02 August 2017

Infrastructure Investment to Boost the Competitiveness between ASEAN Countries

ASEAN big 5 countries are moving its focus from power and telecoms investments to infrastructures.

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Belt and Road Initiative (BRI) has been a major topic to discuss over these past few months and for the last 10 years, most ASEAN countries are often neglecting the transportation sector, which leads to a lower competitiveness and infrastructure gap. However, they realize this condition and are aware the pressing need to bridge the gap to further enhance trade, investment, tourism and development and, in turn, competitiveness. HSBC Global Research in June 2017 sees that ASEAN infrastructure is now moving from power and telecoms to transport infrastructure. HSBC believes that this initiative will be benefitting especially in ASEAN region. It opens more opportunity to grow the region and increase the connectivity amongst countries.

“HSBC expects the infrastructure spending to double to USD705bn in the ASEAN, especially the big 5 countries (Indonesia, Singapore, Malaysia, Thailand, and The Philippines) over the next five years – reaching 4% of GDP – with 65% going into transport. In Indonesia, we can see that President Joko Widodo has already set a new target of more than USD400bn of infrastructure investment in his term (2015-19). It is a great effort from the government over the last two years,” said Sumit Dutta, President Director, PT Bank HSBC Indonesia.

Those big 5 countries or best known as ASEAN-5 are embarking on large transport infrastructure programs to boost long-term competiveness and drive sustainable growth. Based on International Transport Forum data, Indonesia rank the lowest in terms of transport infrastructure stock.

Indonesia is one of the Asia's brightest economic prospects, which PT Bank HSBC Indonesia sees a huge advantage and opportunity with the infrastructure projects mentioned. The key is to collaborate at both a country and regional level and approach infrastructure projects in a proactive. With HSBC’s capability, HSBC could support a national or cross-border infrastructure project from inception to maturity- supporting principal investors, contractors and developers with initial performance bonding and establishing/risk management products.

Despite being the largest economy in ASEAN, the under-investment in transport infrastructure over the years has led to Indonesia being ranked as low as 73 in the Global Infrastructure Index in 2016. Moreover, the World Economic Forum also identify that the problem in infrastructure investment in Indonesia such as inadequately educated workforce, insufficient capacity to innovate, access to financing, inefficient government bureaucracy, political uncertainty, inadequate supply of infrastructure and government instability/coups have led to lower investment and lower investor confidence in doing business, and lower global competitiveness.

In order to overcome the challenges, a new target has set by President Joko Widodo by increasing the infrastructure budget substantially over the last two years and improving the land acquisition law, the largest impediment to progress. USD130bn of transport projects have been identified as priorities, of which USD28bn of projects have been earmarked for 2017-18. New contract wins by the five state-owned enterprises (SOEs) went up by 68% y-o-y in 2016 (IDR171trn vs IDR102trn in 2015) and should increase further in 2017-19.

After the integration with Bank Ekonomi in April 2017, PT Bank HSBC Indonesia combines strong product offering and geographical spread, which will enable Indonesia to find the right investment overseas as well as attract the suitable investors for Indonesia. As the chosen bank by the government that could attract investment through this initiative, HSBC is ready to help Indonesia to gain more investment. HSBC committed to contributing even more to the Indonesian economy as well as connecting the customers to opportunities across the world through the Bank’s unparalleled global networks.

The Belt and Road Initiative may help to secure the financial support needed from China-led policy banks including the Asian Infrastructure Investment Bank (AIIB) and New Development Bank, as well as Chinese funds like the Silk Road Fund. These have dedicated billions to support Belt and Road Projects. Financial institutions including Chinese and foreign commercial banks have key roles to play in facilitating this financing. While BRI comes as the solution for the funding gap, each country will face its own challenges in terms of infrastructure. Indonesia can expect more investments in particular infrastructure investment in the future to help speed up Indonesia’s economic growth. Today, Indonesia has already joined the BRI which mainly focusing on railway construction.

Source:

  1. HSBC Global Research on ASEAN Infrastructure – June 2017
  2. China to extend its long-term ODI by riding BRI by Helen Wong – Feb 2017

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