The money is there for the taking. But the problem is limited supply of bankable infrastructure projects in the region.
Currently, the private sector invests just over $60 billion a year in infrastructure in developing Asia.
ADB estimates that this number would have to triple or quadruple to about $200-250 billion a year to meet Asia’s infrastructure needs over the next 15 years.
Now, that may seem pretty daunting, but we believe there’s a large potential for increasing private participation.
The reason for this is that infrastructure is fundamentally an attractive asset. It offers good return, low correlations with other assets, and stable and predictable long-term cash flows.
There’s a really big pool, around $50 trillion, in global capital from pensions, insurance companies, sovereign wealth funds that is looking for this type of investment.
So, it’s not finance that’s fundamentally the problem here.
There’s money that’s there for the taking. The issue is more the limited supply of bankable projects in the region.
To address this, governments would need to make progress on three fronts.
First, they need to get better at planning, designing, and doing due diligence on infrastructure projects, so that private investors know these are good investments.
The second is that the regulatory and institutional framework needs to be more conducive to private investment.
Third, developing Asia needs to deepen its capital markets.
Fortunately, many of the countries in the region are making progress on these fronts. That should increase private participation in infrastructure going forward.