Infrastructure limitations in the Asia-Pacific region hold back economic development and will be costly to address, likely requiring a new approach, the UN’s Economic and Social Commission for Asia and the Pacific (UNESCAP) has said in its 2015 survey.

What makes the survey unusual is while it acknowledges the problem is Asia-wide, it makes the point that Southeast Asia is also dramatically underinvesting in its infrastructure. The report also outlines how the issue can be tackled both within Asia and in its Southeast region.

“Government spending on infrastructure has been chronically low in Indonesia and the Philippines, and almost non-existent recently in Thailand,” UNESCAP noted. Public infrastructure outlays have dropped from an average of 6% of GDP in the period 1980-2009 to about 4% today in Southeast Asia, it added.

In tackling the problem, UNESCAP is clear funding will have to come from new sources. This means going beyond – well beyond – the traditional mix of local tax receipts and other countries’ overseas aid budgets.

The new sources should include regional capital markets through the development of local currency bond markets, and public-private partnerships to leverage financing as well as skills, UNESCAP said.    

It also made it clear this is not a small-scale issue.

Pointing out the new China-led Asian Infrastructure Investment Bank (AIIB) and BRIC’s New Development Bank (NDB) have US$50 billion and US$100 billion, respectively, at their disposal, this falls far short of annual infrastructure requirements of US$800 billion throughout Asia, according to UNESCAP’s estimates.

Though those figures are staggering, UNESCAP offered some advice both Asia-wide and for Southeast Asia.

For the former, there are innovative methods such as leveraging the credit rating of financial institutions to guarantee domestic infrastructure bonds.

Bonds figure prominently in the remedy outlined for Southeast Asia, with UNESCAP implying but not saying openly the region’s surplus might be better used in its own infrastructure development than being parked in US Treasury bills. 

“Southeast Asian countries can cooperate in mobilizing regional savings, including foreign exchange reserves and assets held by institutional investors, such as pension funds and insurance companies,” UNESCAP said. “Examples include the ASEAN+3 Bond Market Initiative for developing local currency bond markets; and the ASEAN Infrastructure Fund.”

As for where all this money will go, while Southeast Asia was mentioned as an under-investor, the bigger and more pressing problems are elsewhere, with two very different regions, the South Pacific Islands and South Asia, topping concerns, said Shamshad Akhtar, ESCAP executive secretary.

That said, Akhtar was clear about the scale and scope of the problem. “Infrastructure shortages are acute across the board,” she said at the survey’s launch press conference.

In the South Pacific, the problem is a distinct lack of cost-effective facilities, creating high logistics and shipping costs.

The issue is more acute in the South Asian nations of India, Pakistan, Bangladesh, Nepal, Sri Lanka and Bhutan, where the infrastructure of many ports needs to be modernized to handle cargo efficiently, particularly containerized cargo. Land access to ports and connections between port and hinterland also needs to be improved and matched with better port-handling capacity. On top of this, direct shipping links among the ports of neighbouring countries can be further developed to reduce transport times and costs.

“We really have to enhance connectivity, and you have to be looking at multimodal,” said Akhtar.

One part of Asia that got off if not lightly, then at least with less implied rebuke than some others, was China.

UNESCAP acknowledged opportunities have been created by new Chinese policies. Alongside the AAIB, it noted the “one belt, one road” initiative (sometimes referred to as the “new silk road economic belt”) and the “twenty-first century maritime silk road.”

These “should promote large-scale infrastructure investment long the belt and the road for the next 5-10 years,” the study noted.

By Michael Mackey

Southeast Asia Correspondent | Bangkok