Asia is raising transport costs and damaging the international competitiveness of China and other countries by not spending enough on infrastructure investment, the Asian Development Bank will report on Friday.
In a draft discussion paper to be presented on Friday by Haruhiko Kuroda, ADB president, to a closed-door emerging markets forum in Jakarta, the ADB warns that Asia needs $3,000bn – or $300bn a year – in infrastructure investment over the next decade.
Mr Kuroda told the Financial Times that heavy investment in infrastructure was crucial if Asia was to facilitate further growth. The report says that “despite huge opportunities and large needs”, Asian governments are failing to provide enough “bankable” projects to private investors to ensure that infrastructure projects succeed.
Because of that, the authors say, east Asia is facing an investment shortfall of about $100bn a year, while south Asia is falling short by a further $60bn a year. Key areas affected by the shortfall include roads, power plants and communications networks, the ADB says.
Mr Kuroda pointed to Indonesia as an example of the problem. Infrastructure investment in south-east Asia’s largest economy has fallen from 6 per cent before the 1997-98 Asian crisis to 2 per cent of gross domestic product today. Meanwhile Jakarta is struggling to implement a $150bn infrastructure investment programme unveiled in January 2005, largely because it has failed to address investor concerns.
The 1997-98 crisis, which saw private sector infrastructure investors lose substantial sums as even government-guaranteed projects foundered, “demonstrated that ultimately, projects must be economically and financially viable”, the report says.
“Risk mitigation alone cannot offset either poor economics or poor government policies.”
Asia’s still-growing exports have not yet suffered from infrastructure constraints, according to the ADB paper, but it warns that the export sector could be at risk unless investment spending increases sharply.
The ADB warns that “inadequate” and “uncompetitive” transport, communication and logistics sectors, coupled with high fuel prices, mean that businesses in Asia face high costs relative to other parts of the world when they try to move goods into, out of and around the region.
Logistics costs in China are equivalent to about 18 per cent of GDP, according to the ADB, compared with about 10 per cent in North America.
“Moreover, while logistics costs as a percentage of GDP have declined in North America and Europe, they have actually increased in Asian countries,” the paper’s authors say.
A major reason for the rising costs is the fact that some large cities in Asia have begun to reach their population capacity. Rapid urbanisation is expected to lead to greater infrastructure problems as 500m people move into Asian cities over the next 20 years, according to the ADB.
