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Jiten Arora, Global Head of Commercial Banking, and Surya Bagchi, Global Head of Project and Export Finance, at Standard Chartered share more in the first of this two-part series. The IAI Work Plan has Foreign initiatives such as China’s Belt and Road Initiative and Japan’s Partnership for Quality Infrastructure promise investment into infrastructure-starved ASEAN countries. Challenges in addressing the infrastructure gap The infrastructure deficit across ASEAN is a very well established fact as a result of many factors, such as policy decisions, lack of bankable projects, weak governance and a lack of transparency. gap in the ASEAN region from 2016 through 2030 is approximately US$2.8 trillion, or US$184 billion annually. Bridging ASEAN’s US$2.8 trillion infrastructure gap by 2030 is a pressing issue for regional governments. Infrastructure investment in ASEAN from 2016 through 2030 is estimated to be about US$2.8 trillion, according to the Asian Development Bank (ADB). Kuala Lumpur, May 22 - If a spending deficit of US$1.2 trillion in six key Asian economies and a rising tide of protectionist rhetoric in Europe don’t seem the most promising combination of business prospects, think again. Surya: The public sector needs to invite participation from commercial banks which are key intermediaries that can help multilateral development banks and development finance institutions mobilise private capital. ASEAN needs to re-think approach to US$2.8 trillion infrastructure gap. However, BRI is a great opportunity for local corporates in ASEAN to collaborate with some of their larger partners who have the necessary funding. ASEAN stands to be a key beneficiary with a number of major projects planned in the region. Therefore, Southeast Asia is currently facing an infrastructure gap of US$102 billion. ASEAN has a massive infrastructure gap but it is increasingly evident over recent years that the region may not be able to fund it. The report highlights the challenges financial institutions face in channelling capital towards sustainable projects, as well as the government measures that could be applied to channel more financing for sustainable infrastructure. That trend will be a win for governments too. In the case of BRI, about 70 per cent of our global footprint overlaps with the BRI countries. Among them, 38 deals (nearly 40 per cent) were related to projects in the ASEAN and South Asia region. The report identifies a lack of a common language around what sustainable infrastructure looks like in ASEAN. In terms of project financing, it is a mix of international, local and Chinese funding. Banks can add value by looking at the viability of each project and advise how to make it feasible by considering numerous aspects including partnerships, financing and risk management. Ahead of the ASEAN Summit in Manila from November 13 to November 14, Rappler looked at how economies in the region compare in terms of infrastructure development, according to … More consistency in identifying E&S risks will improve the way these risks are mitigated not only at the planning stage but also throughout the project lifecycle. Last year, we were involved in close to 100 BRI projects. Particularly for BRI, there is a myth that the initiative is all about Chinese corporates going into markets. The rapid acquisition of foreign direct investment, while welcomed, has resulted in general concerns over the quality and sustainability of infrastructure projects. 2025年のASEANの展望と課題 ASEAN 2025: Vision and Challenges – Prof. Akifumi Kuchiki 日本大学生物資源科学部教授 朽木 昭文 3. What factors influence project selection? According to the Asian Development Bank (ADB), there is a US$100 billion funding gap that exists in the region today, even with the US$184 billion of infrastructure investments by governments. 2 Trillion Yen to ASEAN Countries over 5 Years Mainly for the Two Pillars of “Enhancing Connectivity” and “Narrowing the Development Gap” toward ASEAN Integration in 2015 Disaster Management: Strengthening ASEAN-Japan At the same time, ASEAN governments can play a critical role in helping to facilitate more capital flows towards sustainable infrastructure. These could include tax incentives to encourage a transition to renewables, or blended finance models that make transportation projects more attractive to private players. Jiten: We are the only international bank present in all 10 ASEAN markets. 3 April 2019. Leveraging its deep market knowledge, as well as industry and product expertise, Standard Chartered works with investors, corporations, and governments globally, advising and connecting them to the right local and international partners. As elaborated by Ulrich Volz (2005, cited in Bui and Vo 2007), ASEAN … Available: https://www.mas.gov.sg/news/speeches/2019/keynote-speech-by-mr-heng-swee-keat-at-the-omfif-global-public-investor-launch, [5]Speech by Senior Minister and Coordinating Minister for National Security, Teo Chee Hean, at the 5th Singapore Regional Business Forum on 15 August 2019. ASEAN’s Infrastructure Gap: An Opportunity for Sustainable Finance, https://www.gov.sg/~/sgpcmedia/media_releases/mof/speech/S-20190816-3/attachment/Transcript%20of%20Speech%20by%20Minister%20Indranee%20at, %20Singapore%20Regional%20Infrastructure%20Summit.pdf, https://www.dbs.com/iwov-resources/images/sustainability/img/Green_Finance_Opportunities_in_ASEAN.pdf, https://www.adb.org/sites/default/files/publication/227496/special-report-infrastructure.pdf, https://www.mas.gov.sg/news/speeches/2019/keynote-speech-by-mr-heng-swee-keat-at-the-omfif-global-public-investor-launch, https://www.pmo.gov.sg/Newsroom/SM-Teo-Chee-Hean-at-5th-Regional-Business-Forum, Commentary: ASEAN’s potential contributions to climate action, Commentary: RCEP trade deal an important step forward for the region, Commentary: Myanmar’s 2020 vote endorses NLD but does not resolve issues, Commentary: Changing climate risk to opportunity, Commentary: Singapore can help region emerge stronger, better, more sustainable, ASEAN played central role in driving RCEP trade pact, contrary to perception it is China-led (Straits Times), Sustainability and green finance to be factors in Singapore’s new infrastructure (The Business Times), Humanity’s role as environmental custodian offers hope amid Covid-19 gloom, says marine scientist (TODAY), ASEAN 2020: Singaporean experts evaluate RCEP as an important milestone of ASEAN (VNA), Luhut Pandjaitan Invites Singapore to Partner for Hydropower Development (Tempo). %20Singapore%20Regional%20Infrastructure%20Summit.pdf, [2]DBS & UNEP (2017)“Green Finance Opportunities in ASEAN”. infrastructure as a means to promote ASEAN integration Efforts to narrow the development gap is driven mainly by the IAI Work Plan. In fact, they are currently only able to cover about 50 per cent of the total investment, said the report. Take Standard Chartered for example. So, that is one opportunity that as a bank and with our deep links in China and ASEAN, we are keen to facilitate more of, and be the conduit for corporates and governments alike. Government financing accounts for 90 per cent of infrastructure expenditure in Asia, compared to a worldwide average of 40 per cent. A current funding gap of nearly US$100 billion exists today, making it a top priority for ASEAN governments as poor infrastructure impedes economic growth and constrains the quality of life for communities across the region. You will also know that there is a good amount of private equity money in the market, and private equity investors are looking for the right yield for the right kind of assets. We can advise investors and projects, and share best practices across multiple markets. [4] The city state is already a significant source of funds and expertise for infrastructure projects in the region – an estimated 60 per cent of ASEAN projects have received loans or advisory services from Singapore-based banks. However, the region may be at a turning point. Permission required for reproduction. Globally, the infrastructure investment gap is estimated to be USD15 trillion from now till 2040. [5] As a regional infrastructure financing hub, Singapore can steer the direction of infrastructure development in this region towards a more sustainable path. Surya: My favourite BRI project currently happens to be not in ASEAN but the Middle East. Governments have begun focusing on the right projects but the supporting regulatory, contractual and risk allocation frameworks are still developing in several countries. In fact, commercial banks are the fabric that binds all these parties together by ensuring that projects are structured appropriately and efficiently from day one. Bridging the Development Gap among Members of ASEAN. © Singapore Institute of International Affairs. The disparity in approaches suggests that these E&S risks are unlikely to be dealt with in a consistent manner. Infrastructure access is also marked by fragmentation, with notable differences between low-income and high-income ASEAN countries, between ASEAN and the Pacific Islands countries, and between rural and urban areas. Available: https://www.gov.sg/~/sgpcmedia/media_releases/mof/speech/S-20190816-3/attachment/Transcript%20of%20Speech%20by%20Minister%20Indranee%20at Through partnerships, the local corporates will be able to gain access to new markets and new technology. They are a great way of raising long-term money, especially because they are aimed at projects that are innovative and that are in the renewable energy sector. On the investment front, Chinese funds flowing into BRI countries are also expected to hit US$300 billion by 2030, more than twice the level as of 2017. That way, countries can identify the right financing approach for each project accordingly. Increasing population mobility and communication needs, as well as geographical and environmental factors around trade and sustainability, are also significantly driving demand for infrastructure. It uses a mix of solar power technologies, including storage solutions, to generate solar power even at night, in a cost-effective manner. The People’s Republic of China (PRC) has a gap of 1.2% of GDP in the climate-adjusted scenario. The emergence of cross-border initiatives like China’s ambitious Belt and Road Initiative (BRI) is also expected to be a catalyst to help Southeast Asian countries fulfil their infrastructure gaps. Digital Infrastructure financing gap in Asia is growing significantly, estimated to reach $512 billion by 2040. Hence, Standard Chartered in an upcoming report, titled ASEAN – a region facing disruption; positioning mid-corporates for growth in Southeast Asia (“the Standard Chartered report”) notes that there is a rapid proliferation of infrastructure projects to narrow ASEAN’s gaping infrastructure deficit. It is good for society and economic development, while serving as an international partnership that benefits everybody involved. Singapore, for instance, established the Infrastructure Asia office in 2018 to link up industry players, multilateral development banks, and governments with infrastructure investment opportunities in the region. [2], A new report by the Singapore Institute of International Affairs (SIIA), “Financing Sustainable Infrastructure in ASEAN”, examines the baseline of financing sustainable infrastructure in ASEAN, outlining the environment and social (E&S) standards, frameworks and principles currently adopted by Singapore-based financial institutions. 1. ASEAN faces a long-standing challenge with the lack of good quality, adequate infrastructure. Typically, it has been bank debt, but we have migrated a bit to export credit agencies (ECAs) and insurers. To fill the region's massive infrastructure gap, some businessmen recommend the public-private partnership (PPP) route $60 billion a year needed to address ASEAN infrastructure gap … As demand for infrastructure development soars, how should ASEAN approach its infrastructure needs then? Domestic structural changes and slowing economic growth have prompted many ASEAN governments to make attracting infrastructure investment a top priority. The different economic and political systems are key to the gaps in ASEAN. Infrastructure development across ASEAN, but especially in the Mekong region, has occurred at a breakneck pace. The “Financing Sustainable Infrastructure in ASEAN” report is authored by the SIIA and the full report will be launched in November 2019. However, China’s Belt and Road Initiative, for example, has drawn criticism for funding emissions-heavy infrastructure in Southeast Asia. The second part of this series will include insights from the bank’s clients. Take for example, the public-private partnership frameworks for the transportation sectors. ASEAN countries could easily adopt best practices from each other, but this is rarely witnessed, notwithstanding the significant work being done in this area by ADB and the World Bank. What trends do you see for infrastructure financing? MANILA, Philippines – The Association of Southeast Asian Nations (ASEAN) needs a whopping $60 billion a year to address the region’s infrastructure gap. Chief among them, a high-speed railway that is set to run through Laos, Thailand, Malaysia and Singapore, connecting China to Southeast Asia. Financial institutions tuned into the global conversation on sustainability have set sights on ASEAN’s infrastructure sector, which holds one of the largest green finance opportunities in the region – an estimated US$1,800 billion from 2016 to 2030. “You have 400 million lacking electricity, 300 million don’t have safe drinking water, and over a … But this financing deficit presents significant opportunities for mid-corporates to grow beyond their home turf while addressing the market needs. Historically, Asean has looked overseas for investments, mainly from China and Japan, to make up shortfalls in infrastructure capital. ASEAN needs to re-think approach to US$2.8 trillion infrastructure gap. Asia alone will have a USD4.6 trillion investment gap from now till 2040. Addressing Southeast Asia’s Infrastructure Gap Past August 28, 2019 2:00 p.m. - 3:30 p.m. 8 min. It’s a very large solar project, 950 megawatts, coming up in Dubai. Jiten: What is interesting as we go through the next phase of growth in ASEAN is how you raise capital and funding for these projects. The ASEAN Infrastructure Fund is a dedicated fund established by the ASEAN member nations and ADB to address the ASEAN region's infrastructure development needs by mobilizing regional savings, including foreign exchange reserves. With many infrastructure projects yet to be constructed in ASEAN, the SIIA’s report hopes to bring different stakeholders to a common starting point so as to inspire further dialogue. What would be a model public-private partnership in the BRI? They can structure, underwrite, and syndicate significant sources of private funds. • Financing gaps prevalent in middle and low-income countries. However, countries in ASEAN do not have sufficient public sector capital to finance all the required projects, going by the Standard Chartered report. 2 The lack of infrastructure connectivity continues to … For example, Indonesian President Joko Widodo’s government plans to spend US$327 billion on a pipeline of 265 projects, and Philippine President Rodrigo Duterte has earmarked US$180 billion for railways, roads and airports. Our capabilities span FX solutions, M&A financing, loan syndication, debt capital markets products, risk structuring, trade and cash management solutions and financial market products. China’s Belt and Road Initiative (BRI) is an ambitious undertaking that seeks to revive trade along two ancient land and sea routes, benefitting over 60 countries in the process. The bank is present in 45 Belt and Road markets and has deep insights into how this infrastructure and trade initiative can foster investment and growth in ASEAN. As integration with the world economy increases, ASEAN finds itself facing important opportunities and challenges including the need to better integrate the new members into the regional and global economy. The EU-ASEAN Business Council has recommended that ASEAN member states engage more with private firms to finance its infrastructure projects. Beyond climate resilience, financiers and projects developers differ on the risks they consider, such as biodiversity, workers’ health and safety as well as restoration of affected communities’ livelihoods. I think that is going to be a big opportunity. Beyond broad policy measures such as designing national sustainability plans or setting renewable energy targets, ASEAN governments need to consider more innovative means of catalysing sustainable infrastructure development. The shortfall between the actual and required infrastructure spending points towards an infrastructure gap that needs to be filled if growth in ASEAN is to be maintained or accelerated. Government financing accounts for 90 per cent of infrastructure expenditure in Asia, compared to a worldwide average of 40 per cent. Surya: Generally, socio-economic considerations drive the selection of projects. In most countries, the criteria for project selection are realistic and transparent. With the opportunities in mind, Standard Chartered offers companies the presence and experience it has built across the region for over 150 years. Our international network and local market expertise allow us to effectively connect our clients seeking partnerships with local governments, and even multinational companies. All rights reserved. Getting banks involved early is important. By putting in place measures to monitor and minimise the E&S impacts, financiers and project developers could enhance projects’ bankability and profitability. We have established global networks, and importantly, strong expertise in structuring financing. [1] The gap between infrastructure needs and actual spending will grow more acute without increased private sector investment. In 2015, Chinese President Xi Jinping said he hopes annual trade with those countries would outstrip US$2.5 trillion in a decade. ASEAN infrastructure gap turns negatives into positives – says HSBC If a spending deficit of US$1.2 trillion in six key Asian economies and a rising tide of protectionist rhetoric in Europe don’t seem the most promising combination of business prospects, think again. Infrastructure Investment Gap The East Asia Summit (EAS) Energy Outlook 2019 projects that US$430-US$440 billion will be necessary in the power generation sector, including US$149-US$226 billion for refineries and US$16-US$28 billion for liquefied natural gas (LNG) terminals. The Master Plan on ASEAN Connectivity (MPAC) outlines a web of mutually reinforcing connectivity dimensions: in addition to efficient physical infrastructure networks, the web includes policy coordination, people-to-people … The long-term nature of many infrastructure projects means that we have no time to lose. The infrastructure gap – the difference in required infrastructure spending and actual investment spending – arises due to rapid urbanisation and population growth. T The gap between infrastructure needs and actual spending will grow more acute without increased private sector investment. How has Standard Chartered mobilised capital from private-sector investors for infrastructure projects? Are governments focusing on the right projects? At the same time, heightened global attention on climate change and international awareness of human rights have also shaped how people view and finance long-term infrastructure projects. That works very well because you have banks who are present in the Middle East structuring the transaction, and the transaction is structured in a way that the project is optimised and local realities are taken into account. Governments have begun looking to private sector capital for funding, but some face difficulty finding takers. The infrastructure investment gap—the difference between investment needs and current investment levels—equals 2.4% of projected GDP (climate-adjusted) for the 5-year period from 2016 to 2020. Surya: Private investors are increasingly open to long-term infrastructure investments. Source: The Business Times © Singapore Press Holdings Limited. [1]Speech by Ms Indranee Rajah, Minister in the Prime Minister’s Office, Second Minister for Finance and Education, at the Singapore Regional Infrastructure Summit on 16 August 2019. Available: https://www.dbs.com/iwov-resources/images/sustainability/img/Green_Finance_Opportunities_in_ASEAN.pdf, [3]ADB (2017) “Meeting Asia’s Infrastructure Needs”. Financial institutions have either adopted international sustainability standards, frameworks or principles, or developed their in-house policies and guidelines to better identify and mitigate E&S risks. Available: https://www.pmo.gov.sg/Newsroom/SM-Teo-Chee-Hean-at-5th-Regional-Business-Forum. What is holding the private sector back from financing infrastructure projects? Strategic Study on Laos Pilot Program for Narrowing the Development Gap toward ASEAN Integration: A Proposed Outline INCEPTION WORKSHOP Vientiane August 28, 2009 Objectives of the Strategic Study Setting up a Basic Concept of LPP There are also gaps in information flows and coordination between the private and public sectors, which inadvertently crowd out private investors. ASEAN2025調査レポート概要 Outline of ASEAN2025 Survey Report 2. Infrastructure Gap in South Asia : Inequality of Access to Infrastructure Services Biller, Dan; Andres, Luis; Herrera Dappe, Matias (2014-09) The South Asia region is home to the largest pool of individuals living under the poverty line, coupled with a fast-growing population. ASEAN sustainable finance: A huge gap means a huge opportunity Inforial The Jakarta Post Jakarta, Indonesia / Fri, January 31, 2020 / 09:22 am Rino Donosepoetro, Vice Chairman ASEAN … For BRI projects, we provide clients with access to the renminbi market and other global currencies, and offer guidance on ways to leverage liquidity. Standard Chartered believes each country needs to set a vision of what its infrastructure needs are in the long term, and break it down into near-term plans. Without taking the necessary steps to pursue sustainable infrastructure now, ASEAN’s current infrastructure growth may come at the cost of future generations. Available: https://www.adb.org/sites/default/files/publication/227496/special-report-infrastructure.pdf, [4]Keynote Speech by Mr Heng Swee Keat, Deputy Prime Minister and Minister for Finance, at the OMFIF Global Public Investor Launch on 12 June 2019. © Standard Chartered 2020. Countries like Laos and the Philippines could also gain significantly from Chinese funding and technical expertise for the construction of rail links. However, the region may be at a turning point. The SIIA would like to specially thank HSBC for its generous support (including sponsorship) and our Knowledge Partner, KPMG in making this study possible. All rights reserved. This is especially for the power and transport sectors, which the ADB has identified as having the largest climate-adjusted investment needs in developing Asia.[3]. And with demand for infrastructure development ramping up, ASEAN may need to re-think its approach to plugging the gap. Infra Asean is a platform aiming at delivering insights related to infratructure projets in South-East Asia, covering different aspects of the industry at large, such as Mobility, Legal, Business & Economics, Connectivity and Energy. Especially for megaprojects, like BRI, which need extensive cross-border collaboration and partnerships. Tap into Standard Chartered’s network strength and deep industry expertise: sc.com/en/banking/belt-and-road. to bridge the infrastructure gap in ASEAN and the linkages of various players across the infrastructure value chain, this Annual Report continues to provide useful updates on the latest developments in the ASEAN investment landscape. The ongoing drive towards an ASEAN Economic Community (AEC) reflects an understanding that deep integration needs more than traditional trade policy. Also, if you look at projects which are innovative, like converting plastic waste into renewable energy, you have a huge amount of green bonds that are starting to emerge. Standard Chartered’s executives and the bank’s clients gathered recently for a roundtable discussion on how ASEAN can narrow its infrastructure gap. What can the public sector do to encourage private financing and partnerships? Governments need to meet the demand for infrastructure brought about by population growth and urbanisation, yet the rate of public sector financing for infrastructure development is unsustainable. Jiten: I agree, infrastructure development can only succeed with a coordinated approach which calls for close collaborations between governments, multilateral development agencies, institutional investors and commercial banks. However, ineffective project structuring continues to keep private money at bay. For BRI, we have been heavily involved in structuring financing and providing services for the major projects. Ultimately, the project contributed to the UAE meeting its sustainable development goals and contributing to the Paris Accord. 151 The last reference can be made to institutional gap. 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