According to ADB, developing Asia will need to invest $13.8 trillion, or $1.7 trillion annually, in infrastructure from 2023 to 2030 to sustain economic growth, reduce poverty, and respond to climate change. For ASEAN economies, the total infrastructure investment need is estimated to be at least $2.8 trillion for the same period or $184 billion annually.

Narrowing the infrastructure financing gap will be critical for economies to meet their economic and social goals. Private sector participation is key. Currently, more than $200 trillion of private capital is invested in global capital markets. Innovative finance mechanisms are needed to catalyze private and institutional finance for infrastructure, and to scale them up to meet the growing needs of the region as ASEAN+3 economies bounce back from the pandemic.  

An example is the blending of different financing instruments to de-risk investments and lower the cost of capital. The report provides a user-friendly policy toolkit on the approaches for public–private partnerships, including how governments can collaborate with companies, investors, and financing agencies through these financing platforms. With the wider adoption of these financing solutions, governments can strategically employ public funds to attract private investment, accomplish key development goals, meet shareholder expectations for investment returns, and make the ASEAN+3 region a more attractive destination for infrastructure investment.  

The ADB has launched a report titled “Reinvigorating Financing Approaches for Sustainable and Resilient Infrastructure in ASEAN+3“on the sidelines of ADB’s 56th Annual Meeting. This report systematically presents various innovative models of merging public, private, institutional, and other forms of capital to deliver resilient, sustainable, and future-ready infrastructure in the ASEAN+3 region. From blended finance and asset securitisation to municipal and green bonds, and from crowd finance to carbon credit markets, the report examines how innovative finance can become a magnet for the private and institutional funds needed to back public–private infrastructure partnerships.


Economic Performance and Outlook

The Southeast Asian economies have shown remarkable resilience to the adverse effects of the pandemic and other economic shocks. This is largely attributed to the lessons learned from previous crises and their adoption of prudent macro-economic policies, which have resulted in sustainable growth. The reopening of the People’s Republic of China (PRC), an increase in remittances, resumption of tourism, and weakening of commodity and energy prices have all played a significant role in the region’s economic recovery.

The Asian Development Bank (ADB) has forecasted that Southeast Asia’s gross domestic product (GDP) will grow by 4.7% in 2023 and 5% in 2024. These figures are higher than the GDP growth rates of most developed world economies. The inflation rate for Southeast Asia is expected to be moderate at 4.4% in 2023 and 3.3% in 2024, gradually returning to pre-pandemic averages. At present, Asia’s share of global GDP is over 45% while Europe and North America combined account for about 44%. With the reopening of PRC and the abatement of inflationary pressures, Asia is poised to be the growth engine of the global economy by increasing its share of global GDP to over 50% by 2030.

Infrastructure Snapshot

Since 2014, the Group of 20 (G20) has emphasised the role of infrastructure in promoting economic growth and reducing poverty.3 Generally, the availability of transport, communication, electricity, safe water and sanitation, health infrastructure, and other basic facilities has a tremendous impact on improving the quality of life and wellbeing. Infrastructure facilities and services are also ingredients of efficient production, transport, and trade that spur economic growth and help reduce poverty. Furthermore, where roads and transport system are well developed, businesses will be encouraged to set up shops as they have convenient access to supplies, inputs, and other products, and at the same time, gain better access to major outlets, markets, and trading centers, enhancing the development of backward and forward linkages in the economy.

While the economic effects of infrastructure may vary, the employment and production effects are clear. These impacts differ by sector as well as over time. In Japan, for instance, infrastructure showed greater benefits in urban than rural areas and overall, it produced greater manufacturing benefits in 1990 than in 2010. Similarly, in Thailand too, infrastructure benefited manufacturing more than services. In the Philippines, on the other hand, highways had more impact on business tax revenues and regulatory fees than property tax revenues. The wide global infrastructure investment gap is, therefore, a matter of concern.

The global infrastructure financing gap has been variously estimated to range from $5.5 trillion to as much as $15 trillion by 2040. Adopting McKinsey’s gap estimate of $3.7 trillion4 (for economic infrastructure) as the base, adding 30% for meeting the Sustainable Development Goal (SDG) targets, and providing for other infrastructure and climate and disasters, there is at least a $6 trillion spending gap between now and 2035 with regional variations.

There are sufficient savings to finance infrastructure investment in Asia. For example, there are about $4.4 trillion in pension funds and $5.1 trillion with insurers in the region.5 Linking infrastructure demand with these institutional funds searching for yield could offer huge benefits for the region. However, there are barriers and risks for long-term institutional funds to invest in infrastructure.

Asia suffers from a global investment bias—Asian investors usually prefer to invest in “safer” European Union (EU) and United States (US) assets. Asia’s domestic investors are often concerned about political risk, weak regulatory systems and legal enforcement, bureaucracy, governance standards, capital markets with low liquidity, and currency risk. There are widespread qualitative and quantitative investment restrictions, especially in Asian emerging markets. There is a major intermediation challenge with most pension funds and insurers preferring low-risk assets.

Private participation in infrastructure investment is critical. The ratio of public-to-private finance in infrastructure is roughly 1:2 in developed countries but 2:1 in developing economies. Private participation is about 0.6%–0.8% of GDP in emerging markets, and about 0.1%–0.2% of GDP in East Asia and the Pacific. For total investment in infrastructure, not one developing economy in Asia spends the 6% of GDP or higher level required to maintain robust growth.

Private financing could become a viable alternative for many projects in Asia. Experience from certain developed economies demonstrates how public–private partnerships (PPP) may be leveraged to finance infrastructure across transport, water, education, health, communications, and housing, among others. Translating this success to Asia remains a major challenge, given the relatively low private participation in infrastructure investment.

Private participation requires strong institutions and consistent policies. Consistency in national and regional infrastructure plans is essential and retrospective regulatory changes are particularly harmful. Building confidence is central in attracting institutional investors. This takes time and requires project success. Any increase in private financing of infrastructure would require an adequate supply of risk-managed asset and investment vehicles. And it helps when PPPs can attract investors through value added or indirect economic effects such as promoting tourism, manufacturing, agriculture, or services—Japan’s railway development is a good historical example.

Attract and leverage foreign direct investment (FDI). In 2021, FDI inflows into the Association of Southeast Asian Nations (ASEAN) region (excluding PRC), hit a record high of $175 billion, matching the pre-pandemic levels seen in 2019. This increase was driven by multinational companies diversifying their manufacturing supply chains and investing in rapidly growing consumer markets in ASEAN to take advantage of the fast expanding consumer markets. Strong inflows of FDI into electronics manufacturing and electric vehicle projects were significant contributors.

However, the ASEAN member countries have not been able to fully leverage FDI at the macro level, as the region only receives 11% of total global FDI inflows.7 However, infrastructure projects must heed social and environmental effects as well. There is a need to establish safeguards for the environment (pollution, for example) and involuntary settlement (orderly land acquisitions and rights protection).

Read full report here.