Southeast Asia at forefront of global infrastructure boom

Southeast Asia at forefront of global infrastructure boom

Southeast Asia regional markets are at the forefront the global construction boom, and will need to do everything they can to enable investment.

Recognizing the importance of infrastructure spending on economic growth, a number of large construction projects are popping up over Southeast Asia.

A recent PwC report undertook an in-depth analysis of the infrastructure market in 49 countries, accounting for 90 percent of global economic output. The report found that the Asian market is predicted to represent nearly 60 percent of global infrastructure spending by 2025.

This infrastructure spending is driven by China’s growth, and is boosted by growing urbanization and increasing prosperity in regional emerging markets. What types of projects are expected for the region? And what can emerging markets do to attract investors?

Exciting Projects Expected

Indonesia is one of the countries at the forefront of the region’s infrastructure boom. President Joko Widodo has announced plans for a “Sea Toll Road”, which will completely upgrade Indonesia’s port network.

This will involve modernization of existing ports and the development of new ones. It is argued that this will help connect Indonesia’s islands, while also reducing congestion to allow a greater amount of cargo to pass through. This in turn will attract manufacturing and further develop the economy.

As these statistics show, Indonesia’s logistics performance, defined as the management process for the movement of goods, is currently lagging behind others in the region.

The World Bank has ranked Indonesia 53rd in its Logistics Performance Index, with national logistics costs accounting for 26 percent of the country’s GDP. In peer regional countries this figure is below 10 percent. It is believed the Sea Toll Road could reduce logistics costs in Indonesia by 10 to 15 percent.

Joko Widodo has confirmed that the government will spend $429 billion on infrastructure upgrades in the next five years. While the government will cover much of this, investors are being sought to cover an approximate $7 billion shortfall.

The Philippines is also expected to spend on a number of infrastructure projects in the coming years, including an Entertainment City and a Clark Freeport Zone. The first of these, also known as Bagong Nayong Pilipino, is being billed as Asia’s Las Vegas. Expected in 2018, it will be a large gaming and entertainment complex, situated on reclaimed land in Manila Bay.

Some of the many expected benefits of the complex include a minimum US$4 billion investment commitment, large-scale development, a capacity to accommodate a million tourists annually, and the provision of at least 40,000 jobs.

Infographic courtesy of East-West Center from ASEAN Matters for America (2014)

The Philippines’ Clark Freeport Zone is an ongoing project based at the site of Clark Air Base, a former US Air Force Base. The Philippines is seeking to transform the area by 2020 into an industrial estate and logistics hub with facilities for IT, technology, business, education and aviation.

According to the Clark Development Corporation 2014 mid-year report, revenues and income were maintained at an average cash position of P2 billion for the first half of the year. Employment was at 72,875 and export was at US$2.12 billion.

The Clark Freeport Zone, in conjunction with another Freeport Zone at Subic Bay, contributed more than 10 percent of GDP in 2014, with a combined export value of $6 billion.

Creating a Business Environment for Investors

While a proportion of this region-wide infrastructure spending is government-driven, the need for additional investors cannot be understated. It is therefore important that these Southeast Asian countries create a favourable business environment to attract investors.

However, despite improvements, there remain regulatory, political and institutional challenges.

Government accountability and transparency will be vital components for private sector investment. Undoubtedly, this is something that has greatly improved in recent years. However, as the recent 1MDB corruption scandal in Malaysia has shown, efforts can still be made to improve this further.

In addition to enhanced accountability, a number of Asia’s developing economies do not have clearly defined Public-Private Partnership (PPP) policies for infrastructure and goods procurement. There are often bureaucratic delays and countries may have weak regulatory and legal frameworks that can enhance risk for investors.

Securing land rights can also be difficult, and this can have an impact on the environment, local citizens and food security. Ultimately, these challenges will have to be overcome if the region wants to continue to attract investors and drive regional economic growth.

Categories: Asia Pacific, Economics

About Author

Laura Southgate

Laura Southgate is Lecturer in International Security at the Centre for International Security and Resilience, Cranfield University, located at the Defence Academy of the United Kingdom. She has a PhD in International Relations from the University of Otago, New Zealand, and an MA in International Relations and Security, and a BA in Law and Politics, from the University of Liverpool.