A report released this week by the Australian Government highlights the opportunity for Australian companies not just to build infrastructure in the Asian region but to position Australian companies to begin winning lucrative services contracts to design, structure, finance and run those projects.
ASEAN Now
ASEAN Now is a “call to action” for Australian business to take steps to engage more deeply with the ASEAN region.
Today, the ASEAN region has a combined population of 637 million people, a GDP of US$2.5 trillion and is on track to become the world’s fourth largest economy by 2030 (with a projected GDP of $US6.7 trillion).
Over one-third of ASEAN’s population live in cities, contributing more than two-thirds of the region’s GDP. An estimated extra 90 million people will live in cities by 2030, adding over US$500 billion (around 20 per cent) to ASEAN’s GDP. Middle class households are projected to increase from 38 million (2015) to 161 million by 2030.
Future ASEAN cities will require innovative and specialist services, products and technologies to address urban challenges such as overcrowding and congestion, infrastructure needs and pollution. Cities will require substantial investment in new and retrofitted major transport infrastructure assets, power and water assets and tourism facilities.
The report highlights the fact that ASEAN’s rapid urbanisation and increasing middle class is creating vast opportunities for business through accelerating economic growth, improving productivity and raising demand.
This transformation creates possibilities for Australian and ASEAN businesses to collaborate in building water projects, heavy rail and light rail, airports and seaports, as well as exporting Australian infrastructure technology, such as intelligent transport systems and renewable energy and storage solutions, to help ASEAN nations develop roads, dams, wind farms, roads and major infrastructure that are critical to their social and economic development.
Mobilising private sector financing
Infrastructure doesn’t come cheap. The Asian Development Bank estimates that ASEAN economies will need US$100 billion of infrastructure investment each year up to 2030 to support future growth and improve infrastructure provision.
ASEAN is currently investing less than half that amount, leading to infrastructure bottlenecks.
The key to meeting the infrastructure financing gap lies in unlocking the region’s sizable private savings. With government budgets constrained, regulatory restrictions on bank lending and the growth projections for infrastructure, the private sector is being called upon to play a greater role.
Australian funds are well suited to be a key partner in meeting the shared challenge of funding the infrastructure that is critical to the predicted economic growth of the ASEAN region. Last year, Australia not only became the world’s fourth largest pension market, valued at US$1.6 trillion, but also the largest in the Asia-Pacific region. While the majority of these funds are invested in the local Australia markets, investments in overseas assets have also risen rapidly, doubling to almost A$500 billion over the past seven years.
It is that combination of deep pools of capital, combined with world class asset management expertise that offers huge potential when married with the region’s funding needs.
A challenge is that many of these funds tend do not invest in green-field projects and shy away from exposure to construction risk and non-OECD sovereign risk. In part this is due to the nature of funds’ investment mandates and also the fact that, on a risk-weighted basis, better investment opportunities lie in more developed global markets.
Bridging this risk/reward matrix will not be easy and will require the development of coherent and robust frameworks (both national and international) which alleviate concerns including longevity, liquidity, transparency, political risk and corruption.
Opportunities for collaboration
There is room to be positive. There is a growing opportunity for infrastructure investment, affording benefits across ASEAN member states and Australia.
The global Infrastructure Hub (an Australian-led G20 initiative) has a mandate to grow the global pipeline of quality, bankable infrastructure projects through increasing the flow of private and public infrastructure investment opportunities, facilitating knowledge sharing and connecting sectors. Its broad range of data and best-practice tools can support ASEAN countries in addressing their infrastructure investment deficit.
There are also opportunities to collaborate to meet the infrastructure needs of other Asian countries, including through Australia’s participation as a major funder in the Asian Infrastructure Investment Bank (AIIB) and support for China’s Belt & Road Initiative (BRI), both of which are playing an important role in the development and financing of a number of ASEAN infrastructure projects.
The Australian Government also assists with preparing investment ready public-private partnerships in the region and related financial de-risking. It provides financial support for the World Bank Group and Asian Development Bank, including their private sector operations; and contributes to the World Bank’s Global Infrastructure Facility and Public-Private Infrastructure Advisory Facility and the Asian Development Bank’s Asia Pacific Project Preparation Facility.
Time to seize the moment
A key message of the ASEAN Now report is that Australian solutions can help, and indeed are already helping, to build and finance ASEAN cities of the future: a number of Australia’s major asset managers and banks are already actively involved in raising equity and debt finance for infrastructure, energy and similar funds and project finance activities involving ASEAN countries. Importantly, their expertise and technology is highly regarded in the region and beyond.
ASEAN has consistently demonstrated high regard for Australia’s service sector, we have strong and resilient financial institutions and pension funds, and the opportunity is on our doorstep.
ASEAN presents opportunities not only for Australian industry and capital to expand their investment horizons but also to engage more deeply, more meaningfully, with one of the fastest growing, most innovative, most connected regions in the world. It’s time to seize the ASEAN moment.
