Experts: ‘Lack of political leadership and strategy is holding back ASEAN infrastructure’

Pictured, from left, are David Sayer, Chairman - High Growth Markets, KPMG LLP UK, Michael Lawrence, CEO of Asia House, Munir Majid, Chairman of CARI and President of ASEAN Business Club and Gregory Hodkinson, Chairman of Arup Group. Photo by Miles Willis

Pictured, from left, are David Sayer, Chairman - High Growth Markets, KPMG LLP UK; Michael Lawrence, CEO of Asia House; Dr Munir Majid, Chairman of CARI and President of ASEAN Business Club; and Gregory Hodkinson, Chairman of Arup Group. Photo by Miles Willis

Experts: ‘Lack of political leadership and strategy is holding back ASEAN infrastructure’

28/10/15

By Naomi Canton

By 2020 Asia will need to have spent approximately US$8 trillion on infrastructure in order to maintain current levels of growth, according to the Asian Development Bank.

In the ASEAN (Association of Southeast Asian Nations) region the infrastructure required includes roads, ports, energy, power generation, railways, sanitation, transport, technology, schools and hospitals.

But infrastructure development is being held back by a lack of political leadership, a lack of stability, a lack of strategy and domestic day-to-day concerns, all of which distracting the attention of ASEAN member states’ political leaders.

These were some of the comments made at the session Developing ASEAN: financing opportunities, held during the high-level UK-ASEAN Dialogue strategic conference, held at Asia House.

The ASEAN region is home to a population of 625 million. It represents a combined GDP of US$, 2.4 trillion, is the third largest economy in Asia, and is currently the seventh largest economy in the world but set to be the fourth largest by 2050.

“ASEAN needs infrastructure and the countries that need it most are Myanmar and Indonesia,” stated Dr Munir Majid, Chairman of CIMB ASEAN Research Institute (CARI), Chairman of Bank Muamalat Malaysia Berhad and President of ASEAN Business Club, one of the expert panellists at the session.

Majid said that ASEAN’s infrastructure needs were estimated to be worth $60 billion a year from 2010-2020 according to the Asian Development Bank, but that there was “a lack of political leadership” right now to build it.

“Indonesia’s interest [in infrastructure] has diminished with Jokowi [the Indonesian President Joko Widodo]. Other leaders’ interest has diminished [in infrastructure] because of various distractions,” he said. He added that despite that he was optimistic about the infrastructure development of Myanmar, which will hold its first free and open elections since 1990 on 8 November.

“In Myanmar we expect continuity. I think the government might get it right regardless of the outcome of the election,” he said.

But not mincing his words, he said the solution to plugging the infrastructure gap in ASEAN was to “not rely on the leaders as there is no political leadership.”

He said the financial system needed to be more integrated and suggested the private sector latched on to working groups in the ASEAN decision-making process.  “There is a huge maze of committees,” he pointed out, and he said listed infrastructure funds would help.

There are already enormous projects in the pipeline which include the ASEAN Highway Network, gas pipelines and the Singapore Kunming Rail Link (SKRL) project. But Majid said high speed rail was expensive and countries such as Laos may not be able to carry the debt.

So what impact will Chinese President Xi’s Belt and Road initiative [a Chinese Government initiative to strengthen infrastructure, trade, financial and cultural exchange and improve connectivity between China and Europe along ancient ‘Silk Road’ trading routes] have on the ASEAN region?

It offers opportunities and threats to Southeast Asia, said another panellist at the session Gregory Hodkinson, Chairman of Arup Group.

“When we look at the way it’s implemented there will be winners and losers. I would recommend that the governments of ASEAN develop their own infrastructure plans for the region first and coordinate this in a way that is strategic,” he said. “Now they have the opportunity to build infrastructure for many generations to come. It would be remiss of ASEAN to follow western models as the world has changed,” he said.

“China does very comprehensive planning of physical hard and soft infrastructure. The conventional thinking is that as big cities are getting bigger they will get congested to a point of failing. You need an underground metro network once you reach the size of somewhere like Jakarta and the sooner you do it the better,” he said.

The Belt and Road initiative has huge implications for global trade, supply chains and connectivity, said another panellist David Sayer, Chairman – High Growth Markets KPMG LLP UK.

“China will build less going forward,” he said.  “The AIIB (Asian Infrastructure Investment Bank) does have a big role to play and it’s already giving greater impetus to the Asian Development Bank. There is no shortage of private finance for credible projects and no shortage of debt. Quantitative easing has produced a huge amount of funding for long-term growth. Will the AIIB get in the way of or leverage private funding?  The indications we have are that it will leverage it.”

He said smart infrastructure was important in order to simplify the future supply chain.

South Korea, Japan and China were already dominating the infrastructure sector in ASEAN but companies in the West needed to “believe there was room for them,” he said.

He pointed out that public-private partnerships (PPPs) were already working successfully in countries like Singapore, Malaysia and the Philippines and “there had been real progress in Thailand.”

But on the plus side the ASEAN region has a better ease of doing business than BRIC countries and a high level of investment, he said.

“625 million people is a huge demographic dividend,” Sayer added. Southeast Asia’s working-age population will account for 68 per cent of the region’s total population by 2025.

“ASEAN could replace China as the world’s manufacturer,” he said.

He said funding for infrastructure was available from the government and private sector but the regimes that are corrupt will only be able to use government money.

“The main challenge is the capability of governments to deliver,” he said. “Some have a track record and the rest are yet to be proved. There is an issue of government affordability but debt levels are below that of the US and EU. Then there is corruption and the rule of law. Investors need to see progress on both. There are cross-border political hurdles but the ASEAN Economic Community [the goal of economic integration in ASEAN] will make progress to smooth those out.”

naomi.canton@asiahouse.co.uk

To read what business figures such as AirAsia’s Tony Fernandes feel about UK-ASEAN two-way investment click here. To read UK Business Secretary Sajid Javid’s speech in which he calls for more  UK-ASEAN bilateral trade and investment click here. To read the other stories from the UK-ASEAN Dialogue click here.

Asia House is co-hosting the 2015 World Chinese Economic Summit, which takes place in London 10-11 November and examines the economic rise of China and ASEAN. To read more about that event and to register click here.