the Trans-European Energy Network (TEN-E), and the Trans-European Telecommunications Network (eTEN) ( Nunez-Ferrer 2007).

To date, ASEAN has created an informal center focusing on energy infrastructure—the ASEAN Centre for Energy. In order to enhance its infrastructure development role, ASEAN should consider establishing more formal entities or institutions for CBI development in transport and energy, similar to those in Europe and Latin America.

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