East Asian states have made impressive progress with economic growth and poverty reduction. However, some are struggling to meet demand for roads, water, communications, and power. Private investment in infrastructure is slow, especially where regulation is weak, corruption is unchallenged and competition is not encouraged.

A publication from the Asian Development Bank, Japan Bank for International Cooperation and the World Bank suggests a new framework for infrastructure development in East Asia based on greater cooperation between civil society, governments and the private sector.

Developing countries in East Asia face a massive infrastructure funding challenge. The report estimates that the 21 countries studied will need to invest more than a trillion US dollars over the next five years in water and sanitation systems, power, piped gas, transportation, and information and communications technology.

East Asian growth is being driven by urban centres in coastal China, Indonesia, Thailand, Malaysia and Vietnam. However, populous regions that are landlocked or isolated – China’s western provinces, Laos, Cambodia, Mongolia, the outlying islands of Indonesia and the Philippines and most Pacific island states – urgently require infrastructure to connect them to centres of growth. Excluding them from growth will have major human and economic costs.

The Asian economic crisis in 1997 had long-term impacts on East Asian infrastructure. Private investment in infrastructure declined dramatically and despite recent modest signs of recovery is well below the levels once expected. After years of little or no investment countries like Indonesia and the Philippines have serious infrastructure gaps. The poorest states continue to attract little or no private investment in infrastructure.

The report highlights the risks of:

• Poor land-use management: inadequate legal frameworks, inappropriate application of existing restrictions and political interference create problems for urban managers.
• Neglect of long-term planning: infrastructure choices must be made before land-use patterns are established, and the temptation to cut down on infrastructure projects when budget deficits arise must be resisted.
• Inappropriate decentralisation: this can worsen rural isolation instead of improving connections with the wider world.
• Poor regulation and tolerance of corruption: private investors require rules and enforceable contracts.
• Lack of coordination: before recent reforms, Bangkok had 27 agencies related to urban transport.

If infrastructure subsidies become open-ended they can undermine financial discipline and accountability, and delay reforms. Subsidies can be justified as protection for poor people and the environment, but should be a last resort only to be used after costs have been minimised through competition, regulation, introduction of appropriate technology and public sector reform.

The development banks highlight the need for:

• environmental legislation, strengthening environmental agencies, improved information and greater use of environmental assessments
• public sector investment in isolated regions where private financing is insufficient, unavailable or too expensive
• ensuring that support from donors and development banks stimulates innovation, efficiency, acceptance of environmental and social considerations and strengthens institutions
• independent and accountable regulators, consumer participation in regulation and encouragement of civil society supervision
• long-term strategies to cover costs.

Source(s):
‘Connecting East Asia: A New Framework for Infrastructure’, Asian Development Bank, World Bank and Japan Bank for International Cooperation, by Mark Baird, Rita Nangia and Yasuo Fujita, 2005 (PDF) Full document.

Funded by: Japan Bank for International Cooperation

id21 Research Highlight: 30 Mach 2007

Further Information:
Mark Baird
Asian Development Bank
6 ADB Avenue
Mandaluyong City, 1550 Metro Manila
Philippines

Tel: +63 2 632 4444
Fax: +63 2 636 2444
Contact the contributor: mbaird@adb.org

Asian Development Bank

Jonathan Walters
The International Bank for Reconstruction and Development / The World Bank
1818 H Street, NW
Washington DC 20433, USA

Tel: +1 202 4731000
Fax: +1 202
Contact the contributor: jwalters@worldbank.org

The World Bank

Yasuo Fujita
Japan Bank for International Cooperation
4-1, Ohtemachi 1-Chome
Chiyoda-ku
Tokyo 100-8144, Japan

Tel: +81 3 52189725
Fax: +81 3 32879539
Contact the contributor: DPRD_JBICI@jbic.go

Japan Bank for International Cooperation

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'Poverty reduction through investment in transport and energy'

'Boosting private investment in Asian infrastructure'

'Time to rethink urban planning in Asia'

'Attracting private investment for infrastructure in emerging markets'

'Infrastructure is the key to poverty reduction in Africa'