Um, W. 2012. Asia’s Infrastructure: Right Investments with the Right Partners. GREAT Insights, Volume 1, Issue 3. May 2012. Maastricht: ECDPM
The Asian Development Bank (ADB) has been in the business of reducing poverty in the Asia and Pacific region for the past 46 years. ADB takes great pride in delivering the most appropriate solutions in its operations, particularly in the dynamic field of infrastructure. To ensure this, we have been asking ourselves questions to help our operations evolve.
The obvious first question: What are the challenges facing Asian governments in meeting infrastructure needs? The answer: not enough money to meet demand.
Even if we add all the domestic resources and other development assistance from sources such as the World Bank and bilateral agencies, we are nowhere near the magnitude of financing needed to meet the total infrastructure demand.
To address this, two areas were identified where we can have immediate impact on bolstering our ability to support ADB’s developing member countries in meeting their infrastructure development needs. The first is to make absolutely certain that the scarce resources allocated for infrastructure development are directed at the right kind of investment. The second is to mobilize private sector capital and knowledge.
Right resources for the right investments
The transport sector accounts for the largest share of ADB’s investment throughout the years, at about a third of total lending operations. A full 80% of this has been invested in road and highway development. While it is clear that roads and highways are needed for economic development, we cannot focus on this sector in isolation of the big picture.
After years of helping to build numerous road and highway projects, ADB asked more questions: Are we focusing on the right issue? Are we focusing too much on moving cars and trucks? Shouldn’t we be focusing on helping to move people and goods instead?
These were the right questions to ask. They resulted in us starting to shift paradigms from just doing roads and highways to embracing “multimodal transport systems” including railways, waterways, and efficient urban transport, such as mass rapid transit (MRT), light rail transit (LRT), and bus rapid transit (BRT). We are even helping some cities develop nonmotorized transport systems, such as bicycle ways and walkways. These investments help countries become more economically competitive by lowering transportation costs and reducing the time it takes to get to a destination. A bonus is that they simultaneously combat climate change through lower carbon emissions.
The water and energy sectors provide other examples. We must ensure that the resources are used as efficiently as possible. What is the point of pouring money into a new water treatment facility if the city’s non-revenue-water or water loss is over 50%? In such cases, we must fix the leaking pipes first. The same thing holds in the energy sector. Instead of looking to build a new power station, we should see where demand side efficiency can be gained. Lastly, we must continue to explore options for regional cooperation, such as power trade between neighboring countries with different peak times. Through creative arrangements, energy can be traded to meet demand without having to generate one extra kilowatt.
Mobilizing the private sector
The second issue is about mobilizing the private sector. ADB is sometimes referred to as a $15 billion/year bank. We again asked questions. Can we turn ourselves into a $100 billion/year bank? How can we maximize our scarce financial recourses? The answers are driving our work to promote the public private partnership (PPP) initiative in our bank. The straightforward solution is to change the letter “L” in our lending program to “leverage”. If we strive to make better use of our resources to create a better environment for private sector investors to actively participate in our development work, we could achieve this goal.
This approach, however, is not just about mobilizing more money. The private sector is often considered to provide greater efficiency than the public sector when managing infrastructure projects and developing infrastructure services. Benefits of involving the private sector in the delivery of infrastructure include efficient use of resources, improved asset and service quality, stronger public sector management, and improvement in public sector procurement.
Keeping all of these in mind, ADB’s PPP agenda includes four pillars: 1) advocating and raising awareness, 2) creating an enabling environment by developing policy, legal, regulatory, and institutional frameworks to create certainty for the private sector; 3) creating more bankable projects for investment; and 4) providing financing/transactions for actual projects.
All of these initiatives translate to the need for creating more capacity in ADB’s developing member countries. I believe effective knowledge sharing as highlighted in the OECD’s development strategy — as well as with ADB’s redefined focus — is an excellent way of achieving this.
Woochong Um is Deputy Director General of the Asian Development Bank’s Regional and Sustainable Development Department.
This article was published in GREAT Insights Volume 1, Issue 3 (May 2012)