This will account for more than 60% of the world’s total spending on infrastructure
SINGAPORE, 25 August 2014 - Asia Pacific infrastructure spending is expected to approach US$5.36 trillion annually by 2025, according to a report by PwC, Developing Infrastructure in Asia Pacific: Outlook, Challenges and Solutions.
The global report, for which Oxford Economics provided research support, analyses infrastructure spending world-wide including Asia Pacific economies such as Singapore, Australia, China, Indonesia, Japan, Korea, Malaysia, Myanmar, the Philippines, Thailand, Vietnam and India. The report also estimates the scale of current infrastructure investment and assesses the prospects for future investment from now to 2025.
Said Mark Rathbone, Asia Pacific Capital Projects & Infrastructure Leader, PwC:
“The role of infrastructure in any economy is critical to the development and promotion of sustainable growth across the Asia Pacific region. There lies immense opportunity in infrastructure development within the economies of Asia Pacific - however, governments continue to under-invest and face challenges in getting infrastructure projects to market and in attracting much-needed funds to finance those projects.”
The huge growth in infrastructure spending will be driven by key factors such as Asia’s economic growing prominence, trade competitiveness, and the current widely recognised infrastructure deficit across the emerging markets of this region.
Asia is now the world’s primary growth engine, with China, India, and Southeast Asia offering a very large consumer base and low-cost workforce, with high levels of natural resources. China is becoming increasingly dominant on the world stage, growing in excess of 7% as it develops a sustainable economy that is expanding its reach globally. In Southeast Asia, the ASEAN block is due to be formed in 2015, which will not only form an important economic counter-balance to China but also allow for more effective trade between ASEAN countries, making them more competitive internationally.
Further, Asia Pacific economies have important trade links with each other. In 2012, intra-ASEAN trade amounted to 24.3% of their total trade volume [i]. In the same year, ASEAN’s trade with China stood at 12.9%, with Japan at 10.6%, with the Republic of Korea at 5.9%, and with India at 2.9%. As these countries become more engaged in the global production networks, the role of investing in infrastructure to facilitate trade becomes more and more significant. For example, through adequate investment in transport infrastructure between 2010 and 2020, China’s trade costs could reduce by as much as 14%, thus enabling further GDP growth for the economy.
The infrastructure deficit across the emerging growth markets in Asia is very substantial - it has been estimated that between 2010 and 2020, Asia will need to spend approximately US$8 trillion on transport networks, water sanitation, utilities and telecommunication networks in order to maintain current levels of economic growth. In order to develop or build this infrastructure, the majority of Asian countries require very substantial amounts of private sector investment coupled with government spending. Without sustained, intelligent investment in needed infrastructure, it is unlikely that the region would achieve its full potential. In a separate PwC report, titled A Summary of Southeast Asian Infrastructure Spending: Outlook to 2025, infrastructure investment in emerging economies in Southeast Asia is expected to grow between 7% and 10% a year between 2013 and 2025.
Mature economies like the USA, Australia, Japan and Singapore face different types of challenges. These econ0mies face significant issues in the areas of population growth, demographic change and the need to develop infrastructure programmes that allow for good education, healthcare and the provision of affordable housing. Ageing infrastructure also requires either rebuilding or refurbishment as mature economies refresh old infrastructure that has not had sustained investment and is therefore inefficient or not usable.
However, one common theme across both mature and emerging economies is budgetary constraint. Very few countries can rely solely on the government to fund necessary infrastructure investment required, irrespective of whether the projects are economic (power, utilities, transport) or social (public education or hospital facilities) in focus. Therefore, there is a great need to mobilise private sector capital that can be invested into infrastructure.
Concluded Mark Rathbone, Asia Pacific Capital Projects & Infrastructure Leader, PwC:
“The demand for Governments to facilitate the investment in infrastructure across Asia Pacific is very apparent. However, one must recognise that the opportunity for such investment lagging behind demand is due to the slow pace of change in improving the way infrastructure is procured in the emerging markets. Until governments recognise the need to address investor concerns, the infrastructure gap will continue to grow.”