Asia must tap deep savings, private sector to finance infrastructure

Asia must be creative in finding ways to tap its multi-trillion dollar savings and to mobilise private sector support for new infrastructure needed to sustain growth in the coming years, said Asian Development Bank (ADB) president Haruhiko Kuroda.

"The infrastructure challenge for developing Asia is one of the most daunting we face today. We must work diligently to be innovative, yet financially responsible, in mobilising Asian savings to deliver successful, sustainable and robust infrastructure projects," Kuroda told delegates at the Infrastructure Finance Forum. The event, jointly sponsored by ADB, the APEC Business Advisory Council and Japan Bank for International Cooperation, is being held in Yokohama, Japan yesterday.

Gross domestic savings in emerging Asia reached close to $4 trillion in 2009. Much of this large cash pile has been underutilised, with regulatory obstacles, currency mismatches and underdeveloped capital markets hindering broader financing of essential infrastructure. The needs are immense with ADB calculating that about $8 trillion in new infrastructure investments will be required in the region through to 2020 to support current levels of economic growth.

Of the infrastructure needs, energy and electricity will take up by 40 per cent of the total, followed by transport at about 25 per cent. Social infrastructure for education, health, water and sanitation, and other public goods will account for another 25 per cent. The balance will be mainly investments in infrastructure for telecommunications.

With the public sector unable to meet the immense costs on its own, public-private partnerships (PPP) are essential, and governments should look to strengthen existing legal and regulatory frameworks to attract more private investors and finance from funds and institutional investors.

"Infrastructure funds and local institutional investors, like pension and provident funds, can channel Asian savings to help finance public-private infrastructure projects," said Kuroda.

Further development of domestic capital markets and more local currency lending will also help address currency mismatches which are a deterrent to investors in the sector.

Development agencies are central to expanded investment, and here ADB is actively engaged through activities such as the ASEAN+3 Asian Bond Markets Initiative which is working to deepen domestic capital markets and promote local currency bond issues, and a pilot Credit Guarantee and Investment Facility, which is expected to be operational next year within ASEAN+3 countries.

ADB also works closely with development partners on initiatives such as the Asia Infrastructure Project Development Company which aims to attract private investors to the water sector in the People's Republic of China, and the Cities Development Initiative which invests in public transport, methane capture, energy efficiency and eco-industrial estates and systems around the region.

ADB's infrastructure-related investments are expected to exceed $8 billion annually - or about two-thirds of all its lending - over the next 10 years.