The Asia-Pacific region is comprised of diverse countries which vary greatly in terms of their physical land area, population and level of economic development. What most of them have in common is their attractive environments for infrastructure investing and general openness to investor partnerships.
| There are, however, limits to that openness. As we noted in the last edition of the Index, while some countries are slowly unwinding FDI rules and streamlining processes to make investment in infrastructure more attractive to foreign investors, others – perhaps most notably Australia and New Zealand – have been exerting greater control over foreign investment in sensitive or strategic assets. And a generally positive environment for infrastructure investment cannot hide the scale of the investment challenges that exist. Even initiatives such as the Asian Development Bank’s (ADB) recent move to unlock USD 100 billion in new funding capacity over the next decade will leave a substantial funding gap. The ADB estimates that developing Asia needs infrastructure investment of USD 1.7 trillion annually from 2023 to 2030 to sustain economic growth, reduce poverty and respond to climate change. For ASEAN economies, the annual infrastructure investment need is estimated to be at least USD 184 billion. Much of the region is highly vulnerable to the effects of climate change. The past two years alone have seen a number of extreme weather events, including hugely destructive and costly floods. Many nations are at risk of damage from rising sea levels, with some of the smaller ones also in danger of losing a significant portion of their land mass. Urbanisation and population growth are also driving the need for infrastructure investment. According to some estimates, there will be an additional one billion city dwellers in Asia by 2050. |
Hydrogen focus
In many countries in the region, a limited land area and high population density are not conducive to the installation of large solar fields. There is thus strong interest in promoting the export of renewable energy from nations such as Australia, Indonesia and Philippines, where the expansion of solar is possible.
One way to facilitate energy transport is through liquids. LNG has historically been a key import for many countries, but the region is increasingly exploring the use of renewable power to create green ammonia, which can then be transported elsewhere to be converted into clean hydrogen energy. Indonesia, in particular, is hoping to expand its ability to export its renewable electricity in this way. Singapore, already a regional financial centre, is working towards becoming a hydrogen trading hub.
Just transitions
A major obstacle to reducing the use of carbon is the outright cost of the transition and its effect on societies. Just Energy Transition Partnerships (JETPs), in which advanced economies support a coal-dependent emerging economy in reaching its decarbonisation goals, have become one way to help middle and lower income economies make progress in this area.
In November 2022, a JETP was launched between Indonesia and an International Partners Group which comprises the EU, the US, Japan, Canada, Denmark, France, Germany, Italy, Norway and the UK. To achieve Indonesia’s targets for the energy sector transition, an initial USD 20 billion in both public and private financing has been pledged over three to five years.
Data centres
As in the rest of the world, the increased digitalisation of the global economy has resulted in the need for more data centres. But with some governments in the region recognising the increased load data centres can place on already constrained electricity networks, construction has slowed.
Regional giants
No discussion of infrastructure in Asia would be complete without mentioning China and India. While they are not the highest ranking Asian nations in the Infrastructure Index, their size – they are by a huge margin the world’s two most populous nations, each over four times as big as the US – means they dominate the region. And while neither is usually counted as a developed economy, the heft of their GDP – China is already the world’s #2, and India is widely expected to take the #3 crown from Japan by 2030 – makes them key infrastructure players.
China’s Belt and Road Initiative has been the subject of much commentary, including our remarks above. It is less often noticed that India’s project lending has increased dramatically in recent years, especially in South Asia. While not at BRI levels, it seems a clear indication that – like China – India is aware of the political and policy advantages of infrastructure lending, with funding coming not only from India’s ExIm Bank but via investments from some of its major private sector companies. And, as already noted, India is a key participant in the huge IMEC scheme that is being promoted by the new Partnership for Global Infrastructure and Investment.
China has been an infrastructure investment powerhouse for decades, using spending on domestic projects to help maintain its outstanding record of economic growth. The recent cooling of its economy has left it seeking to stimulate private investment in clean energy, transport, water and other ‘major national projects’. It is still a formidable presence in the energy transition supply chain, being by far the largest global player in electric vehicles, lithium batteries and solar panels.
A major obstacle to reducing the use of carbon is the outright cost of the transition and its effect on societies.
China has been an infrastructure investment powerhouse for decades, using spending on domestic projects to help maintain its outstanding record of economic growth.
