ASEAN governments are set to speed up implementation of large infrastructure projects by taking advantage of the fast growth in the region and the ample liquidity in the global financial market.
Asean investors have become the largest investors in their own region, three times more than from Chinese investors, said Tony Cripps, chief executive officer of HSBC Singapore.
According to Asean Investment Report 2016, Asean remained a major destination for global foreign direct investment (FDI), receiving around 16 per cent of the world FDI among developing economies with total inflows of US$120 billion in 2015.
Intra-Asean investment remained the largest source of FDI flows, rising to $22.1 billion. The share of intra-Asean investment in total FDI flows to the region increased from 17 per cent in 2014 to 18.5 per cent in 2015. Japan ranked second with $17.4 billion, followed by US $12.2 billion and China $ 8.2 billion.
Cripps said that Singapore, as a financial hub of the region, had played a very active role in infrastructure financing; two-thirds of financing in recent years was estimated to be through the Singapore financial market.
At the same time, bonds issued by Asean governments are attractive as they offer investors high yield compared to lower yields in the developed market, he said.
The yield of 10-year bonds issued by the Indonesian government was currently nearly 7 per cent, compared with the over 2 per cent yield of US 10-year bonds.
HSBC said that as Asean marks its 50th anniversary with its biggest economies pledging to double infrastructure investment to more than $700 billion in a five-year span, trade, tourism and development could drive sustainable economic growth for decades to come. Transport initiatives are the key focus for budgeted spending between 2016-20, with Indonesia and Thailand at the forefront of the infrastructure push.
The Indonesian government alone has identified investment projects worth over $400 billion. Investment in 2017-18 is expected to be $20 billion, according to Sumit Dutta, the CEO of HSBC Indonesia. He said $130 billion funding for government projects would come from private funds.
The Philippine government also plans to invest $50.3 billion in infrastructure projects, Wick Veloso, CEO of HSBC Philippines, said. As the country has normalised relations with China, the government also would draw large investment from Chinese investors, according to Veloso. Philippines wants to link its development with China’s Belt &Road Initiatives.
In Thailand, the government has been promoting its flagship Eastern Economic Corridor project with investment in the next five years estimated to be Bt 1.5 trillion ($43 billion).
Asked whether funding is adequate for every country’s ambitious plan, Suwit Rojanavanich, director-general of the Public Debt Management Office, said it would be no problem due to high liquidity in the global market as a result of the quantitative easing policy by central banks in developed economies and low interest rates.
He said Thailand would not need much foreign capital as the government can borrow from the local market relatively cheap with Thailand’s 10-year bond yield slightly over 2 per cent. Moreover, Thailand could extend funding to neighbouring countries such as Laos, he said.
In addition to investment, Asean also wants to increase intra-Asean trade, which currently is about 25 per cent of total Asean trade, deemed to be relatively small. The region also wants to double bilateral trade between China and Asean to $ 1 trillion by 2020 from around $500 billion last year.
While there are vast opportunities there are also risks of geopolitical conflict in Asia, according to many analysts.
Surin Pitsuwan, former Asean secretary-general, expressed his concern over tensions in the South China Sea, territorial disputes between China and Japan, or disputes among China, Japan and South Korea, land dispute between China and India as well as the nuclear threat from North Korea. Surin said Asia now is as Europe was in the 19th century when the countries in the region were engaged in war with each other and there was no regional platform to settle disputes. He said Asean could be a platform for bigger countries in the region to sit and talk.