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More private capital and fresh ideas are key to unlocking Asean’s growth potential
Asean’s infrastructure investment needs are estimated to hit US$3.4 trillion between 2013 and 2030. It is critical that governments, the private sector and multilateral development banks work in sync.
By Nena Stoiljkovic and Victoria Kwakwa
ASEAN needs at least a trillion dollars of infrastructure investment in the next five years to keep pace with economic growth, and to meet the goals of ending extreme poverty and boosting shared prosperity. Access to reliable and affordable infrastructure is crucial for any economy to create jobs and promote sustainability, and current development spending in the region falls far short of what is needed to meet the global goals by 2030.
And though Asean’s growth is expected to remain steady throughout 2018, governments in the region still face difficulties in meeting the infrastructure development needs required to support sustained economic growth and reduce poverty.
Even today, 76 million people in the Philippines, Myanmar and Indonesia do not have access to electricity; more than 360 million people across Asia lack access to basic water services. Further, rapid urbanisation and population growth put additional pressure on current capacity. The numbers speak for themselves.
Future roadmap
Financing gaps aside, other challenges – regulatory uncertainty, bankability of projects, and currency constraints, among others – prevent infrastructure spending needs from being met.
So how can we work together to cope with the infrastructure investment needs of the world’s sixth-largest economy? We already know the main plot of the story well: Asean needs to scale up private investment rapidly, but several other sub-plots need to be factored in as well.
First, the policy, regulatory, financial and market conditions must be right. This means that more efforts are needed in upstream work to create a policy environment that promotes commercially viable projects. Multilateral development banks (MDBs) such as the World Bank Group are already increasing efforts to harness private money through funding packages, risk-mitigation instruments and more efforts in upstream work to create markets and set the conditions to get market forces moving in the right direction.
It also means sustained support at the sector and country level to strengthen the enabling environment for private-sector solutions – including in developing domestic capital and financial markets to expand the supply of local currency financing available for development. This complements efforts to bolster domestic resource mobilisation and improve the efficiency of public financing, where this is the optimal solution.
The World Bank Group’s new approach to development finance involves working together to help countries maximise financing for development – by leveraging the private sector and optimising the use of scarce public resources. This involves working with countries through sector reforms and de-risking instruments – examples include the IDA 18 Private Sector Window and sector-specific packaging of World Bank and guarantees from the Multilateral Investment Guarantee Agency (MIGA) – to bring a larger share of the investment programme into the commercially investible space.
Identifying the appropriate tools requires a thorough analysis of the infrastructure landscape. The World Bank Group is also addressing this need through the Infrastructure Sector Assessment Programme (InfraSAP), a diagnostic and planning exercise aimed at informing how a country can improve infrastructure access and performance. InfraSAP has started work in several countries in the region, including Indonesia, where it is targeting water, energy, transport and urban development. Some early results show that the capacity of Indonesian financial markets needs to be unleashed through better preparation of projects and using structures that better engage financial markets, in particular institutional investors.
Second, we need to develop and utilise new mechanisms to unlock private financing. This means novel financial solutions and platforms to mobilise more private capital, and standardisation efforts to channel more private capital into infrastructure and inspire long-term investor confidence. New innovative platforms, including the Managed Co-Lending Portfolio Programme for Infrastructure (MCPP), have already mobilised billions in private capital from insurance companies and other institutional investors for investment in developing countries.
Blended finance
What is proving and continuing to be an effective element of the development finance toolkit is blended finance – financing packages comprised of concessional funding provided by development partners and commercial funding.
Another attractive financing tool for infrastructure projects are bonds, because they provide a potentially low-cost and long-term source of capital. Take, for example, the dramatic growth of the green bonds market.
Such bonds are playing an increasingly significant role in raising private capital to fight climate change, attracting mainstream capital investors to renewable energy and green projects.
Third, to realise Asean’s potential, we need to engage in joint efforts and cleverly leverage each institution’s strengths to support development. Governments, the private sector and MDBs must continuously innovate and improve the partnership structures that have brought us to where we are today. These themes will be at the forefront of the discussions at the World Bank Infrastructure Finance Summit in Singapore, brought together by our organisation.
Using Singapore as a gateway, we can work closely with our Asian neighbours to develop infrastructure. Singapore-based strategic partners are already building a regional presence and expanding into other markets, supporting countries like Myanmar and Bangladesh in their efforts to expand significant power generation capacity.
The Myingyan 225-megawatt gas-fired power plant in Myanmar is the country’s first competitively tendered independent power producer – attracting world-class project developers and financing from leading MDBs, as well as commercial banks offering their first loans in Myanmar.
The World Bank Group looks forward to supporting Singapore’s efforts as the Asean chair this year – to help Asean economies bridge infrastructure gaps, help them innovate and use technology, to make us a dynamic and integrated community.
We see the positive economic trajectories of the Asean economies and want to build on this momentum by fostering closer dialogue and partnership between government and business, so that we can set this region, and the world, on a more inclusive and sustainable path.
- Nena Stoiljkovic is International Financial Corporation vice-president for Asia and the Pacific. Victoria Kwakwa is World Bank vice-president for East Asia and the Pacific
Source: http://www.businesstimes.com.sg/opinion/more-private-capital-and-fresh-ideas-are-key-to-unlocking-aseans-growth-potential