Investing to build a greener Asia

Published on Thursday, 03 May 2018

Published by Jackie B. Surtani on Thursday, 03 May 2018

To fill Asia’s infrastructure investment gap, the private sector’s share needs to be three times its current level.
To fill Asia’s infrastructure investment gap, the private sector’s share needs to be three times its current level.

Developing Asia needs over $26 trillion in investment until 2030 to bridge its infrastructure gap. That amounts to $1.7 trillion a year. It will take the combined efforts of both the public and private sectors to address this staggering investment requirement.

We have seen strong political will to promote sustainable infrastructure development in the region and coordinated efforts by various countries are underway to include the Sustainable Development Goals in national economic plans.

But, to fill Asia’s infrastructure investment gap, the share of the private sector needs to be three times its current level. Is this achievable?

There is certainly demand for quality investments that offer stable returns. And that demand is growing, particularly in Western Europe and North America, where a wave of new debt and equity infrastructure investment platforms has emerged.

  Delivering bankable projects requires sophisticated government support

So, is it possible to create similar demand for infrastructure investments in developing Asia? And how?

Without a doubt, a committed and supportive government is essential to engage the private sector. Delivering bankable projects requires sophisticated approaches by governments.

Supportive legal and regulatory frameworks must be created, public and private sector roles optimized, and transparent bid processes designed to create value for money. Together, these are the keys to galvanize higher levels of private investment.  

The financing landscape in Asia has also been constantly evolving. International banks, traditionally a major player in infrastructure financing in the region, have reduced their involvement since the Basel III regulations were implemented.

  How can the private sector fill Asia’s infrastructure investment gap?

Innovative and diverse financing modalities have emerged. These include green bonds, local currency finance, optimized blended finance, and credit enhancements – all areas where ADB has been very active in recent years.

To cite one recent example, last year we financed ADB’s first private sector infrastructure project in the Pacific, a 4MW solar farm in Samoa, using a blend of capital from ADB’s balance sheet and concessional financing from the Canadian Climate Fund for the Private Sector in Asia.

As governments move to improve the regulatory and business environment for private sector investment, multilateral development banks (MDBs) have similarly adapted to support these agendas.

Going beyond the traditional role of providing project finance liquidity, MDBs like ADB have strengthened their capabilities to support the design of legal and regulatory frameworks, the development of local currency markets, and in pioneering alternative financing techniques such as blended financing and green/sustainability bonds.

  Private investment can only flow unimpeded with enabling environment

For instance, in the Tiwi-Makban geothermal project bond, ADB offered a partial credit guarantee to a local lender in the Philippines. This was the first project bond in Southeast Asia (outside of Malaysia) since the 1998 Asian financial crisis, and also the first certified Climate Bond in the region.

When encouraging private sector participation in Asian infrastructure development, we must remember that mobilizing private capital is not the end goal, in and of itself. Development should be inclusive, with care given to ensure that all stakeholders benefit from projects. That’s why at ADB we strive to ensure that the welfare of the poorest and most vulnerable is prioritized, while creating a platform for sustainable economic growth.

Private sector investment is becoming increasingly critical to infrastructure development in Asia. But it can only flow unimpeded if governments create a conducive environment for private sector participation to catalyze growth.

We need a solid framework for the private sector to contribute its enormous resources to uplifting the lives of billions of people in the region in an inclusive and sustainable manner.

This blog relates to the 2018 ADB Annual Meeting seminar Private Sector Participation in Asian Infrastructure Development. Follow the 2018 ADB Annual Meeting on Twitter @ADB_HQ using the hashtag #ADBManila.