SINGAPORE: Growing infrastructure development opportunities in the region will create significant financing needs and ASEAN must do more to attract private capital to plug the gap, said Finance Minister Heng Swee Keat on Thursday (Apr 5).
These development opportunities come as member states press on with efforts to realise the ASEAN Economic Community (AEC) and amid rapid urbanisation within the region.
“We should step up our efforts to crowd in private capital on ASEAN infrastructure projects,” Mr Heng said in his keynote speech at the 8th World Bank-Singapore Infrastructure Finance Summit.
“The opportunity set is large, but much work is needed to mainstream ASEAN infrastructure financing as an asset class.”
Citing figures from the Asian Development Bank (ADB), ASEAN’s infrastructure investment needs will total US$2.8 trillion (S$3.68 trillion) between 2016 and 2030, or about US$184 billion annually.
Traditionally, much of the responsibility for infrastructure spending has fallen on the shoulders of the governments, said Mr Heng.
AdvertisementAdvertisementBut as ASEAN continues to prioritise infrastructure spending to sustain growth, it must look beyond the public sector to finance these expenditures.
“There is a genuine opportunity to attract long-term institutional investors into infrastructure financing."
ASEAN “must remain committed and united to mainstreaming ASEAN infrastructure as a viable asset class and crowding in private capital”, he said.
PROMOTING ASEAN AS INVESTMENT BLOC
While there have been successful examples of ASEAN members tapping the private capital market for infrastructure financing, more collaboration can be fostered in three ways.
These include increasing visibility, improving bankability and enhancing data availability of investment opportunities and projects in the region.
Mr Heng said greater awareness of the region’s investment opportunities is key to unlocking private sector participation. Citing a PwC report released this year, he added that “there are a number of good sector-related but geographically diversified opportunities in ASEAN”.
In the energy sector, for instance, there are about 77 renewable energy projects in hydro, solar, wind, geothermal and biomass, geographically spread out across ASEAN.
Meanwhile in transport, 219 road and bridge projects are in the pipeline amid rapid urbanisation and increased mobility.
“We can capitalise on investors’ specialised interest in a particular sector by promoting ASEAN as an investment bloc,” said Mr Heng.
On improving the bankability of ASEAN’s infrastructure projects, there are a number of ways to do so.
First, the goal is to draw in private sector participation on projects that provide reasonable returns with reduced project volatility, he said.
“Where the project is appropriate for private financing, but where the expected revenue may not cover costs fully, governments can step in to increase the bankability, by providing co-funding, raising user charges, or extracting additional funding from value created from the project.
“Where there are sufficient revenues to cover cost but exposure to certain risks remain high, risk mitigating measures such as government guarantees and credit enhancements can come into play to reduce the risk premium,” Mr Heng elaborated.
Multilateral development banks (MDBs) can play a role here, he added while raising the example of the World Bank’s International Finance Corporation (IFC) Managed Co-Lending Portfolio Program.
At the same time, in-country capabilities in the areas of project selection, preparation and implementation must be improved through capacity-building workshops for ASEAN officials and agencies.
Good project structuring and proper risk allocation, which can be done in collaboration with the MDBs and private sector professionals, will also help address investors’ key concerns, said Mr Heng.
Another way to improve bankability is through the development and use of standardised documentation, which will provide investors with greater assurance. “Standardisation of project documentation reduces costs and uncertainty, and helps identify common risks, issues and solutions,” he said.
As for enhancing data availability on ASEAN’s infrastructure investment opportunities so as to attract international investors into the region, Mr Heng said: “We will continue to support the development of ASEAN infrastructure benchmarks and promote inclusion of ASEAN projects in global benchmarks and indices."
FINANCING INFRASTRUCTURE BUILDING
On its own, Singapore has set up an Infrastructure Office called Infrastructure Asia, while having its statutory boards and Government-owned companies to explore issuing bonds to finance infrastructure building.
These two efforts, announced in the recent Budget, hope to support infrastructure development throughout ASEAN, said Mr Heng.
The former, which will commence operations from this month, is intended as a “platform to connect local and international stakeholders across the value chain, enable information exchange, facilitate infrastructure investments and connect infrastructure players with relevant professional services”.
One of the key initiatives of the Infrastructure Office will be to develop a multi-year capacity-building programme for regional Government officials, he said.
Meanwhile, the consideration of issuing bonds to finance infrastructure building can spur more participation from the private sector and help to catalyse the development of a more vibrant long-term infrastructure bond market in ASEAN, Mr Heng added.
Earlier in his speech, the finance minister touched on the need for a strong infrastructure development agenda in ASEAN. This will boost member states’ productivity and economic competitiveness, and lift the region’s long-term economic potential, he said.
“Sustaining infrastructure development is a challenge for every ASEAN member state. We all stand to gain much from sharing our experiences and helping one another,” he said, referring to the discussions that the ASEAN finance ministers would be having at Thursday’s summit.
The finance ministers of ASEAN member states are gathered in Singapore this week for the 4th Asean Finance Ministers and Central Bank Governors' meeting. Singapore is the ASEAN chair this year.
For the meetings in Singapore, the ASEAN finance ministers will be focusing on three areas, namely how to sustain growth, boost resiliency and foster innovation.
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