Jul 24, 2012
Enhancing ASEAN connectivity would bring about many gains, including more employment prospects, trade and business opportunities, and better choices of goods and services for the over 600 million consumers in the region.
Besides, lower-income countries, land-locked regions and hinterlands within ASEAN will gain access to mainstream economic activities, which include exports to larger regional markets and linkages with regional production networks and industrial zones.
By enhancing connectivity, ASEAN-centred free trade agreements would also operate more effectively and the development of an East Asia wide trading agreement would be sped up. This will benefit regional and global firms operating in the region, and will help to realise ASEAN's single market and production base by 2015.
INFRASTRUCTURE NEEDS
Fifteen high-priority projects have been identified for urgent implementation under the Master Plan. Out of this, six projects are physical infrastructure related to rail, road and energy connections covering the mainland and archipelagic parts of South-east Asia.
The Asian Development Bank (ADB) estimates that over the next decade, ASEAN will require US$60 billion (S$75.6 billion) annually to address the region's infrastructure needs. This is an area that we must place emphasis on as ASEAN countries, on a per capita basis, have only a fraction of the roads, railways and electricity coverage found in OECD countries.
Further, it is estimated that a 1 per cent increase in infrastructure spending in Asia could increase private consumption by 1 to 2 per cent of gross domestic product.
However, we must carefully examine the financial implications of rolling out the connectivity initiative . The World Bank estimates that ASEAN would need to invest over US$7.5 trillion in overall regional and national infrastructures. This implies that we have to look both within and without the region to finance the Master Plan.
Not only do ASEAN countries need to allocate more of their budgets to national and regional infrastructure development, they must work closely with dialogue partners, development partners, multilateral development banks, international organisations and the private sector.
FUND A FIRST STEP?
The establishment of the ASEAN Infrastructure Fund (AIF) marks an important step towards ASEAN financing its own development needs. The fund's initial equity contribution would be US$485 million and its total lending commitment through 2020 is expected to be about US$4 billion.
With the projected 70 per cent co-financing by the ADB, the fund is expected to leverage more than US$13 billion in infrastructure financing by 2020.
While this is a welcome shot in the arm for ASEAN's infrastructure development efforts, more has to be done to harness the US$700 billion reserves of ASEAN countries that is now predominantly invested outside Asia.
The AIF should be augmented with more resources after its initial years, especially if the scheme proves to be successful. We should ensure that projects earmarked for funding are financially sound and attractive so that investors get positive returns.
Eventually, ASEAN should consider extending the fund to the Plus Three Countries of China, Japan and South Korea to enlarge the pool and support the huge infrastructure requirements of East Asia. The Chiang Mai Initiative is a useful precedence for this.
However, the public-private partnership model that the AIF plans to employ will be successful only if governments show their commitment to the fund and its projects. Governments must ensure that the risks involved in longer-term infrastructure projects are defrayed to encourage the private sector to come on board.
PEOPLE TO PEOPLE
ASEAN also needs to give greater priority to institutional and people-to-people connectivity. ASEAN must ensure that all regional facilitation agreements and legal frameworks related to trade, transport, ICT, energy and others are in full operation, as hard infrastructure alone will not enhance connectivity.
ASEAN should consider introducing a business travel card similar to APEC's to encourage the free flow of business and skilled people.
Besides this, ASEAN should accelerate the establishment of a single visa regime to allow for intra-ASEAN travel and for the people of the region to get to know one another to nurture lasting bonds necessary for community building.
S Pushpanathan is a senior fellow with the Singapore Institute of International Affairs and the former Deputy Secretary-General of ASEAN for ASEAN Economic Community. He was involved in drafting the Master Plan on ASEAN Connectivity and will speak on the topic at the 5th ASEAN and Asia Forum on Aug 2.
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