Infrastructure Development in ASEAN: An Overview

3.1 The Importance of Infrastructure in ASEAN Economic Growth, Poverty Reduction, and Trade Integration

There are four main reasons why infrastructure development needs to be accelerated in ASEAN.

First, infrastructure plays a significant role in promoting and sustaining economic growth in the region. As seen in Table 1 [ PDF 94.4KB | 1 page ], real GDP growth in ASEAN averaged 5.4% in 2000-2007, way above the world average of 4.1%. Real GDP growth in developing Asia is expected to slow in view of the ongoing global financial crisis, although it is still projected to exceed the world average.

ASEAN- 5 is estimated to have grown by 4.3% in 2008; growth in 2009 is projected to be significantly lower at 0.7%, but recovery is expected in 2010 (ADB 2009b). The global economic crisis has hit export-oriented ASEAN countries the hardest. A recession is imminent in both Singapore and Thailand, while growth in Malaysia is expected to be minimal (World Bank 2009). This reduction in growth could negatively affect investments in infrastructure, precisely at a time when they are needed the most. Accelerating infrastructure development at this juncture will be critical not only to address current shortfalls, but also to cushion the impact of the global financial and economic crisis on economic growth in the region.

While ASEAN has enjoyed impressive growth in the last decade, this growth has also created huge pressures on its infrastructure stock. A large imbalance in basic infrastructure exists among ASEAN member countries (Table 2 [ PDF 94.4KB | 1 page ]). For instance, only 5% of the population in Myanmar has access to electricity, compared to 80% in Indonesia. Cambodia, Indonesia and Viet Nam trail other countries in the region in terms of access to sanitation infrastructure. The number of telephone subscribers is also quite low in Cambodia and Myanmar.

Second, infrastructure development is necessary to accelerate economic integration within the region, particularly in the area of trade and investment. ASEAN countries have unanimously pledged to maintain open market principles, and this is unlikely to be reversed. The pattern of ASEAN regional cooperation and integration indicates that integration has been largely market-driven. Large trade and FDI flows have been spurred by outwardoriented policies and infrastructure, as well as other factors such as financial integration, and the formation of production networks and supply chains by global multi-national corporations (MNCs) and Asian firms.

Infrastructure development is crucial for sustaining and enhancing trade both within and outside ASEAN. More than 50% of Asia's exports are intra-regional, and the expansion of PRC and India is expected to boost intra-regional trade further. In ASEAN, Malaysia, Singapore and Thailand have built well-developed logistics systems to facilitate intraregional and international trade (Brooks 2008)

As shown in Table 3 [ PDF 52.1KB | 1 page ], trade integration in ASEAN has been stagnant since 1995. Its level of intraregional trade is much lower than NAFTA's and EU's; hence, the potential for trade enhancement is significant. High trade and logistics costs have been major contributing factors to this stagnation. These, in turn, have been caused by the poor quality of hard infrastructure as well soft infrastructure, such as market-unfriendly legal or regulatory frameworks, and cumbersome customs and cross-border systems and procedures.

Providing an efficient logistical system will be essential as economies in the region move progressively into more complex and higher-value manufacturing and fragmented production. Improving logistics will also be important as manufacturing firms move further inland from locations near ports and coasts, owing to congestion and other factors (Kuroda 2006). The bottlenecks at Asia's borders often hinder the efficiency of its logistics systems (Table 4 [ PDF 47.7KB | 1 page ]). As noted in the ASEAN Transport Action plan 2005–2010, logistical concerns include the lack of quality road transport to ports, poor port infrastructure, and sub-optimal shipping networks add to overall transport costs. The absence of regional logistics players perpetuates the fragmented transport system in the region. Therefore, the potential to enhance integration through improved regional infrastructure (both hardware and software) is big.

In particular, CBI can help reinvigorate ASEAN economic integration by (i) enhancing resource sharing and efficiency; (ii) building connectivity and enlarge markets; (iii) reducing transportation and trade costs; (iv) establishing linkages with regional and global supply chains; and (v) facilitating further regional economic cooperation and integration through physical connectivity. Of primary importance is improving access to primary services (i.e., electricity and water), and trade-related infrastructure, especially transport and information, communication, and technology (ICT).

Third, addressing inequalities in infrastructure development is critical to the wider objective of reducing development gaps among ASEAN countries; and income inequality and poverty within each country. Table 5 [ PDF 72.3KB | 1 page ] below ranks ASEAN countries in descending order of infrastructure development, based on estimated scores of the infrastructure index for 1991, 2000 and 2005.

While the trend from 1991 to 2005 shows an improvement in the ranking of each country, it also reveals huge gaps in infrastructure availability across ASEAN member countries. These gaps also seem to have widened, rather than narrowed, over time.

Similarly, a widening gap is also evident in land transport. Over 15 year period, roads have improved in most countries, but in terms of rail lines, very minimal improvement can be observed (Table 6 [ PDF 86.4KB | 1 page ]). Gaps are also evident in terms of paved roads as a proportion of total roads (6.5% in Cambodia vs. 100% in Singapore in 2005). These gaps in infrastructure development need to be addressed if the development gap—both within and across countries in the region—is to be reduced. Substantial resources will be needed in order to bridge these infrastructure deficits, particularly in low-income ASEAN countries. The main challenge is, therefore, to mobilize regional savings to meet these gaps in low income countries.

As a result of export-oriented development, productive industrial assets and infrastructure have been concentrated along coastal areas, where access to the world market has been well provided. To reduce income disparities within a country, infrastructure should be extended into remote inland areas which have traditionally been neglected. The opening of frontier borders will allow such areas to take part in mainstream national development. Meanwhile, CBI can help reduce inequalities across the region by providing small, landlocked, low-income countries with access to the larger regional market; linking them to the regional/global production network and supply chain; and supporting the formation of industrial clusters/zones, as can be seen in Lao PDR, Cambodia, Myanmar, and Viet Nam.

Finally, infrastructure development is necessary to improve resource sharing and efficiency in the region to provide basic needs, such as water and electricity. Within the context of addressing ASEAN's energy needs, transporting or exporting energy from energy-surplus to energy-deficient countries could help in achieving energy security. Studies show that the Greater Mekong Sub-region³ could save the region US$200 billion in total energy costs (roughly 19% of costs) through energy exports. Note that with the exception of Yunnan Province, PRC, all of the GMS countries are also ASEAN member countries. A reduction in costs will bring about significant benefits, particularly for smaller GMS economies such as Lao PDR, with a GDP of US$3.4 billion; even Thailand, with a GDP of US$206 billion, is expected to benefit from a reduction in total energy costs. The gains owe to large increases in energy demand over the coming years, uneven resource endowments across the region (GMS 2009).

3.2 Regional Cooperation in ASEAN Cross-Border Infrastructure Development

CBI development in ASEAN is being pursued through (i) ASEAN member countries' own initiative (ii) the initiatives of other sub-regional infrastructure cooperation programs such as the Greater Mekong Subregion (GMS), the Mekong River Commission (MRC), the Brunei- Indonesia-Malaysia-Philippine East Asia Growth Area (BIMP-EAGA) and the Indonesia- Malaysia-Thailand Growth Triangle (IMT-GT); and (iii) the pan-Asian initiative like the Asian Highway (AH) and the Trans-Asian railway (TAR) network.

The GMS includes four ASEAN landlocked member countries—Cambodia, Lao PDR, Thailand, and Viet Nam— plus the provinces of Yunnan and Guangxi in PRC. Its major goal is integration, and its main functional areas are trade and infrastructure, with a focus on improving connectivity in the subregion by improving transport, energy, and telecommunications. Cooperation in the energy and telecommunications sector began in 1992 with power transmission lines linking Lao PDR and Thailand. In 2001, a 10-year strategic framework was adopted to enhance connectivity, competitiveness, and a sense of community; eleven flagship programs were identified, including three economic corridors: East-West, North-South and Southern (ADB 2005). In 2008, the GMS cross-border transport agreement (CBTA) was signed and ratified. The CBTA is a compact and comprehensive multilateral instrument that covers all the relevant aspects of cross-border facilitation including single-stop/single-window custom inspections; cross-border movement of people; transit traffic regimes; requirements for vehicles making cross-border trips; exchange of commercial traffic rights; and issues related to road and bridge design standards, road signs and signals (ADB 2008).

The MRC is an informal forum established by Cambodia, Lao PDR, Thailand and Viet Nam to manage their shared water resources and sustainably develop the economic potential of the Mekong River basin. Myanmar and PRC are dialogue partners of this forum (MRC 2009).

BIMP-EAGA, composed of Brunei Darussalam and provinces in Indonesia, Malaysia, and the Philippines, is an informal institution where senior officials and ministers of the member countries provide strategic directions and policy guidelines for expanding trade and investment opportunities through infrastructure development. Its regional projects have focused on air and maritime services, as well as software aspects. A memorandum of agreement on promoting cross-border movement of commercial buses and vehicles, and establishing efficient and integrated sea links in the subregion, was signed by the members in 2007 (BIMP-EAGA 2009).

IMT-GT is composed of provinces in three ASEAN member countries: Indonesia, Malaysia, and Thailand, which aim to expand opportunities for trade and investment through improved infrastructure and connectivity. The private sector plays an important role through the joint business councils. There are six working groups, including one focused on infrastructure and transport. To date five economic connectivity corridors have been identified. In partnership with ADB, it provides capacity-building support, helps mobilize technical and financial resources, and helps promote an enabling environment for private sector development (IMTGT 2009).

The AH network and TAR network are part of the existing pan-Asian infrastructure initiative called the Asian Land Transport Infrastructure Development (ALTID). ALTID was established in 1992 by the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP). The general goal of this initiative is to improve economic links among Asian countries through better and increased connectivity. Its other pillar is the facilitation of land transport projects through intermodal transport terminals (dry and inland ports).

In the case of ASEAN, there are currently four long-term cross-border flagship projects on integrating ASEAN's infrastructure, mainly in the energy and transport sectors:

3.2.1 Energy Sector Projects

The ASEAN 2020 Vision adopted in 1997 at the 2nd ASEAN Informal Summit envisioned an energy-interconnected Southeast Asia through two major energy projects: the ASEAN Power Grid, consisting of 14 interconnection projects, and the Trans-ASEAN Gas Pipeline.

Aside from securing a cross-border energy network, the two major projects are expected to stimulate the ASEAN economy and promote a win-win economic relationship between the countries though energy trading (EGAT 2003). Interconnected electricity networks allow countries with abundant natural resources to generate income from their surplus power, while countries with power shortages can import from neighboring countries at reasonable prices. Interconnection will reduce national investment in power reserves to meet peak demand, give a more reliable supply of electricity, and increase consumers' access to electricity. ASEAN requires US$100 billion to meet the increasing electricity demand and US$ 7 billion for the gas pipelines (Yong 2004).

ASEAN initiatives on energy interconnection date back to the ASEAN Cooperation Project on Interconnection, which started in 1982. This was aimed at linking the power systems of neighboring ASEAN countries. In 1986, ASEAN member countries signed the Agreement on ASEAN Energy Cooperation, calling for cooperation in the efficient development and use of all forms of energy, whether commercial and noncommercial, renewable or nonrenewable. At present, it is estimated that ten ASEAN countries have a total of 22 billion barrels of oil, 227 trillion cubic feet of natural gas, 46 billion tons of coals, 234 gigawatts of hydropower and 20 gigawatts of geothermal capacity (AMEM 2004).

At the 17th ASEAN Energy Minister's Meeting in 1999, the ASEAN Plan of Action for Energy Cooperation (1999–2004) was adopted, with the establishment of the ASEAN Power Grid as one of its major goals (ASEAN 2008a). The ASEAN Center for Energy (ACE) is the central intergovernmental organization responsible for initiating, coordinating and facilitation collective activities on energy.

3.2.1.1 ASEAN Power Grid

Interconnection of the power grid is being implemented through a cooperative agreement among the power utilities/authorities of the ten countries. Agreements are made bilaterally between the countries. To initiate the ASEAN power grid system, the Heads of ASEAN Power Utilities/Authorities (HAPUA) under ACE oversee the implementation of 14 interconnection projects. Two of these have been completed and are currently operating. These are the Peninsular Malaysia-Thailand Interconnection, and the Peninsular Malaysia- Singapore Interconnection. Interconnections have optimized the power systems' production.

Encouraged by its experience with these two projects, ASEAN has identified criteria for future interconnections. In the ASEAN Plan of Action for Energy Cooperation (APAEC) 2004-2009, interconnection between Vietnam-Cambodia is slated for possible commissioning by 2005-2007, Thailand-Cambodia by 2007, Peninsular Malaysia-Sumatra, Sarawak-West Kalimantan, Thailand-Lao PDR by 2009. Future interconnections would include Sarawak-Peninsular Malaysia, Batam-Bintan-Singapore-Johor, Philippines-Sabah, Sarawak-Sabah-Brunei Darussalam, Lao PDR-Viet Nam,Thailand-Myanmar and Lao PDRCambodia.

3.2.1.2 Trans-ASEAN Gas Pipeline

In July 1999, the plan of action for the Trans-ASEAN Gas Pipeline (TAGP) was approved as one of ASEAN's most important infrastructure projects. Its objectives are to (i) ensure the reliability of gas supply for ASEAN member countries; (ii) encourage the use of environmentfriendly fuel; (iii) attract multinational companies; and (iv) invest in gas exploration and reduce the region's reliance on crude oil (ASEAN 2008b). Gas interconnection is expected to bring affordable and accessible gas to industries, businesses, and households across the whole of ASEAN. In the APAEC 2004-2009, the approved TAGP roadmap includes eight gas interconnections projects: South Sumatera, Indonesia-Peninsular Malaysia; W. Natuna, Indonesia-Duyong, Malaysia (with firm commitments secured); E. Natuna, Indonesia-JDAErawan, Thailand 4a and 4b E. Natuna-W. Natuna, Indonesia-Singapore; E. Natuna, Indonesia-Brunei Darrusalam-Sabah, Malaysia, Palawan-Luzon, Philippines; Malaysia- Thailand JDA-Block B Viet Nam; Pauh, Malaysia-Arun, Sumatra, Indonesia and East Kalimantan-Sabah-Philippines.

3.2.2 Transport Sector Projects

Since 1998, ASEAN member countries have completed nine regional transport agreements. These include the mutual recognition of commercial vehicle inspection certificates; ASEAN highway network development; goods in transit facilitation and its five implementing Protocols; and air freight services liberalization. In October 2003, at the 9th ASEAN Transport Ministers (ATM) Meeting in Yangon, Myanmar, the Ministers agreed to intensify regional activities to enhance multimodal transport linkages and interconnectivity; promote the seamless movement of peoples and goods; encourage further liberalization in the air and maritime transport services; and improve the integration and efficiency of transport services and supporting logistic systems.

ASEAN's major projects in transport are the ASEAN Highway Network and the Singapore- Kunming Rail Link Projects.

3.2.2.1 ASEAN Highway Network Project

The ASEAN Highway Network Project was signed in 1999. The network consists of 23 designated routes totaling 38,400km. The project aims to upgrade all designated national routes to Class I standards by 2020, although Class II standards would be acceptable for low-traffic, non-arterial routes. The ASEAN Transport Sectoral Action Plan 2005–2010 identifies priority road infrastructure projects for the ASEAN Highway which include the Mawlamyizine-Thanbyuzayat section in Myanmar; the Attapeu-Phia Fai section in Lao PDR; and the Quang Ngai-Kon Tum section in Vietnam.

3.2.2.2 Singapore-Kunming Rail Link (SKRL) Project

The Singapore-Kunming Rail Link (SKRL) Project is being implemented under the ASEAN Mekong Basin Development Cooperation initiative. The 7,000km railway line is expected to link major cities in eight countries, namely Singapore, Malaysia, Thailand, Cambodia, Viet Nam, Lao PDR, Myanmar, and the PRC (ASEAN 2008a) In the ASEAN Transport Sectoral Action Plan 2005–2010, the priority sections are as follows: the Poipet-Sisophon Railway Link Project (Cambodia); the Ho Chi Minh City-Loc Ninh Railway Link Project (Viet Nam); and the Spur Lines between Three Pagoda Pass and Thanbyuzayat (Myanmar) and Vientiane-Mua Gia-Tan Ap-Vun Ang (Lao PDR/Viet Nam).

Apart from these major projects, other transport initiatives to integrate member countries' transport systems have been adopted. These include the framework agreement on the facilitation of goods in transit; the ASEAN Framework Agreement on Multimodal Transport; and the ASEAN Framework Agreement on the Facilitation of Inter-State Transport. Member countries have also designated 51 airports and 46 ports to form integral parts of the trans- ASEAN transportation network.

3.2.3 Telecommunications and IT Projects

ASEAN is working on cooperative programmes in telecommunications and information technology (IT) through the implementation of the e-ASEAN Agreement, specifically in the following areas: (i) developing ASEAN's information infrastructure; (ii) facilitating intra- ASEAN trade and investment; (iii) coordinating and harmonizing policies and programmes; (iv) promoting and developing indigenous content; (v) promoting private-sector participation; (v) bridging the digital divide within ASEAN by encouraging capacity building and human resource development; and (vi) enhancing access to and use of telecommunications and IT (ASEAN 2008a).

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