The Asia-Pacific region will need to shift private sector focus to more water, energy and waste treatment infrastructure, as the governments of many Asian economies may not be able to shoulder the entire cost burden of development, according to a recent joint study from Ernst & Young (E&Y) and Urban Land Institute.
In most Asian nations, trillions of dollars have been spent on transportation infrastructure in the hopes of boosting the region’s trade. This infrastructure has been primarily paid for by governments, the study points out. In China, for example, “trillions of dollars of infrastructure investment over the past 20 years has transformed the country into an exemplar of modern urban transit”.
Even with its high-speed rails and expansive highways, however, many of China’s cities still lack basic water and waste treatment systems. The country does not even have a unified electricity grid, according to the study.
Other Asian countries are in similar straits. India’s energy grid has been known to collapse for days at a time, and even the developed nations of Japan and Australia face funding hurdles with government deficits and the sheer scale of infrastructure projects.
“Meeting global infrastructure demand comes with a huge price tag. The question remains who’s going to pay for it,” Howard Roth, E&Y’s global real estate leader, said in the statement.
The combination of governments’ need and investors warming up to the asset class “spells opportunity for governments to tap into these nontraditional sources”, Roth believes.
Some nations have already started. Japan’s two Osaka airports, for example, are looking to raise as much as $15 billion from a private operator to run them for about 50 years. If this bid is successful, the study predicts that Japan’s government deficits will encourage much more privatisation.
India is also straining to push through a $1 trillion, five-year infrastructure investment plan that relies primarily on the public-private partnership model. The Indian government is hoping the private sector will shoulder around 50 percent of the cost, with projects primarily focused on energy and transportation.
Australia has also identified $206 billion worth of government assets that can be privatised, and one of the largest pools of funding could end up being Australia’s own superannuation funds, according to the study.
“There is clearly an opportunity for the government and the private sector to come together in more innovative and effective ways to build, finance and improve existing infrastructure,” Bill Banks, E&Y’s global infrastructure leader, said in the statement.
“We must find a way to make this work in Asia Pacific if our economies are to meet their GDP growth forecasts and social equality targets.”