The Association of South East Asian Nations (ASEAN) aims to form the ASEAN Economic Community (AEC) by 2015. Cross-border infrastructure development in the transportation, energy and communication sectors is critical to achieving this goal, which is important for the region’s economic and social development. Though substantial progress has been made in meeting the infrastructure milestones, a lot still remains to be done.  Dr Lim Hong Hin, Deputy Secretary-General of ASEAN for ASEAN Economic Community (AEC), shared his views with Southeast Asia Infrastructure on the priorities in infrastructure development in the coming years along with the challenges that need to be addressed in attaining the regional integration goal of AEC.

What are you views on the current macroeconomic scenario in the ASEAN region and globally?

ASEAN is well placed to sustain strong economic growth in 2013, between 5.3-6 per cent. In 2012, ASEAN’s economy remained resilient amidst continuing volatility in the global environment, growing by 5.7 per cent. The region’s growth is bolstered, both, by a solid domestic demand and a buoyant external sector. Government-led investment and strong consumer spending kept domestic demand as a primary growth driver; while ASEAN’s participation in the global value chains of production supported export performance.

Despite its resilience, ASEAN’s economy is not impervious to volatilities in the global economy. Economic recovery in the Eurozone is still wobbly as structural financial reforms continue. Also, economic prospects in the US are somehow weakened by uncertainties brought about by the tapering off of the quantitative easing measures. And key emerging markets like China and India are expected to slow down.

The political leadership in the region recognises these risks. In order to maintain growth momentum, they have agreed to maintain macroeconomic and financial stability, address capacity and supply-side constraints, and continue basic structural reforms such as streamlining regulations, trade and foreign investment liberalisation and facilitation. They also recognise the crucial need for continued investment in infrastructure and human capital.

What role does infrastructure play in achieving the overall development objectives of ASEAN member states?

At a country level, reliable infrastructure expands an economy’s productive base that is essential in determining its overall competitiveness. At a regional level, high-quality infrastructure abets regional integration. This is especially true for a regional grouping like ASEAN. Covering a land area of almost 4.5 million kilometres (3 per cent of the planet’s total land area) and with a total population of over 600 million (almost 9 per cent of the world’s total population), the combined nominal output of ASEAN economies amounted to US$2.3 trillion in 2012. Also, ASEAN has a high participation in the global value chain of production and envisages itself, as a region, to become a single market and production base by 2015.

Hence, in 2010, the ASEAN Leaders adopted the Master Plan on ASEAN Connectivity to place ASEAN’s emphasis on enhancing connectivity, particularly physical infrastructure connectivity, in order to realise the ASEAN Economic Community (AEC) by 2015.

Focusing on physical connectivity, two areas crucial for development of ASEAN can be highlighted where adequate, high quality and reliable physical infrastructure play an essential role. One, infrastructure enhances trade activities by reducing transaction costs. Consequently, a vibrant trade (external) sector translates to a strong driver of economic growth, as pointed out in the previous question. In 2012, ASEAN’s merchandise trade reached US$2.47 trillion, growing by 3.6 per cent from 2011. Two, adequate and high quality infrastructure attracts foreign direct investment (FDI). It is through the sustained inflows of investment that the dynamic development of ASEAN economies is ensured. ASEAN has been a favoured FDI destination. In 2012, FDI inflows to ASEAN reached US$108.2 billion.

What are the specific infrastructure priorities with regard to achieving the vision of AEC by 2015?

The AEC Blueprint operationalises, through specific policy actions, ASEAN’s vision by 2015 to build a region that has a single market and production base; is highly competitive; is supportive of equitable economic development; and is fully integrated into the global economy. The AEC Blueprint also identified infrastructure as one of the 12 priority sectors for accelerating economic integration in the region. Two flagship projects have been the main vehicle for ASEAN to pursue land transport connectivity: the ASEAN Highway Network (AHN) and the Singapore-Kunming Rail Link (SKRL).

The AHN is the “Trans-Asian Highway” passing through ASEAN Member States but expanded within ASEAN with the aim of eventually creating a denser network of intra-region highways. This 37,690 km highway runs through all 10 ASEAN member States. A significant 84.5 per cent of the desired AHN length had been built by 2008. The current priority is to complete the remaining portions which include some 1,999.5 km of transit transport routes in Indonesia, Lao PDR and Myanmar.

Meanwhile, the SKRL flagship project consists of the main Singapore–Malaysia–Thailand– Cambodia–Vietnam–China (Kunming) route, and spur lines on the Thailand–Myanmar and Thailand–Lao PDR routes. Thus far, cross-border rail service in ASEAN are operational only in the links between Malaysia and Singapore and between Malaysia and Thailand. Initiatives to complete the SKRL missing links have so far resulted in the completion of feasibility studies of certain major sections. Some rail tracks are already undergoing construction and rehabilitation, funded by a combination of internal resources from member states, ASEAN Dialogue Partners, and the Asian Development Bank (ADB).

In maritime transport, the ASEAN Port Network consisting of 47 designated ports in nine ASEAN member states form the back bone of the trans-ASEAN port network. The development of seaports is another important physical infrastructure agenda as sea-based freight movement is crucial to trade.

In air transport infrastructure, the airports in ASEAN capital cities are currently considered sufficient in terms of runway length to accommodate the existing operation of aircraft. However, with the rapid development of the travel and aviation industries, the existing airports are becoming overloaded. As such, some ASEAN member states have launched programmes to expand airport capacities by building new terminals.

In terms of energy grid, the establishment of the ASEAN Power Grid (APG) and the Trans ASEAN Gas Pipeline (TAGP) are major goals of the ASEAN energy cooperation. The APG is being implemented through bilateral agreements among the power utilities/authorities of the 10 ASEAN member states. The heads of ASEAN power utilities/authorities under ASEAN Centre for Energy oversees the implementation of 14 interconnection projects. As of now, five are currently operational, four are under construction, and the rest are in preparatory stages.

As for the TAGP, the updated ASCOPE-TAGP Master Plan 2000 involves the construction of 4,500 km of gas pipelines interconnecting the ASEAN member states. These pipelines, mainly undersea, are estimated to cost $7 billion. Eleven bilateral gas pipeline interconnection projects, with a total length approximately 3,020 km, are currently operating.

In terms of information connectivity, ASEAN is now working on the initiative to develop an ASEAN broadband corridor with a view to make broadband deployed, accessible, and affordable throughout the region.

Some of the cross-border infrastructure projects have not proceeded at the pace earlier hoped for. What have been the key issues and how are these being addressed?

One of the key issues has been the economic disparities among ASEAN member states, which makes meeting the funding requirements for projects in some of the less developed member states a challenge. Further, the absence of a comprehensive legislative and regulatory framework in areas like the actual operation of the cross-border infrastructure and tariff determination is also a hindrance in attracting private investors. Currently, infrastructure spending of individual ASEAN economies is estimated to be 1-2 per cent of gross domestic product (GDP) which in order to keep up with demand, should be around 5 per cent of the GDP.

To address the funding challenge, several ASEAN dialogue partners as well as multilateral development agencies have come forward with financial assistance. In particular, the ASEAN Infrastructure Fund (AIF) was launched in 2012 to finance cross-border road, rail, power, water, and other critical infrastructure. The fund is being administered by the ADB with an initial equity of $485 million contributed by both ASEAN member states and ADB. The total lending commitment of AIF is estimated to be $4 billion, which, with co-financing by ADB and other financiers, could leverage more than $13 billion. Currently, a pipeline of projects worth $1 billion is ready for funding through the AIF.

What has been the progress on achieving the goals of an integrated AEC by 2015 and what challenges remain?

By the end of July 2013, 261 out of the 331 measures (79.7 per cent) of the AEC Blueprint have been implemented. Some of the milestones that have been crossed:

  • Tariff barriers under the ASEAN Trade in Goods Agreement have been reduced to zero for ASEAN-6 since 2010 to facilitate free flow of goods
  • Non-tariff barriers are being streamlined through various initiatives including endorsement of national and regional work program, establishment of an interagency body at the national level to complement regional initiatives on non-tariff measures, and the uploading of a matrix of actual cases on non-tariff measures/trade barriers
  • A scaled-down version of the ASEAN Single Window (ASW) pilot project was successfully concluded for seven ASEAN member states using ATIGA Form D and ASEAN Customs Declaration Document and efforts are now being made to embark on a full-fledged ASW pilot project
  • Trade in services have been enhanced through the conclusion of eight packages of services commitments under the ASEAN Framework Agreement on Services and the finalisation of the ninth package by 2013
  • Investment regimes continue to be enhanced following the entry into force of ASEAN Comprehensive Investment Agreement (ACIA) and the review/amendment of reservations in ACIA Schedule
  • ASEAN Agreement on Movement of Natural Persons to facilitate the movement of ASEAN people engaging in trade in goods, trade in services and investment in the region was signed in November 2012
  • The competition policy is enhanced through the dissemination of publications on “Guidelines on Developing Core Competencies in Competition Policy and Law for ASEAN” and “Handbook on Competition Policy and Law in ASEAN for Business 2013”
  • ASEAN+1 FTAs are continuously enhance and upgrade to encourage greater utilisation by business
  • The Regional Comprehensive Economic Partnership launched by the Leaders last November gained momentum with the successful conclusion of the first round of negotiations in May 2013.

One of the key challenges is to enhance the implementation of in-country measures to ensure timely realisation of AEC by 2015. This will boost the region’s growth prospects through deeper and broader ASEAN economic integration.

Another challenge is to effectively communicate to ASEAN businesses on how AEC works with the view to address concerns and misconceptions on some of AEC initiatives, explain and highlight benefits that AEC 2015 has brought to the region, prepare them for the changes and challenges that come with policy reforms, and to continue to promote public and private sector partnerships to support AEC process.

The growing complexity of the regional integration process in ASEAN given its interlinkages with the rest of the world required more coordinated actions by policymakers to address common problems brought about by global uncertainties. For example, stronger macroeconomic policy coordination would help to mitigate the risks of spill overs and negative externalities, which could hinder trade and investment.

What are your immediate priorities for the remainder of this year and the coming year?

In view of the above challenges, it is of utmost importance to ensure all the measures stipulated in the AEC blueprint are implement by 2015 so that its key beneficiaries, private sector and general public, are able to benefit from the opportunities arising from stable, prosperous and a highly competitive ASEAN with equitable economic development.