Bridge to the Future – Infrastructure in ASEAN

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Infrastructure is crucial to economic development.  In fact, economists will use electricity production as a check for the accuracy of GDP growth figures as the two track extremely closely.  Infrastructure creates the environment for economic activity and is an essential element in determining quality of life for citizens.

 

This post deals with the elements of “hard” infrastructure – the fixed assets essential to the provision of transportation, energy, water and sewage, and telecommunications and media.  Other important hard infrastructure categories are schools, hospitals, waste treatment and recycling, public housing and recreational facilities.  “Soft” infrastructure, such as health care, education, social services, etc. are also key ingredients in economic and human development, but the two are fundamentally different in delivery.

ASEAN Member Country Infrastructure Logistics index

 

Country Rank

Index Value

Brunei

 na

na

Cambodia

123

2.12

Indonesia

71

2.54

Lao PDR

143

1.95

Malaysia

30

3.50

Myanmar

145

1.92

Philippines

66

2.57

Singapore

3

4.22

Thailand

38

3.16

Vietnam

67

2.56

 

 

China

29

3.54

India

49

2.91

Quality of trade and transport related infrastructure (e.g. ports, railroads, roads, information technology)

(source: Encyclopedia of Nations )

The ASEAN countries require huge investments in infrastructure to enable economic growth, improve quality of life and build sustainable societies.

A Strategic Approach to Infrastructure

Southeast Asia is strategically positioned between the two most populous countries in the world, India and China.  For most of history, these two countries have had economies of similar size.  In 1950, GDP was almost level.  By 1973, India had more than doubled while China grew close to three times.  Today, China has a GDP more than four and a half times the size of India, having grown more steadily and at a much faster rate.  The Chinese approach to infrastructure is a big reason for this superior economic growth.

The big consulting firms closely follow infrastructure in China and India because these are large and important sectors.   KPMG has a comprehensive report on China here, and Ernst & Young published a recent study on India here.  The E & Y report is an exercise in diplomacy, and is worth reading for that alone.   ADB is the best source for reports on infrastructure in ASEAN and over 70 reports can be accessed here.

India and China have nothing in common when it comes to infrastructure approaches.  Over the recent past, China has invested 30-50% of GDP on infrastructure each year, while India has only spent 3-5%.  China has grown steadily and impressively because of these infrastructure investments; India has grown despite inadequate investment, and at a lower rate.  Surveys of Indian business list a lack of adequate infrastructure as a primary barrier to economic growth in almost every case.

Admittedly, China has advantages over India in terms of land ownership, public consultation requirements, government commitment and the ability to organize and approve capital projects.  Bureaucratic restrictions that slow projects in India are less of a problem in China.

ASEAN needs an approach to infrastructure similar to that of China, and needs to overcome planning and bureaucracy hurdles similar to those of India.  To build an infrastructure foundation for long term GDP growth, spending targets should be in the 30-50% of annual GDP range on a sustained basis.

The ASEAN infrastructure requirements are significant in each major category.

Transportation

Transportation infrastructure is essential for economic activity. .  Moving goods among supply chain partners and to market, people getting to work and school, shoppers getting to stores and tourists moving from place to place – all are engines of economic activity.

This is true for all economies, not just those in earlier stages of development.  In the US, there is a huge issue of crumbling infrastructure, documented here.  Last week, a bridge collapse on an important road in the Interstate Highway system illustrated just how bad the infrastructure situation is in the US.BLACL92CAAEaofJ.jpg_large

As a developing economic area, ASEAN must place even greater emphasis on transportation infrastructure to achieve growth targets.

Singapore is the only urban area in ASEAN that boasts a mass transit system capable of meeting its needs.  All other cities in the region have significant problems, which are compounded every month by population growth and urban migration. 

Vehicular traffic is no better, and traffic jams in some ASEAN cities are nightmare proportions compared to the west.  Bangkok, Manila, Jakarta, Ho Chi Minh City are large urban areas with even larger traffic problems.  The smaller cities are also plagued by traffic jams and slow commutes.

Rail infrastructure is generally antiquated and inefficient; trains move slowly over ancient railways with uncontrolled crossings and rundown terminal facilities.

The region lacks sufficient deep-water port facilities and modern container handling terminals.  Singapore is one of the world’s busiest container ports and Port Klang in Malaysia is next largest in the region at about one-third the size of Singapore.  Thailand, Jakarta, Ho Chi Minh City and Manila are well down the list of the world’s busiest container ports.

These transportation infrastructure shortcomings have an economic price.  Thailand, for example, has transportation and logistics costs of around 14 percent of shipments, according to World Bank figures.  This is almost double of the US, and even allowing for differing shipment values, illustrates a high transportation cost environment.

Energy

Electricity powers economic growth and ASEAN countries are going to require a lot of new capacity.  Some of the countries – Philippines, Indonesia, and Myanmar – are in a deficit position regarding electricity generation currently, and need more power to meet current demands.  At current GDP growth rates, the region’s economy will double every 12 years and electricity capacity will need to grow at something greater to keep up.

The challenge for Southeast Asia is to enable rapid development – programs devoted to rural electrification have to refocus to make leaps in generation, transmission and distribution capability. 

Renewable energy must be a large part of this mix, although there are some hurdles that need to be overcome.  Closer to the equator, wind power offers less promise than in temperate climates, although wind is definitely part of the mix.  Likewise solar power will be an important component in the energy planning of ASEAN.  Geothermal offers some hope in Indonesia, although environmental challenges need to be overcome.

The region’s electric utilities have tremendous challenges in meeting the power needs of their customers and providing a foundation for economic growth.

Pipelines, LNG terminals, and distribution facilities all need to be constructed throughout the region.

Water

The management of water and the supply of clean water to the population is an essential responsibility of government.  With a monsoon climate and the annual threat of floods, ASEAN governments face significant challenge in meeting this responsibility.

The recent Bangkok floods demonstrated the economic and human devastation nature is able to inflict.  Thailand is not alone, as the whole region is susceptible to natural disasters including flooding and landslides.

Dams, weirs, levees, flood control tunnels, and canals need to be built to manage water flow.  Purification plants, water treatment facilities and sanitation are required to improve public health and quality of life.  The supply of clean water is a strategic issue in many parts of the world.

The Price Tag

At recent Chinese levels of investment, the ASEAN requirement could top $10 trillion or more over the next decade.

A future blog post is dedicated to what needs to be done to accomplish this.

 

 

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One Response to “Bridge to the Future – Infrastructure in ASEAN”

  1. […] Bridge to the Future – Infrastructure in ASEAN (aseanbusinesss.com) […]

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