Asia’s $26tn infrastructure gap threatens growth, ADB warns

Michael Peel and Tom Mitchell
Passengers get off trains at Nantong Railway Station on January 23, 2017 in Nantong, Jiangsu Province of China.
VCG | Getty Images

Asia needs to invest $26tn by 2030 to resolve a serious infrastructure shortage that threatens to hold back some of the world's fastest-growing economies, the Asian Development Bank has warned.

This requires countries across the region to double total annual spending to about $1.7tn in areas ranging from transport to basic sanitation, the ADB says in a report.

The warning signals that even a big improvement in infrastructure in the past two decades has failed to keep pace with the rapid growth of economies, population and urbanisation. The shortfall is most acute outside China, which is already spending at more than 90 per cent of the levels it is projected to need.

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"The demand for infrastructure across Asia and the Pacific far outstrips current supply," Takehiko Nakao, president of the Manila-based ADB, said. "There is a huge gap still to provide power and roads and railways. All these things are missing."

The 45 countries surveyed in the report, which covers 2016-2030, are forecast to need investment of $26tn over 15 years to maintain growth, cut poverty and deal with climate change.

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The region is estimated to spend about $881bn a year at present. This means a gap between actual and required spending of about 2.4 per cent of forecast gross domestic product in 2016-20.

More than half the estimated spending should go to transport and a third to power, the report says, pointing in particular to a lack of ports, railways and highways to link countries to regional and global markets. Another $800bn is needed for projects to help the 1.5bn people who have no access to basic sanitation and the 300m without safe drinking water.

Critics say some ambitious regional infrastructure projects — such as the East-West Economic Corridor spanning the Mekong subregion between the coasts of Myanmar and Vietnam — have been slow to materialise or failed to yield benefits. Other ventures — such as a proposed high-speed rail line linking the southern Chinese city of Kunming, the Lao capital of Vientiane, Bangkok and the Thai coast — have been hampered by political tensions or wrangles over financial terms.

Difficulties had been met in developing infrastructure, particularly cross-border projects, Mr Nakao told the FT, but he also cited successes from road-building in Pakistan to natural gas supply for Bangladesh. The private sector would need to play a big role in filling the financing gap, as in existing projects to harness geothermal power in Indonesia and to expand Mactan Cebu airport in the southern Philippines, he said.

The size of the infrastructure gap varies greatly, the report says. The Pacific and south Asian subregions are projected to need annual financing equal to about 9 per cent of total 2016-30 GDP, falling to less than 6 per cent in southeast Asia and east Asia.

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China accounts for nearly half of the $1.7tn total annual requirement but its infrastructure gap is much smaller than the Asian average after a quarter century of unprecedented investment.

The world's second-largest economy is estimated to need $754bn in annual investment in the five years through 2020 — not far shy of its estimated 2015 investment of $686bn.

Between 2000 and 2012 the annual average increase in China's electricity generation capacity was 10.7 per cent, creating one of the region's most reliable networks in terms of limiting outages and transmission losses.

Similarly aggressive investment in mobile telecommunications infrastructure provided the basis for average annual subscriber growth of 19.2 per cent between 2000 and 2015.

But Chinese infrastructure investment has been mostly debt-funded, fuelling concerns about rising levels of corporate indebtedness. Growing numbers of countries around the world are being attracted to the China-led Asian Infrastructure Investment Bank, which was created last year with 57 founding shareholders.

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