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‘Infrastructure gap’ threatens Asia’s growth

MANILA — Looking out at the bumper-to-bumper morning traffic crawling along the Philippine capital’s main avenue, taxi driver Ranilo Banez shakes his head in frustration.

MANILA — Looking out at the bumper-to-bumper morning traffic crawling along the Philippine capital’s main avenue, taxi driver Ranilo Banez shakes his head in frustration.

Congestion has become so bad as the economy grew, he said, that a 10km trip that once took 30 minutes can now stretch to two hours. “We lose so much,” said Mr Banez, 64. “We waste a lot of gasoline and time.”

The Philippines is far from alone. The outpouring of support for a Chinese-led bank to finance infrastructure highlights a gap in Asia’s success story: From power-starved India to Thailand’s overburdened railways, developing economies face a shortage of basic facilities so severe that it threatens to hold back growth and living standards.

Manila and other cities are choked with construction sites for office and apartment towers. But spending on roads, railways and other essential infrastructure collapsed after the 1997 financial crisis, and has yet to recover.

“The catch-up they need to do is still considerable,” said Mr Ramesh Subramaniam, deputy director-general of the Asian Development Bank’s (ADB) South-east Asia department.

If spending fails to pick up, “then this could possibly have an impact on future growth”, he said. “Certainly, it is going to reduce the competitiveness of the countries in the region.”

That gap has given Beijing a chance to assert its ambition to be a regional leader, and also fuelled a diplomatic alms race. On top of its planned infrastructure bank, which 57 countries want to join, Chinese President Xi Jinping has launched initiatives to improve road, rail and sea links.

Japan joined Washington in staying away from the Chinese-led Asian Infrastructure Investment Bank (AIIB). Instead, Tokyo responded in June by announcing its own credit package of US$110 billion (S$155 billion) for the region.

The ADB has estimated that developing Asian economies need to invest US$8 trillion (S$11.2 trillion) in the decade through 2020, or about 80 times the planned US$100 billion capital of the AIIB.

India is set to pass China this year as the world’s fastest-growing big economy. To keep that up, its government says, the nation of 1.2 billion people needs to spend US$1 trillion on infrastructure in the five years through 2017.

Prime Minister Narendra Modi in May called for India to speed up building “all projects that will ensure a modern infrastructure backbone”.

India’s most ambitious initiative is the US$100 billion Delhi-Mumbai Industrial Corridor Project, which calls for creating seven industrial cities, high-speed railways, six airports and three sea ports.

Nationwide, the government says India needs 450 new coal-fired power plants. It also plans a US$10.2 billion high-speed train to link Mumbai, the financial capital, with Ahmedabad, a northern industrial city.

In Vietnam, the ruling Communist Party in June approved a proposal for a US$15.8 billion second airport for its business capital, Ho Chi Minh City.

To meet power demand that rises by 10 per cent a year, state media say Vietnam needs to spend US$50 billion in the decade through 2020 and another US$75 billion over the next decade. They put Vietnam’s spending needs for highways at US$22.5 billion in 2015-20.

Thailand has a 3 trillion baht (S$118 billion) building plan for 2015-22 that includes high-speed train routes which will eventually stretch from China through Malaysia to Singapore. It calls for expanding seaports and Bangkok’s commuter trains.

In the Philippines, President Benigno Aquino III in May approved US$1.4 billion in spending for commuter rail in Manila and other projects, bringing the total for infrastructure investment to US$31.8 billion since Mr Aquino took office in 2010.

Mr Bjorn Pardo, founder and CEO of Xend, a delivery company in the Philippines with 250 employees, said it copes with congestion by using custom-outfitted motorcycles instead of trucks.

The ADB says that if the required facilities are built, the region’s people could get an extra US$4.5 trillion in income in the decade through 2020, and another US$8.5 trillion after that.

Many have yet to work out how to pay for those projects.

Before the 1997 crisis, public works spending in many developing Asian economies was equal to 6 to 8 per cent of annual economic output.

Post-crisis, that tumbled to as little as 2 per cent. It dipped below 1 per cent in the Philippines in 2010. Today, it is below 3 per cent in Indonesia, Pakistan and other economies — less than half the level the ADB says is needed to support growth at current levels.

Many governments want to draw in money from pension funds, insurance companies and other private investors.

The Philippines hopes encouraging private investment will help boost infrastructure spending from 3.4 per cent of gross domestic product this year to 5 per cent next year, according to Economic Planning Secretary Arsenio Balisacan.

But many projects have yet to be structured as profit-oriented ventures to repay investors, who are wary of political interference and potential delays over environmental and other concerns.

Mr Subramaniam of the ADB said the region’s total spending is likely to be less than half the amount required.

“The continuing unmet needs clearly indicate that we need more resources and different ways of structuring projects,” he said. AP

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