Asia facing massive infrastructure gap

By Syed Mansur Hashim, The Daily Star/ANN

Bangladesh — Asia is suffering from a US$26 trillion infrastructure gap that threatens future growth. That is the subject matter of a recent report titled “Meeting Asia’s Infrastructure Needs” by the Asian Development Bank (ADB). Fast-growing economies have been urged to double their spending on transport, power and sanitation. China spends 90 percent of the projected spending which perhaps explains that nation’s phenomenal economic growth. However, as pointed out by the Financial Times in a recent article, “This requires countries across the region to double total annual spending to about US$1.7 trillion in areas ranging from transport to basic sanitation. The warning signals that even a big improvement in infrastructure in the past two decades has failed to keep pace with the rapid growth of economies, population and urbanization. The shortfall is most acute outside China.” Indeed, as pointed out by ADB President Takehiko Nakao: “There is a huge gap still to provide power and roads and railways. All these things are missing.” According to the ADB, more than half the estimated spending should go to transport and a third to power which translates into upgrading and building new ports, expanding railways and rail links, and highways that connect countries to regional and global markets. An additional US$800 billion will be needed for projects that will help an estimated 1.5 billion people who currently have no access to basic sanitation and the other 300 million who are bereft of safe drinking water. One of the largest infrastructure projects of recent times, the East-West Economic Corridor that spans across the Mekon subregion between the coasts of Myanmar and Vietnam, has hit bureaucratic bottlenecks and other regional tensions — critics say, the rate of implementation has not been as expected and hence the obvious benefits have been slow in materializing. Moving to the South Asian region, we find that public-private partnerships (PPPs) could play a major role in advancing many of the envisaged mega projects, but for that to happen some things need to change and change rapidly. There is need for regulatory and institutional reforms that would make it appealing for private investors and open up the prospect of banking finance for PPPs. Countries in our region, including Bangladesh, would have to enact PPP laws, streamline PPP procurement and bidding processes, put into place dispute resolution mechanisms and more importantly, establish independent PPP government units.

A Significant Gap

There is a significant gap between actual investments and what is needed. What is of import is that the ADB believes the gap must be filled by both public and private sectors. We find that a lot of emphasis has been put on finance reforms which, if implemented, is projected to free up additional revenues that could potentially meet up to 40 percent of the gap (or 2 percent of the GDP) for 24 economies (excluding China). The situation gets much trickier for private sector investment to fill up the rest of the gap (3 percent of GDP), which would require an increase in investments from the current US$63 billion to as much as US$250 billion a year over the 2016-2020 period.