How infrastructure can change the face of cities in South-East Asia
Satya Ramamurthy, Partner, KPMG Advisory
This article is part of the World Economic Forum on ASEAN 2017
With the rise of South-East Asian economies, more and more people in countries in the region are rushing to cities, seeking better lives. While urbanization does create economic opportunity and social mobility, the rate at which it is happening in South-East Asian economies is challenging our capacity to plan and grow. One of the greatest challenges the region faces today is providing timely, efficient, effective and economically viable infrastructure to its people. There are a number of realities, trends, and constraints that will determine how well we meet this challenge.
The Asian Development Bank estimates that the region must spend at least $60 billion a year on infrastructure upgrades. Governments in South-East Asia are planning to implement these upgrades; Indonesia alone intends to spend $425 billion on infrastructure over the next five years. But the plans have faced some technical, institutional, and capacity constraints that have hampered execution. Greenfield infrastructure investments have suffered from uncertain policy frameworks, lack of project prioritization, and limited capacity in government institutions. More fiscally constrained countries, such as the CMLV and Indonesia, are taking policy and legal measures so that more funds can be channeled to infrastructure. While it is true that most countries in the region are eager to rely on public-private partnerships (PPP) to catalyze infrastructure development, progress has been mixed and there is a risk in some countries of programmes falling short of expectations.
Three important areas should be explored by city leaders to get better outcomes:
1. The traditional linear estimates of infrastructure requirements could be difficult to meet. In this context, a rethink of infrastructure demand, keeping in mind the role of disruptive technology, is necessary. Technology enables better sharing of existing and new infrastructure and has much greater potential to improve productivity of infrastructure development and deployment. Technology has also brought to the fore the missing party in most infrastructure conversations — the end consumer. By improving customer access and experience, technology is reshaping national infrastructure requirements and transforming the way that priorities are set and met. Countries in South-East Asia, collectively and individually, need to evaluate the ways in which technology can be embedded into infrastructure assets, encourage capital formation in areas of disruptive innovation and allow new models to emerge.
2. The role of the state as a consumer and aggregator of demand needs to be actively pursued in order to improve programme and project economics. In most cities, the government is an active buyer of infrastructure services and has the potential to shape demand. However, not enough strategic thinking goes into demand aggregation in order to enable projects to become viable and get funded. This will require leadership to articulate a long term vision and coordinated city planning among the various departments. In areas like housing and transport, coordinated planning can result in better infrastructure outcomes. A good example is the concept of ‘work-live-play’, which is leading to reduced infrastructure load, especially in transport and making for a better quality of life outcomes.
3. As countries develop, cities will increasingly account for a bigger share of national income. Growth sectors, such as manufacturing and services, will continue to be concentrated in cities, where easy access to skilled labour becomes an important consideration.
The growth of urban populations in both large and small cities in South-East Asia calls for a greater devolution of power to cities. Better access to the economic surplus generated by the cities for re-investment and improving productive capacity is becoming more important to catalyze infrastructure development. Better local balance sheets will allow for the city governments to embark on projects which are stalled, where there is market failure but a clear need.
Local governments can facilitate urban economic growth by investing in infrastructure and planning early for growth. But their key role in economic development will remain providing the basic infrastructure and public services needed to create an attractive environment for both businesses and citizens.
Urban infrastructure is the foundation for sustainable economic growth, social equity, and environmental sustainability. Technology can be an important enabler but South-East Asia as a region must continue to improve its regulatory environment and urban governance, gradually developing institutional strength and reforms at the various tiers of government. The goal is a perfect balance between the private sector achieving maximum returns and the public sector achieving socio-economic welfare at reasonable costs.
Have you read?
Originally published at www.weforum.org.
