Infrastructure in Asia

6.1 Asian infrastructure needs

East Asia has made great progress with its infrastructure, especially in its more developed countries—Kumar and De (2008) show that the level and rank of East Asia infrastructure is comparable to the US between 1991 and 2005. For example, in 2005, out of the top 10 countries with the highest ranked infrastructure, eight were from East Asia. However, there is still a huge unfulfilled need for basic infrastructure in the emerging East Asian countries, and also for advanced types of infrastructure to support higher level economic activities. Yepes (2004) estimated that East Asia needed US$107.1 billion of investment for new infrastructure and US$57.9 billion for maintenance as shown in Table 10 [ PDF 56.7KB | 1 page ]. This is likely to be an underestimation because ADB estimated that the region actually requires US$3,042 billion of infrastructure for the period 2006–2015. In its latest estimate, ADB projected that East Asia and the Pacific needs a total of US$4,670 billion for their infrastructures between 2010 and 2020 (Asian Development Bank Institute 2009). ASEAN countries alone need about US$583.1 billion of infrastructure investment in power plants, transportation, water and sanitation, and telecommunication for the same period consisting of US$382.6 billion (66%) for building new capacity and US$200.5 billion (34%) for maintenance (Table 11 [ PDF 60.7KB | 1 page ]). A disturbing trend is that although in general ASEAN countries have improved their infrastructure, the gaps between countries are growing.

Actual infrastructure development in East Asia is unlikely to match the needs outlined above. Estimates by ADB (Nangia 2008) on private sector investments for eight ASEAN countries from 1990 to 2006 showed a total invested amount of only US$163.6 billion, which implied a substantial under-investment (Table 12 [ PDF 60.7KB | 1 page ]). The level of investment was very much linked to the state of these countries' development: the largest private investment was in Malaysia (US$49.1 billion), followed by Philippines (US$38.1 billion), Indonesia (US$37.2 billion), and Thailand (US$30.7 billion). Investment in Cambodia, Lao PDR, Myanmar, and Viet Nam was much smaller. To bridge the gap, the most important sources of financing for governments are borrowing from existing multilateral institutions (such as ADB and World Bank) and bilateral government assistance or loan agencies (such as the Japan Bank for International Cooperation [JBIC]). However, the annual average total funding received by developing countries in the period 2000–2003 for infrastructure investment from ADB, World Bank, and JBIC was only US$7 billion (United Nations Economic and Social Commission for East Asia and the Pacific 2006). This represented less than 5% of the gap.

Besides national projects, East Asia also needs to invest in cross-border infrastructure, which involves more than one country. There is no estimate of East Asia's cross-border infrastructure needs, but it is likely to be a smaller share of the latest ADB estimate of US$4,670 billion, which covers all of East Asia and the Pacific's infrastructure requirements (most of them are national projects). Sometimes, national infrastructure projects are meaningless if they are not connected with the appropriate infrastructure that may be located in other countries. For example, transporting goods from a land-locked country needs cross-border road links via other countries to reach the port where the goods can be shipped. Cross-border infrastructure allows the efficient movement of goods by complementing and linking the various infrastructure nodes located in the countries involved, and this is particularly beneficial for economically disadvantaged locations. East Asia has economies at very different levels of development and cross border projects will help the transfer of trade, people, and skills in both directions and participating nations will create the potential for economic and human capital advantage.

6.2 Existing regional and cross border infrastructure projects

Regional and cross-border infrastructure projects are defined as projects that involve physical construction work and/or coordinated policies and procedures spanning two or more neighboring countries, or national infrastructure projects that have a significant cross-border impact (Asian Development Bank Institute 2009).

East Asia has a limited number of cross-border infrastructure projects. The relatively low number of projects points to the difficulties in their implementation: availability of funds, regulatory compatibility, implementation capacity, the sharing of costs and benefit, and political willingness. The following are important cross-border infrastructure projects:

• The Greater Mekong Sub-region—The GMS comprises Cambodia, two provinces of the PRC, Lao PDR, Myanmar, Thailand, and Viet Nam. One of the main focuses of the GMS program is to improve connectivity in the sub-region through the strengthening of linkages in transport, energy, and telecommunication. Key activities include the development of economic corridors: roads to improve access, institutional and policy support for trade facilitation, and transit policy harmonization to reduce logistics costs across the sub-region. Five economic corridors (two north–south, one east–west, and two southern) were identified, and several road investments have begun. Trade and transit harmonization is a key element, bringing to the GMS program both the hardware and software components of infrastructure development.
• The Asian Highway and the Trans-Asian Railway network—These networks are part of the existing pan-Asian infrastructure initiative called the Asian Land Transport Infrastructure Development Project, which was established in 1992 by the United Nations Economic and Social Commission for Asia and the Pacific. The main 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. One of the biggest challenges is to integrate the various modes of transportation including highway, railway, and air transport.
• ASEAN Power Grid Project—This project to develop interconnection of the power grid is implemented through cooperative agreement between the power utilities/authorities of the ASEAN countries. There are 14 interconnections, of which two have been completed and are currently operating. They are known as the Peninsular Malaysia–Thailand Interconnection and the Peninsular Malaysia–Singapore Interconnection.
• Trans-ASEAN Gas Pipeline—This project has the aims of providing ASEAN members with a reliable gas supply, the use of environmentally friendly fuel, and increased investment in gas exploration. It has eight gas interconnections involving Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore, Thailand, and Viet Nam.
• Singapore–Kunming Rail Link project—This 7,000 km railway line, implemented under the ASEAN–Mekong Basin Development Cooperation Initiative, is expected to connect major cities in eight countries, namely, Cambodia, PRC, Lao PDR, Malaysia, Myanmar, Singapore, Thailand, and Viet Nam.

6.3 Mechanisms for funding cross-border infrastructure projects

The major vehicles for funding cross-border infrastructure are multilateral agencies (primarily ADB), bilateral development aid programs, and government-owned financial agencies (e.g., JBIC). ADB has taken a leading role in promoting cross-border infrastructure because of its mission as a regional development finance institution. Besides its funding capability, ADB also has the technical capacity to plan, design, implement, and monitor the progress of projects. Most importantly, it can coordinate and work with the various Asian governments and regulators to ensure the project's smooth execution. The United Nations Economic and Social Commission for Asia and the Pacific and the World Bank are the other multilateral agencies active in promoting region-wide infrastructure development. However, their funding mandate for infrastructure is limited because they have other projects to finance. Moreover, because of the generally high cost of cross-border projects, these agencies cannot afford to finance many of them.

Bilateral assistance programs are another source of funding for cross-border infrastructure investment. The Government of Japan, through its ODA programs and the JBIC, has been particularly active and has been part of the GMS. Recently, the Japanese government proposed the “Growth Initiative towards Doubling the Size of Asia's Economy.” The initiative proposes to develop the GMS as Asia's growth pole, to link East Asia and Southeast Asia to India and strengthen the existing GMS development. The core of the proposal is the promotion of sub-regional development, in particular, cross-border infrastructure with a larger participation by the private sector.

This proposal set out strategies to link sub-regional infrastructure with industrial development and mechanisms to facilitate public–private partnerships. It plans to develop the Mekong–India Economic Corridor and link Thailand's present Eastern Seaboard Development and the proposed Southern Seaboard Development to this new corridor. The existing GMS corridors will also be linked. A new mechanism to encourage private sector participation thorough a public–private partnership based on the Eastern Seaboard Development model will be proposed. The Economic Research Institute for ASEAN and East Asia, ADB, and the ASEAN Secretariat are expected to work together to design the master plan of this proposal.

For this purpose, the Government of Japan has increased its ODA budget to US$20 billion and another US$20 billion is allocated for a new line of trade insurance for infrastructure development.

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