While infrastructure has been an important priority area for Southeast Asian economies, the pandemic outbreak will certainly blur this focus. Prioritising health and employment will be the key goal for most emerging economies. Covid-19 has led to disruptions in project delivery, raw material availability, labour supply, capacity addition and investments. However, activity has started to return to normal with the phased lifting of lockdowns across countries.

Overall, growth in ASEAN countries is expected to pick up pace over the medium  term owing to a strong rebound in trade, robust domestic demand and infrastructure development initiatives undertaken by various governments. Southeast Asia’s growth is expected to remain strong at 5.2 per cent between 2019 and 2023. Among the region’s 10 member countries, Cambodia, Lao PDR and Myanmar are projected to grow the fastest between 2019 and 2023, while the Philippines and Vietnam are expected to lead in terms of real growth among the ASEAN-5 (Indonesia, Malaysia, the Philippines, Thailand and Vietnam).

Digitalisation and automation

With the onset of Covid-19, many logistics companies are adopting technologies including artificial intelligence (AI), internet of things (IoT) and robotics to enhance efficiencies in their transport system and build more resilient supply chains. The Brunei government announced the Digital Economy Master Plan 2025 in June 2020 to provide its citizens with the right digital environment and infrastructure. In Singapore’s smart nation initiative entitled “Smart Mobility 2030”, Singapore is running trials of autonomous vehicles and buses. Vietnam visualised four potential digital futures and will transit into a digital economy by 2030, while growing sustainably and improving business competitiveness and productivity. Technologies are also being leveraged to develop smart digital solutions to ensure smart city advancements and urban transformation in Bandung, Indonesia.

Sectoral trends

Roads: In recent years, there has been increased private sector participation in road projects in Southeast Asia. As of 2019, a total of 60 road and bridge projects have attracted private investment to the tune of $19.3 trillion in the Southeast Asian region. Malaysia has been successful in attracting the maximum amount of private investment for its road projects, followed by Indonesia and the Philippines. Multilateral organisations such as the World Bank and Asian Development Bank (ADB) and the Japan International Cooperation Agency (JICA) have played pivotal roles in financing road projects in Southeast Asia. Their well-defined guidelines and stringent criteria for infrastructure projects instil confidence among various stakeholders and acts as a catalyst for investment in such projects. As of September 2020, JICA had provided cumulative funding of JPY 2,231.29 billion for 241 road and bridge projects in Southeast Asia while the World Bank had provided cumulative funding of $18.62 billion for 169 road projects.

Railways: Apart from doubling projects, a lot of nations are undertaking or exploring the option of developing high speed rail corridors, primarily with Chinese and Japanese investment. However, a considerable number of projects are not progressing as expected. This has mainly been because of the fear of increased dominance by funding countries, especially China, and of national debt rising to unprecedented levels. Besides, land acquisition, obtaining clearances and local protests are other key concerns.

Urban transport: There has been increasing private participation in the urban transport space. Countries like Indonesia, the Philippines, Thailand and Vietnam have already planned projects under the public-private partnership (PPP) model. In addition to developing sustainable public transport networks such as mass rapid transit (MRT) and light rail transit (LRT), transit-oriented development (TOD) is assuming relevance to generate non-fare revenue. TOD projects will add mixed-use development, expand sidewalks and public spaces, install bike-sharing facilities and plant trees for green belts.

Airports: The Covid-19 pandemic has had a dramatic impact on the aviation sector as the ability of airports to maintain revenues became increasingly challenging and they are facing a severe financial risk that threatens their solvency. The strains imposed by the pandemic have compounded problems of general oversupply in the domestic and regional international market. Although there are opportunities to launch new secondary routes within Southeast Asia, such routes are generally low yielding. Low-cost carrier (LCC)-based markets in Indonesia, Thailand, Vietnam, Malaysia and the Philippines have now shifted their focus to international expansion as LCCs account for 30-40 per cent of the international seat capacity in these countries. LCCs account for a remarkable 50 per cent of the market in Malaysia, giving it one of the highest international penetration rates in the world.

Seaports: Southeast Asian ports serve as key transhipment hubs for countries like India and China. Singapore accounted for a share of about 26 per cent of global transhipment and facilitated trade traffic that is valued at $5 trillion. Southeast Asian ports have been among the leading ports in terms of technology penetration. The increased emphasis on technological deployment and advancements is being laid primarily to reduce costs and improve efficiency. Investment from JICA has played an important role in funding capital-intensive seaport projects in Southeast Asia. There has been an inclination towards developing smart ports with deployment of technologies to improve the digital logistics infrastructure and operational efficiency at ports. The Philippines’ government is currently planning to prioritise flagship projects under the Build, Build, Build (BBB) programme to reinvigorate the domestic economy as the Covid-19-induced slowdown begins to wane.

Renewable energy: There has been an increase in international investment in renewable energy in the Southeast Asian region. The region attracts large investments from donor agencies like the World Bank and ADB, as assistance for improving electricity access and for sustainable development of the power sector. A major upcoming investment in renewables includes South East Asia Clean Energy Facility’s (SEACEF) plan to invest $2.5 billion in clean energy in Southeast Asia and aid the region’s green recovery after Covid-19.

Hydropower has dominated the expansion of renewables-based power. Electricity from renewables has been led by an expansion of hydropower in the Greater Mekong Sub-region, Indonesia and Malaysia, geothermal in Indonesia (one of the world’s leading markets for this resource) and bioenergy in many areas. However, there is significant potential across a portfolio of other renewable technologies. The vast potential of solar photovoltaic and wind is only starting to be tapped. Indonesia, Malaysia, the Philippines, Thailand and Vietnam are comparatively more advanced in the region in terms of policy maturity and comprehensiveness. Some countries have introduced dedicated policies to support deployment of renewable technologies, including specific heating targets in Lao PDR and a feed-in tariff for cogeneration in Vietnam.

Oil and gas: ASEAN’s upstream segment is changing hands with US-based companies transferring assets to domestic companies owing to maturing fields, better opportunities elsewhere in the world, and increasing resource nationalism in the region. Low oil prices will result in cuts or delays in investment in the oil and gas sector, especially in new projects, which will reduce the number of potential growth opportunities in the region for some time. Petrochemicals are set to become the most important growth driver for global oil demand because of their usage across wide applications. The impact of the pandemic has been increasingly pushing companies to restructure their supply-production strategies and diversify their supply chains with extensive usage of technology. While many Southeast Asian countries have been producing and exporting liquefied natural gas for years, this trend is reversing as the countries reserve more and more of the resource for domestic use.

Water and waste: In recent years, ASEAN has established itself as a leading market for technological innovations in the water supply sector. A large number of upcoming players, especially in Singapore, have greatly impacted the water infrastructure in the area through improved monitoring and maintenance. Recently, many Southeast Asian countries have initiated reforms to revise water tariffs in line with the increase in input costs. The rise in tariffs will help utilities improve water security and deliver high quality services. Several steps including installation of automatic meters, fixing district metering areas, adopting IT solutions to track usage through the distribution network, tariff reforms, etc., are being taken to reduce water loss. The state of Johar in Malaysia aims to reduce its non-revenue water (NRW) levels to 5 per cent in 2025 through the use of smart district metered areas. Indonesia has also taken steps to reduce water losses including replacing old meters and fixing leaking pipes. Governments are using PPPs in the water and waste sector increasingly to finance and operate bulk water supply, wastewater treatment and waste-to-energy plants. Utilities are also drawing on specific expertise, such as NRW reduction and pressure management, to improve efficiency and service. Funding from multilateral agencies continues to be the driving force for developing water and waste infrastructure in the Southeast Asian region. Major multilateral funders include the World Bank, ADB and European Investment Bank. Key bilateral funders include Japan, France and the Netherlands.

Some recent infrastructure developments in ASEAN

  • South Korea-based Doosan Heavy Industries and Construction has partnered with Korea Western Power (Kowepo) to develop a 728 MW hydropower PPP in Phou Ngoy, southern Laos. Thailand-based developer Charoen Energy and Water Asia (CEWA) had initially signed the deal with the Laos government to develop the Phou Ngoy project and has since then been jointly executing the project with Kowepo. Doosan and Kowepo will jointly develop the project and cooperate with local manufacturers on project components. Doosan will handle the equipment supply and construction works. The project is under a build-operate-transfer (BOT) model with a total project cost of around $2.4 billion. Plant construction will start in 2022 and be completed by 2029.
  •  The agreement between Singapore and Malaysia to build a high speed rail (HSR) link has been terminated. The suspension period to negotiate the terms of the project expired on December 31, 2020. The project was first announced in 2013 and was expected to create a link between Kuala Lumpur and Singapore at a cost of around $17 billion. The project faced various delays to allow discussions on changes to the project. However, the 350 km HSR project was terminated on January 1, 2021, as both countries failed to reach an agreement on the changes proposed by Malaysia.
  •  Singtel and Ericsson have accelerated their 5G partnership in Singapore through the deployment of high-end 5G technology enabled by 5G New Radio (NR) stand-alone and dual-mode 5G core network products and solutions, including real-time rating and policy control. The energy efficient, end-to-end 5G network will operate on Singtel’s 3.5 GHz and 28 GHz spectrum bands, spanning outdoor and indoor 5G coverage. 5G-enabled application use cases can include cloud gaming, immersive virtual reality, robot-human collaboration in real time, autonomous transport, remote healthcare, precision smart manufacturing and smart nation connectivity.
  •  Ho Chi Minh City has allocated VND 28.9 trillion to develop a comprehensive solid waste treatment system by 2025. Out of this budget, around VND 14.5 trillion has been reserved for the adoption of new solid waste treatment technologies. Of this, VND 9.5 trillion will be directed towards development of two existing facilities and the remaining VND 5 trillion will be utilised for the construction of a new waste treatment plant. A target has been set to ensure that at least 80 per cent of household waste is collected and recycled by 2025.
  •  The Indonesian government has officially inaugurated the Yogyakarta International Airport (YIA) in Kulon Progo Regency, months after its full operation began in March 2020. The new airport boasts a 3.25 km runway, compared to just 2.2 km at the Adisutjipto International Airport, and can accommodate wide-bodied aircraft like the Boeing B777 and Airbus A380. YIA has a passenger capacity of 20 million per year, a massive upgrade from Adisutjipto’s 1.6 million, due to its larger terminal of more than 219,000 square metres. A total of IDR 11.3 trillion ($775 million) had been invested in the airport, with land acquisition accounting for around IDR 4.2 trillion and the remaining IDR 7.1 trillion having been spent on the construction of the terminal and runway.

In sum

Construction activity is expected to remain slow at least in the short run, as Southeast Asian countries face the ravages of the ongoing Covid-19 pandemic. While issues pertaining to raw material, equipment and labour availability might fade off soon when the disease spread is controlled, funding of new infrastructure projects might continue to pose challenges even after the pandemic subsides. For PPPs to take off across Southeast Asia, decision-makers should focus on offering a few well-prepared PPP projects that can deliver demonstrable effects. Across the region, the capacity of national and subnational government agencies dealing with PPPs needs to be improved, and multinational development banks can help client governments build this capacity. Despite concerns of a slowdown triggered by issues such as the US-China trade war and the Covid-19 pandemic, Southeast Asia will continue to offer attractive project finance opportunities for years to come.