Opportunities in infrastructure for foreign investors

 

Rapid growth in China over the last three decades has led to a maturing of its infrastructure construction markets. However, they are still dominated by local governments and investors. As a result, foreign investors and construction firms have begun pitching for other newly emerging opportunities inAsia.

Southeast Asia is the fastest growing area for infrastructure expansion as local economies move towards modernisation. By virtue of their geography – surrounded by the sea and featuring long tracts of coastline – many ASEAN countries offer a convenient and cost-effective method of transportation for any large-scale infrastructure project. Furthermore, there are many untapped resources within the region such as the coal, timber, and oil reserves in Indonesia and Vietnam. There is plenty of room for ASEAN countries to grow to the level and standards of other developing and developed countries. This article presents an overview of the development landscapes in Indonesia, Thailand, and Vietnam.

Indonesia

As with most countries during the global recession, the Indonesian government encouraged spending on new infrastructure to facilitate economic growth and reduce unemployment. Infrastructure projects included a six-lane highway designed to span Java – Indonesia’s most populous island, as well as other schemes to improve the country’s roads, railway, and ports.

In May 2011, the Indonesian government launched a 15-year economic development master plan, MP3EI, to establish six economic corridors in Indonesia. Infrastructure is expected to play a pivotal role in the development of these corridors. The traditional approach of funding infrastructure from the state budget is not sustainable because of limited public financing. The alternative is private provision of infrastructure (PPI) that offers good news for foreign investors.

The recent year-on-year (YoY) growth of Indonesia’s GDP per capita from 2010 to 2011 is close to 30 per cent and 20 per cent, respectively. Oil export growth in these two years was also very strong. The steady growth of the population and GDP per capita has also led to demand for quality utility provision on a larger scale. Thus, the Indonesian government has planned or initiated about 58 public–private partnership infrastructure projects (PPPIPs).

Thailand

Although Thailand is ranked just 25th in the world by GDP and 20th by population, the Thai government has created much-needed traction in energy infrastructure projects and is also at the forefront of green energy development. The government’s aims are to achieve a secure, sufficient, and accessible energy supply to reduce  imports; promote green energy and associated R&D; cultivate sustainable energy development with the application of modern technology; comply with environmental commitments; share responsibility for environmental impact; promote public participation in energy management; and support reduced energy consumption. These aims have now been expanded to cover logistics and mass transit construction.

Over the last decade, the Thai energy sector has received greatest participation from private parties: there were 25 PPI energy projects from 2001 to 2011. Demand for PPPIP is expected to increase, thanks to the steady growth in population and GDP per capita. Thailand’s GDP per capita declined only during the financial crisis in 2009 and the chaotic year of 2011 when the country was rocked by political unrest and widespread floods. The rebuilding process following the aforementioned events is expected to further boost demand for infrastructure.

Vietnam

Since 1986, when the Doi Moi Policies – economic reforms to move from the centrally planned to the market economy – were first launched, Vietnam has been transformed from one of the poorest countries in the world to a buzzing hub of business activity. Around 9–10 per cent of the country’s GDP has been invested in transport, energy, telecommunications, water, and sanitation in recent years; this is considered to be a very high level of infrastructure investment, even by international standards.

Vietnam’s urban population is growing at about 1 million people per year, with much of the growth concentrated in Ho Chi Minh City and Hanoi. It is likely that the growth of Vietnam’s rural population will level off in the near future, with new population growth swelling urban areas. Based on the situation in other developing countries, it is likely that Vietnam’s urban growth will also be accompanied by a range of new problems including traffic congestion, pollution, and the need to roll out infrastructure services.

Many foreign investors have set up manufacturing bases in Vietnam to enjoy the cheap labour costs. However, the current power plant and supply levels cannot keep up with the growing demand. The increase in demand for electricity is commensurate with the increase in living standards, as reflected by the double-digit growth of Vietnam’s GDP per capita over the last two years (see Table 3). The Vietnamese government is planning to build 10 nuclear power plants by 2030. After completion, the 10 nuclear power stations will have an aggregate capacity of approximately 10,000 MW.

Conclusion

Undeniably, ASEAN countries will be among the drivers of world economic growth. Rich in untapped natural resources and powered by a large and hard-working workforce (with many seeking to improve their quality of life), the growth potential of this region cannot be ignored. At the same time, these countries lack advanced technology and sufficient funds for infrastructure construction. Therefore, the path for foreign investors will not be smooth: many factors including local regulations, norms, and culture will becritical in determining the returns on foreign investment.

Brett Shadbolt is the Founder and CEO of Censere Group, a specialist transaction support and value consulting group focused on the Asia Pacific region. He has over 25 years experience in business valuation and intellectual property valuation in the Asia Pacific region.

 

About the Author

For more information, contact Brett Shadbolt at brett.shadbolt@censere.com