A detailed research report on this topic is available here
The Highway of Infrastructure Investment
Censere Hong Kong, October 2012 - Rapid growth in China over the last three decades has led to a maturing of its infrastructure construction markets but they are still dominated by local government and investors. As a result, foreign investors and construction firms have begun pitching for these newly emerging opportunities in Asia. South East Asia is the fastest growing area for infrastructure expansion as local economies move toward modernization. By virtue of their geography – surrounded by sea and with long tracts of coastline – many ASEAN (Association of Southeast Asian Nations) member countries can provide a convenient and cost-effective method of transportation for any large scale of infrastructure project. Furthermore, there are many untapped resources within the region, such as the coal, timber and oil reserves in Indonesia and Vietnam. Figure 1 shows there is plenty of room for ASEAN member countries to grow to the level and standards of other developing and developed countries. In this article, we present and overview of the development landscape in Indonesia, Thailand and Vietnam.
Indonesia
As with most countries during the global recession, the Indonesian government encouraged spending on new infrastructure to facilitate economic growth and reduce unemployment. Infrastructure projects include a six-lane highway designed to span Java, Indonesia's most populous island, as well as other schemes to improve the country's roads, railways and ports.
In May 2011, the Indonesian government launched a 15-year economic development master plan, MP3EI, on the establishment of six economic corridors in Indonesia. Infrastructure is expected to play a pivotal role in the development of these corridors. The traditional approach of funding infrastructure from the state budget is not sustainable because of limited public finances. The alternative is Private Provision of Infrastructure (PPI) and is good news for foreign investors. From figure 2, the recent two years (2010 to 2011) year on year (YoY) growth of GDP per capita are close to 30% and 20%, respectively. Oil export growth in these two years was also very strong.
The Indonesian government has planned or initiated about 58 public private partnerships infrastructure projects (PPPIP) to cope with the development of the country. The population and GDP per capita have continued to grow steadily and led to demand for larger scale and higher quality of utilities provision.
Thailand
Although Thailand is ranked just 25th in the world by GDP and 20th by population, the Thai government has created much needed traction in energy infrastructure projects and has also been at the forefront of green energy development. Their aim is to achieve a secure, sufficient and accessible energy supply to reduce imports; promote green energy and associated R&D; cultivate sustainable energy development with the application of modern technology; comply with environmental commitments; share responsibility for environmental impact; promote public participation in energy management; and to support reduced energy consumption. This sentiment has spread to logistics and mass transit construction.
In the last decade, the Thai energy sector was still the industry with the greatest participation from private parties - there were 25 PPI energy projects during 2001 to 2011. Demand for PPPIP is expected to increase courtesy of steady growth in population and GDP per capita (see figure 3), with the exception of lower GDP per capita during the financial crisis in and a chaotic year in 2011 caused by political unrest and natural disaster (large scale flooding). The rebuild following these latter events is expected to drive up demand for infrastructure further.
Vietnam
Since 1986, when the Doi Moi Policies - economic reforms to move from centrally-planned to market economy - were first launched, Vietnam has been transformed from one of the poorest countries in the world to a buzzing hub of business activity. Around 9-10% of GDP has been invested in transport, energy, telecommunications, water, and sanitation in recent years - a very high level of infrastructure investment by international standards.
Vietnam's urban population is growing by about one million people per year, with much of that growth concentrated in Ho Chi Minh City and Hanoi. It is likely that growth of Vietnam's rural population will level off in the near future, with all new population growth expressed as larger urban populations. Based on other developing countries’ examples, urban growth will present a range of new problems including traffic congestion, pollution, and the need to roll out infrastructure services.
Many foreign investors have set up their manufacturing bases in Vietnam to enjoy the cheap labour cost, however, the current power plant and supply levels cannot keep up with growing demand. The Vietnamese government is planning to build 10 nuclear power plants by 2030. After completion, the ten nuclear power stations will have an aggregate capacity of approximately 10,000MW. The increase in demand for electricity is commensurate with the increase in living standards - reflected by the double digit growth in the last two years GDP per capita shown in figure 4.
Conclusion:
Undeniably ASEAN countries will be among the drivers of world economic growth. Their growth potential cannot be ignored because they are rich in untapped natural resources and have a strong and hardworking labor forces (many seeking to improve their quality of life). At the same time, these countries lack advanced technology and sufficient funds for infrastructure construction. The road for foreign investment is not smooth and many factors - including local regulations, norms and culture - are critical in determining the return from foreign investment.
A detailed research report on this topic is available here