Asia needs to tap on private sector for infrastructure funding

Amala Balakrishner

SINGAPORE (Aug 18): Governments in Asia need to turn to private sector investments to help fill the gap of “unsustainable” government expenditure on infrastructure, says Indranee Rajah, Minister in the Prime Minister’s Office.

Citing figures released by the Asian Development Bank (ADB), Indranee says Asia will need some US$26 trillion ($36 trillion) in infrastructure investments up to 2030 in order to meet the needs of a growing population.

“The bulk of this growing population will lead to increase in demand for power, transport needs, sanitation, telecommunications, and water,” says Indranee at the Singapore Regional Infrastructure Summit (SRIS) on Friday. “If you put this into per annum terms, it would mean Asia needs US$1.7 trillion annually, which is more than twice the US$881 billion currently being spent in the region.”

Indranee notes that in Asia, government financing accounts for 90% of infrastructure expenditures, compared to 40% worldwide and 70% among emerging markets.

“This rate of government financing is unsustainable and governments are looking at how to crowd-source private sector investments to help fill the gap,” she says.

Indranee, who is also Second Minister for Finance and Education, went on to delineate several steps that can be taken to encourage infrastructure financing and development.

“A marriage between the public sector project needs and private sector capabilities and expertise is required. Proper feasibility studies and impact analyses are [also] needed to convince both investors and the beneficiary citizens of the benefits of the project,” she says.

To Indranee, the first way to go about this is through a proper legal framework that ensures that companies’ exposure is within their risk appetites and profiles.

To this end, multilateral development banks such as the ADB, the Asian Infrastructure Investment Bank (AIIB) and the World Bank are creating a more conducive and sustainable environment for private players through project preparation facilities enabling a pipeline of bankable projects, she adds.

Drawing reference to how Singapore’s port and airport have been critical to the city state’s growth over the years, Indranee believes that better infrastructure will significantly benefit the standard of living across Asia.

Teo Siong Seng, Chairman of the Singapore Business Foundation (SBF), agrees.

He notes that infrastructure developments saw Singapore’s Gross Domestic Product (GDP) growing exponentially from US$1.9 billion in 1970 to US$364 billion in 2018. With Singapore attaining the first place in the World Economic Forum’s Global Competitiveness Index, the city state is poised to “contribute to [Asia’s] growth,” he adds.

Teo opines that Singapore companies “can play to their strengths and collaborate closely with governments and other stakeholders for projects in the region” on the back of their “expertise across the entire infrastructure value chain, from master-planning and procurement to construction”.

To help facilitate this, the SBF is launching two sub-committees in areas that Singapore companies are competent in: “Built Environment” and “Water”. The committees seek to further strengthen Singapore businesses’ capabilities in these sectors.

“With our deep appreciation of the region and strong legal framework, Singapore businesses are excellent partners for foreign companies or institutions looking to invest and develop in the region,” says Teo.