Building infrastructure for Asia requires fresh thinking

Published on Thursday, 23 June 2016

Published by Bambang Susantono on Thursday, 23 June 2016

Engineers conduct surveying for a regional road project in Uzbekistan.
Engineers conduct surveying for a regional road project in Uzbekistan.

With infrastructure needs both huge—an estimated $8 trillion between 2010 and 2020—and urgent across developing Asia, it is critical to find solutions, and soon. But we must find the right solutions. There are six key issues to bear in mind on what kind of infrastructure we build, and how we finance and build it.

At its most basic, infrastructure development is not just a question about quantitative provision, but also one of environmental and social co-benefits. Infrastructure provision comes with externalities, which requires decision-makers to strike a balance between meeting rising infrastructure demands and ensuring equitable solutions.

With the objective of achieving inclusive growth, a basic needs approach should inform infrastructure provision, as it can enable access and affordability of, for instance, water, electricity, and transport infrastructure and services. In addition to the physical infrastructure itself, effective operation and management also requires more attention, particularly when a life cycle approach is applied. From an investor’s point of view, these aspects are labelled as social capital investment and corporate social responsibility.

Secondly, we must look at different actor constellations in infrastructure provision, beyond a simple binary public-private perspective.

The role of state-owned enterprises in the infrastructure market has been so crucial in the case of the People’s Republic of China (PRC), India, and Indonesia, for example, that it is clear that a variety of different delivery and financing constellations has to be scrutinized. There is also a need for trust building on both the public and private sides for confidence in each actor’s credibility and capability in order to provide an enabling platform to try out new partnership and financing solutions. Forging partnerships between public and private sector actors should not be based on the frenzy around public-private partnerships, but the clear identification of an actor’s value-add to a project, for instance through their engineering expertise, which improves project preparation and introduces innovative design solutions.

Disruptive thinking is also needed to ensure different financing modalities to address changing demand for infrastructure investment.

There is currently no lack of different options to finance infrastructure provision and to add on to existing financing modalities. However, against traditional settings, such modalities and their application and use in particular ways require a recalibration to the needs and demands of market players. Discussion is needed about such actors’ willingness to engage in non-traditional modes of, for instance, subnational or local currency lending, and different forms of securitization of assets and investments.

A fourth issue is that an understanding of infrastructure provision in a national context should be supplemented by an analysis of inter-regional infrastructure integration and cooperation.

With trade, migration, and other functional interlinkages binding together countries in Asia’s subregions, infrastructure provision becomes increasingly a matter of cross-border coordination and holistic planning. This can catalyze regional interconnectedness and better respond to the rising demand for interlinking infrastructure.

In addition, rising infrastructure provision needs to take into account increasingly important demands for low-carbon, climate-resilient solutions.

Growing economies face challenges regarding poor access to infrastructure and financing gaps to meet increasing investment needs. However, responses to climate change impacts and related mitigation and adaptation targets also have to be met through more effective and efficient infrastructure provision. This underscores the potential role for technology transfer between countries. And it also means considering infrastructure provision in relation to broader development agendas, such as the Sustainable Development Goals, Habitat III, and COP21.

Lastly, infrastructure provision is also a question of knowledge transfer and policy reform. ADB is an institution that has the necessary experience across very different developing and developed countries to provide advice to its member countries on how policy reform can be conducive to a more efficient planning, financing, and provision of infrastructure. Knowledge and experience on legal and regulatory frameworks, such as for public-private partnerships, local-level cost-recovery tariffs, and matters of land acquisition, are best shared between countries in the region, for which ADB offers a platform for exchange and mutual learning.

These lessons arose out of a recent gathering of experts to discuss infrastructure needs in Asia’s three largest developing countries—the PRC, India, and Indonesia—and will form the basis of a paper to be published soon.