$32B will be invested in SEA in 5 yrs

Sunday, 06 December 2009

(Posted by CAAI News Media)

SOUTHEAST Asia will invest $32 billion in transport infrastructure over five years from 2010 to 2014, a KPMG study has projected.

Cambodia, Laos, Myanmar and Vietnam are projected to witness the highest average annual expenditure growth, while the Philippines and Singapore are projected to witness positive but very modest transport- expenditure growth at rates below 2 percent.

The study extrapolates existing levels of infrastructure spending in the 10 economies of Southeast Asia, based on differing growth rates for each of the economies. Despite this, the countries’ investment needs will likely continue to outstrip expected investment growth.

“The growth trend for the Philippines will be affected by the investment appetite of current infrastructure investors, and by the ability of the government to attract new companies to participate in proposed BOT projects. Also, the priorities of the new administration by 2010 would have an effect on the Philippines’ infrastructure-spending trend,” according to Michael Guarin, head of Manabat Sanagustin & Co.’s Infrastructure Team.

“With such extensive investment needs for the next five years, many governments in the region have not yet built a consensus on how future infrastructure needs will be funded. Private-sector investors can be a part of the solution if they are able to demonstrate the value they can bring to the process,” said Julian Vella, Aspac leader for KPMG’s Global Infrastructure practice.

“This represents a vast scale of opportunity for private-sector infrastructure investors and providers with the skills, resources and expertise to develop the right regional strategies.”

The KPMG report identified four countries—Indonesia, Malaysia, Singapore and Thailand—that will continue to account for 80 percent of investment within the region, despite markets, such as Vietnam and Cambodia, being predicted to experience the highest growth rates in the region.

“This suggests that the big four markets should be a continued focus for private-sector investors, but that they may need to refine their strategy to better identify opportunities and deploy resources into other neighboring markets as well, which although smaller have high potential,” Vella added.

“Nations such as Vietnam, the Philippines and Indonesia have usually drawn on international financing institutions and official development assistance to improve their transport infrastructure. However, in recent years, they have been exploring potential for public-private partnerships [PPPs].”

If infrastructure projects are being set up through disciplined procedures, such as PPPs, this can bring many benefits in terms of better allocation of risks and costs between the parties involved. However, in markets that are relatively new to the process, PPPs can take time to establish and are unlikely to meet short-term objectives, such as economic stimulus. Private-sector partners will invariably seek reassurance that their investments are aligned to the long-term needs of a country and can deliver returns over the life of the project.

“With over 550 million people, and Indonesia alone having a population over 225 million, the region’s significance is undeniable given its manufacturing capacity, cost-effective labor markets and growing consumer classes,” said Lieven Jacquemyn, KPMG regional director for Global Infrastructure based in Singapore.

“We have seen a number of governments implementing stimulus packages that are intended to give a boost to the local economy. While they may serve a useful purpose in the short term, I believe these will have limited bearing on the medium- and long-term needs for infrastructure investment in the region.”

“The Philippines is in need of short-term infrastructure funding as the country needs to repair an estimated $4.36 billion worth of damage caused by storms Ondoy and Pepeng,” said Guarin.

“The global and regional markets for secondary infrastructure transactions also continue to evolve and grow,” said Vella. “In this context, asset privatizations could become an effective way for governments to recycle capital into new infrastructure development.”