Published — Tuesday 4 September 2012
Last update 4 September 2012 7:58 am
BANGKOK: In western Thailand, bulldozers will soon clear land for a highway into Myanmar. In the Philippines, another Manila-area toll road is getting under way. Indonesian leaders promise more railways and airports. Singapore has unveiled plans for a new subway line.
Across Southeast Asia, public works are being expanded by governments needing to counter a slowdown in global demand and sustain an acceleration in growth that has made the region one of the few bright spots in a volatile world economy.
Spending on big infrastructure projects usually spans many years, and a combined figure for how much Southeast Asia is investing this year compared with in 2011 is not available. But anecdotal evidence indicates infrastructure spending is rising.
One key aspect of Southeast Asia being a global bright spot is that some of its governments have strong enough fiscal positions to jack up such spending — unlike many in the West and elsewhere at present. Indonesia, Southeast Asia’s largest economy, says it will raise capital spending by 15 percent in 2013. The Philippines says next year’s infrastructure spending will be more than 19 percent above this year’s allocation.
The Asian Development Bank (ADB) estimates that Southeast Asia’s 10 countries need at least $60 billion a year to fund ambitious infrastructure work. That’s a little bigger than the entire gross domestic product of Myanmar, itself embarking on huge infrastructure projects as it emerges from isolation, another boost to the region.
Big spending on public works, combined with strong domestic demand, partly explains the optimism among many economists in Southeast Asia, a region that has often withered during global downturns due to its reliance on exports.
The Manila-based ADB, for instance, forecasts 5.2 percent economic growth this year across Southeast Asia and 5.6 percent next year, up from 4.6 percent in 2011.
“The increase in economic growth in the Asia Pacific region, amid the global economic downturn, must be supported by infrastructure,” Indonesian President Susilo Bambang Yudhoyono told a recent conference in Jakarta. “For Indonesia, infrastructure development is the main priority.”
Infrastructure projects are not without danger. Execution problems and cost overruns are common. Land acquisition can be thorny — laws sometimes don’t help — and financing can be complicated.
But the benefits of upgrading a country’s infrastructure are clear.
“The short-term impacts of local demand boost and employment generation, for construction and related services, could help create some counter-cyclical effects,” said Arjun Goswami, head of regional cooperation in the ADB’s Southeast Asia department.
“In the medium- to longer-term, improved infrastructure would contribute to lowered costs of doing business, increased market accessibility and enhanced competitiveness.”
The Association of Southeast Asian Nations (ASEAN) groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
Some of the impetus for building roads, rail links, ports and airports is the creation of the ASEAN Economic Community (AEC), which will allow free movement of goods, capital and skilled labor in the region of 600 million people from 2015.
Thailand, for example, is building a 46 billion baht ($ 1.47 billion) highway that will eventually run 160 km west from Bangkok to the border with Myanmar, providing a fast link to the $50 billion Dawei industrial zone being built in Myanmar by Thailand’s Italian-Thai Development Plc.
Arkhom Termpittayapaisith, secretary-general of the National Economic and Social Development Board (NESDB), told a seminar Thailand planned $80 billion in infrastructure spending over the next 10 years, with up to 50 percent of that going into railways to induce a shift from road to rail transport.
“Half of the investment cost will be shouldered by the government. Around 20 percent will be on a public-private partnership (PPP) basis,” he said.
Thailand is also, at massive cost, improving flood defenses after inundations in 2011 battered industry, causing the economy to shrink by 10.5 percent in the fourth quarter from the third.
“The decision to invest in longer-term infrastructure and water-management projects is a timely move by the government, with the right strides capable of attracting private investors and leading to positive multiplier effect for the real economy,” said Radhika Rao, an economist at Forecast Pte. in Singapore.
But, despite the urgency, out of 120 billion baht earmarked for flood-related work in the budget for the year to September, only 83 billion baht had been disbursed by Aug. 8, the NESDB said.
In February, the government pushed through an emergency decree to borrow another 350 billion baht for flood work. As of Aug. 15, just 463 million baht of that had been spent, according to the NESDB.
The upside to that is the benefit to GDP should be more pronounced in 2013. Economists see a similar picture in the Philippines, where PPPs — intended to attract significant private investment — are central to infrastructure projects.
The current government’s program, aimed at improving decrepit roads, ports and airports, is moving slowly, with only one major project, a 4 km toll road from western Cavite province to south of Manila, awarded so far.
The Philippine government said it would offer eight of 22 PPP projects this year, but only a 16.4 billion peso ($ 390 million) project to build 9,301 rooms for public schools has been put to tender.
“The PPP projects are definitely proceeding at a slower-than-expected pace. Accordingly, infrastructure investment will also lag. There will be a missing boost in the event that external demand falters,” said Eugene Leow, an economist at DBS in Singapore. “The PPP story looks to be delayed till 2013.”
In all, the government has set aside 339.3 billion pesos for infrastructure expenditure in 2012. Such spending will hit a record 404.6 billion next year, 20 percent of the budget.
Indonesia has its hands tied on capital expenditure to some extent as around 80 percent of its budget is allocated to mandatory spending such as salaries. Next year it will spend as much on fuel subsidies as on capital spending. But the sprawling archipelago sorely needs to improve its shoddy infrastructure, one of the things holding back firms attracted by its huge domestic market, and the authorities hope a land acquisition law passed in late 2011 will facilitate that.
With the planned 15 percent rise that Yudhoyono announced in August, capital spending will total 193.8 trillion rupiah ($ 20.3 billion) in 2013.
The authorities want to build 559 km of roads, 380 km of rail lines and 15 new airports.
In affluent Singapore, the roads are good and public housing is the envy of most other countries, but a jump in the population in the recent years has caused problems.
The government is helping transport firms buy more buses and trains, and Minister of National Development Khaw Boon Wan said at least 20,000 public housing units would be built next year after 50,000 in two years by end-2012.
In another move to improve transport, Singapore on Wednesday announced plans for a new, 30-km subway line. It expects the first phase of the S$ 18 billion ($ 14.4 billion) project to open in 2019.
Construction makes up just 5-7 percent of GDP in Singapore but it can still provide support when exports are sliding. “When you’re talking about counter-cyclical effects, it can help a little. It keeps the handful of main and sub-contractors going during those down cycles,” said Song Seng Wun, regional economist at CIMB Research.
In Malaysia, a $ 444 billion Economic Transformation Program launched in 2010 is supposed to be mainly funded by the private sector. So far, state-led spending has been pivotal and the flagship project, a Mass Rapid Transit system for Kuala Lumpur, will probably be publicly funded.
Rahul Bajoria at Barclays in Singapore said in general Malaysia had little room for direct fiscal support to help the economy if the international slowdown bites.
But he added: “We sense the government may try to get some of the government-linked companies to ramp up investment spending.”
They have the cash and that could prove effective in mitigating growth risks, he said.
Thai budget figures are opaque but the government has no problem selling bonds and Finance Minister Kittirat Na Ranong said recently public debt was 42.5 percent of GDP, well below the 60 percent seen as a danger signal for developing countries.
Whatever the cost now, better infrastructure is crucial for Southeast Asia to further its development.
“Providing effective infrastructure for trade will be critical to help ASEAN economies move progressively into more complex and higher-value manufacturing and production, including meeting rising demand from a growing middle class in the region,” the ADB’s Goswami said.