What do you think is driving the growing infrastructure gaps throughout emerging and developing economies in Asia?
LEE: The three main driving forces are demographics, economics and politics, which are interdependent. If you look at demographics, you can see a lot of similarities between parts of Asia and Africa, where there is also a large infrastructure gap and a rapidly growing young population looking for jobs. Governments need to develop primary and secondary infrastructure to support growth in industries that can create jobs for these people. I think that these demographic trends will cause the infrastructure gap to continue growing.
Economics is related to demographics: there are people migrating from rural to urban areas across Asia, and more people are joining the workforce. That alone drives the need for investments in infrastructure and urban solutions. Increasing technological connectivity enables young people across the region to see what life is like outside of their hometowns, which fuels individual demand and aspirations.
Politics addresses the people’s needs and thus affects the development of infrastructure. However, a clear and consistent socio-economic compact is often missing. In Singapore investors will lend money for infrastructure projects because they know the political risk is extremely low. In other parts of Asia, however, this is not always the case. Many political leaders want to create infrastructure projects, but they also want to protect their markets and retain their ownership over assets.
The big question is: how can we safeguard infrastructure built by foreign investors? Multinational participation and multilateral agreements play a significant role in managing and mitigating potential political risks. This can be achieved somewhat at the bilateral level. Nevertheless, this remains one of the key gaps – how to manage and mitigate political risks.
How can countries with pressing infrastructure needs direct global capital flows towards their desired projects?
LEE: At the macro level, it is important to have a very clear and consistent macroeconomic growth strategy – a 10- to 20-year plan, not a three-year plan. With a clear blueprint, timeline and commitment from the government, investor confidence will increase, and naturally the project funding will flow, because these strategies will mitigate a big part of the risk.
Governments must also be able to execute their strategies through legislation and reform at a local level. A good case study is China: they have prospered in recent decades, in part due to substantial investments in infrastructure and education. People often forget that alongside these investments, China joined the World Trade Organisation in 2001, which meant they had to commit to very significant market liberalisation. In the past few decades no other big country has liberalised to the same extent. This demonstrates that infrastructure can drive growth, but it has to be coupled with very open and clear economic strategies.
To what extent will infrastructure development in Asia be shaped by transnational initiatives by dominant geopolitical powers in the region?
LEE: China’s leadership will enable more projects to be implemented – it can provide political certainty where other countries cannot. If a utility plant somewhere in South-east Asia is funded or co-funded by China and the local government wants to expropriate and nationalise it, I believe the local government will think twice. Furthermore, if the Asian Infrastructure Investment Bank, World Bank and Asian Development Bank are involved, the political risk will be significantly lower. Size does matter at times. So far, there has been a lot more momentum in transnational infrastructure coming from China. While China’s projects seem to be a lot more comprehensive under the One Belt, One Road initiative, Japan’s projects have tended to be more selective.
China, of course, has its own national economic agenda. They are trying to secure a plurality of trade routes and improve regional market access. If other countries were in the same strategic position, they would probably adopt similar policies. Regardless, in the long term this will improve connectivity – both physically and informationally – throughout Asia.
What is your assessment of the risk-reward balance for the emerging and developing economies of Asia when it comes to participation in the One Belt, One Road initiative?
LEE: The rewards greatly outweigh the risks. Indeed, the real risk for some developing and emerging countries is creating “white elephants”: projects that do not have the demand to support their operating costs. This risk is compounded if they are not serious about opening up their economies and entering the global market. In that case, who will use the new ports and airports? Who will use the additional utilities? Therefore, I believe the risk does not come from foreign infrastructure investment, but rather from the host governments not sticking to their economic strategies. This is where Singapore can play a role: from our past developmental experiences, we can help in a fair and neutral way, structuring projects from the beginning and ensuring their long-term success.
Singapore is an open and neutral economy. We see ourselves as an infrastructure hub, but we have no political agenda for infrastructure. Indeed, it is in our national interest for Asia and South-east Asia to prosper, as this is our hinterland. Asia needs a place like this, and our location, ecosystem and openness mean that governments wanting to execute a project can come to Singapore to improve its bankability, and to gain access to expertise in structuring, financing and execution.
Lee Ark Boon is the CEO of International Enterprise Singapore
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