Infrastructure funding needs in Asia to rise sharply to maintain growth: ADB

business February 28, 2017 12:54

By The Nation

Infrastructure needs in developing Asia and the Pacific will exceed US$22.6 trillion (Bt789 trillion) through 2030, or $1.5 trillion per year, if the region is to maintain growth momentum, according to a new flagship report by the Asian Development Bank (ADB).

The estimates rise to over $26 trillion, or $1.7 trillion per year, when climate change mitigation and adaptation costs are incorporated.

The report, Meeting Asia’s Infrastructure Needs, focuses on the region’s power, transport, telecommunications, and water and sanitation infrastructure. It comprehensively examines current infrastructure stocks and investments, future investment needs, and financing mechanisms for developing Asia.

“The demand for infrastructure across Asia and the Pacific far outstrips current supply,” said ADB president Takehiko Nakao. “Asia needs new and upgraded infrastructure that will set the standard for quality, encourage economic growth, and respond to the pressing global challenge that is climate change.”

Infrastructure development in the 45 countries covered in the report has grown dramatically in recent decades -- spurring growth, reducing poverty, and improving people’s lives. But a substantial infrastructure gap remains, with over 400 million people still lacking electricity, 300 million without access to safe drinking water, and about 1.5 billion lacking access to basic sanitation. Many economies in the region lack adequate ports, railways, and roads that could connect them efficiently to larger domestic and global markets.

“ADB pledges to work with member countries and use our 50 years of experience and expertise to meet infrastructure needs in the region. As the private sector is crucial to fill infrastructure gaps, ADB will promote investment friendly policies and regulatory and institutional reforms to develop bankable project pipelines for public-private partnerships,” Nakao said.

Report highlights:

• Developing Asia will need to invest $26 trillion from 2016 to 2030, or $1.7 trillion per year, if the region is to maintain its growth momentum, eradicate poverty, and respond to climate change (climate-adjusted estimate). Without climate-change mitigation and adaptation costs, $22.6 trillion will be needed, or $1.5 trillion per year (baseline estimate).

• Of the total climate-adjusted investment needs over 2016-2030, $14.7 trillion will be for power and $8.4 trillion for transport. Investments in telecommunications will reach $2.3 trillion, with water and sanitation costs at $800 billion over the period.

• East Asia will account for 61 per cent of climate-adjusted investment needs through 2030. As a percentage of gross domestic product (GDP), however, the Pacific leads all other sub-regions, requiring investments valued at 9.1 per cent of GDP. This is followed by South Asia at 8.8 per cent, Central Asia at 7.8 per cent, Southeast Asia at 5.7 per cent, and East Asia at 5.2 per cent of GDP.

• The $1.7-trillion annual climate-adjusted estimate is more than double the $750 billion ADB estimated in 2009. The inclusion of climate-related investments is a major contributing factor. An even more important factor is the continued rapid growth forecasted for the region, which generates new infrastructure demand. The inclusion of all 45 ADB member countries in developing Asia, compared to 32 in the 2009 report, and the use of 2015 prices versus 2008 prices also explain the increase.

• Currently, the region annually invests an estimated $881 billion in infrastructure (for 25 economies with adequate data, comprising 96 per cent of the region’s population). The infrastructure investment gap — the difference between investment needs and current investment levels — equals 2.4 per cent of projected GDP (climate-adjusted) for the 5-year period from 2016 to 2020.

• China has a gap of 1.2 per cent of GDP in the climate-adjusted scenario. Without China, the gap rises to a much higher 5 per cent of the remaining 24 economies’ projected GDP. Public finance reforms could generate additional revenues estimated to bridge around 40 per cent of the gap (or 2 per cent of GDP) for these 24 economies. For the private sector to fill the remaining gap (3 per cent of GDP), it would have to increase investments from about $63 billion today to as high as $250 billion a year over 2016-2020.

• Regulatory and institutional reforms are needed to make infrastructure more attractive to private investors and generate a pipeline of bankable projects for public-private partnerships (PPPs). Countries should implement PPP-related reforms such as enacting PPP laws, streamlining PPP procurement and bidding processes, introducing dispute resolution mechanisms, and establishing independent PPP government units. Deepening of capital markets is also needed to help channel the region’s substantial savings into productive infrastructure investment.

• Multilateral development banks (MDBs) have financed an estimated 2.5 per cent of infrastructure investments in developing Asia. Excluding China and India, their contributions rise above 10 per cent. MDBs are scaling up operations with a growing proportion financing private sector infrastructure projects. Beyond finance, MDBs are also playing an important role in Asia by sharing expertise and knowledge to identify, design, and implement good projects. They are integrating more advanced and cleaner technology into projects and streamlining procedures. MDBs are also promoting investment friendly policies and regulatory and institutional reforms.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, ADB is celebrating 50 years of development partnership in the region. It is owned by 67 members -- 48 from the region.

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