Overview of East Asia Infrastructure Trends and Challenges Christian Delvoie. Director, Knowledge Strategy Group, The World Bank Until September 28: Director, Sustainable Development, East Asia and Pacific Region 1
East Asia Infrastructure: An Evolving Environment The growth story. Strong growth and significant progress in poverty reduction, supported by clear focus on infrastructure investments Rapid urbanization and rising incomes Increasing regional integration The development challenges. Growing social inequality with Rural-urban and Coastal-inland divide New governance models, with increased decentralization Increasing pressures on natural resources and the environment Financing. Large needs but global financing is not the binding constraint Involving the need for a new sustainable development model 2
Strong aggregate growth, supporting impressive poverty reduction Average annual growth (%), 1994-25 The Story 25 million lifted out of poverty in the last 5 years 1. 6 Thailand Malaysia 8. Population weighted average 7.7 3 6. 199 1994 1997 1999 21 23 25 4. 85 2.. 55 25 199 Indonesia 1994 1999 21 23 25-2. -4. -6. Timor-Leste Marshall Islands Solomon Islands Micronesia, Fed. Sts. Mongolia Papua New Guinea Vanuatu Tonga Fiji Samoa Indonesia Palau Thailand Philippines Kiribati Malaysia Lao PDR Cambodia 85 55 25 199 1994 Lao PDR 1997 1999 Cambodia 21 23 25 Source: World Development Indicators, 25 Source: Source: Connecting East Asia: A New Framework for Infrastructure, The World Bank 3
Urbanization as a new driver for productivity and infrastructure in 2 years, East Asia will be an urban region Urban population (% total population) Growth in number of cities over one million inhabitants 1 75 5 5 million more people move into Asian cities 2 225 18 16 14 12 1 8 4% increase in number of large cities 25 196 198 6 4 2 SSA SA MENA LAC OECD EAP 2 25 21 215 Source: World Development Indicators; United Nations World Urbanization Prospects Source: United Nations World Urbanization Prospects 4
Increased regional interdependence East Asian development model has been based on global and regional integration Interdependence of auto-manufacturing in ASEAN Emerging East Asia (, ASEAN, newly industrializing economies, Mongolia), share of world exports (%) 2. 15. 1. Intra-regional exports increase from 32 percent to 41 % of EAP trade 5.. 199 1991 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 Source: Nomura Research Institute, Reprinted in Connecting East Asia: A New Framework for Infrastructure, The World Bank Source: IMF, Direction of Trade Statistics 5
The Challenges Inequality A contrasted picture Poor provinces in the hinterland, but concentration of the poor along the coast Making the next challenge one of domestic integration Percentage population living below $2 / day (by region) Percentage population living below $2 / day (each dot = 5 people) % of population living below PPP$2/day in 22 2% 4% 6% 8% Source: Poverty Reduction and Economic Management Unit, The World Bank, 24 Source: Poverty Reduction and Economic Management Unit, The World Bank, 24 6
And inequality is high and growing GINI Coefficients of Select Countries Across Time Brazil (21,inc) Mexico (22,inc) (23,con) Philipp.(2,con) (23,inc) (21,inc) U.S.A.(2,inc) (22,con) Indon.(2,con) India(2,con) Russia(22,con) Korea (1998,inc) (1981,inc) (1985,inc) Germany(2,inc) Sweden(2,inc). 1. 2. 3. 4. 5. 6. 7. Sources: World Development Report, 26; Ravallion and Chen (24); World Bank estimates from NBS household data. 7
with significant variation in infrastructure service access Service Access (Bars in blue = outcomes above low and middle income country average) Water supply access (%) Electricity access (%) 1 1 75 75 5 5 25 25 PNG Cambodia Lao PDR Mongolia Solomon Myanmar Indonesia Palau Philippines Vanuatu Malaysia Thailand Samoa Tonga Myanmar Solomon Cambodia Timor Vanuatu Kiribati Lao PDR Micronesia PNG Indonesia Palau Philippines Fiji Thailand Tonga Mongolia Samoa Malaysia Marshall Telephone access (subscribers / 1 inhabitants) 75 5 25 Percentage paved roads 1 75 5 25 Myanmar PNG Solomon Lao PDR Cambodia Kiribati Vanuatu Marshall Indonesia Samoa Tonga Micronesia Mongolia Fiji Philippines Palau Thailand Source: World Development Indicators; IEA; Connecting East Asia: A New Framework for Infrastructure, The World Bank Malaysia Solomon Cambodia PNG Mongolia Lao PDR Micronesia Philippines Vanuatu Tonga Timor Fiji Indonesia Malaysia Samoa Thailand 8
The governance challenge A host of new actors are coming to the fore Key issues: Democratization Increased complexity in service delivery Corruption Decentralization Corruption Perception Index 24 Myanmar Indonesia Philippines Papua New Guinea Mongolia Thailand S. Korea Malaysia Japan Singapore 2 4 6 8 1 Source: Transparency International Note: The CPI score ranges between 1 (highly clean) to (highly corrupt). 9
with increased decentralization as a key trend Key challenges: Fragmentation The missing middle Implementation of integrated vision Capacity & leadership at local level Unclear regulation frameworks Expenditure decentralization sub-national expenditure (% total national expenditure) All developing countries (199s) All transition countries (199s) (22) (22) Indonesia (22) Philippines (22) Thailand (21) India (199s) Russia (199s) Pakistan (199s) OECD countries (199s) Japan (199s) USA (199s) Germany (199s) 1 2 3 4 5 6 7 Source: East Asia Decentralizes Making Local Government Work, The World Bank 1
Increasing pressure on natural resources and the environment Business as usual will result in doubling energy consumption by 22 Million tons coal equivalent (Mtce) 3,5 3, 2,5 2, 1,5 1, 5 's momentous energy demand growth 4-year periods of primary energy growth OECD Europe 1965-23 USA 195-199 198-22 Business As Usual Japan 1958-1998 198-22 (Green Growth) Projected no. of automobiles, 2-22 Projected no. of automobiles (in millions) 9 8 7 6 5 4 3 2 1-5 1 15 2 25 3 35 4 Sources: BP Statistical Review of World Energy 24, Govt of Japan, DRC, US Dept of Energy Years Source: East Asia Energy Unit, The World Bank 2 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 Source: International Energy Agency, 25; World Bank Staff Estimates 217 218 219 22 11
With severe negative consequences on air quality and climate change PM Concentrations (ug/m 3 ) Countries and Country Groups Share in Global GHG Emissions, 2 Source: ERI Of the 3 most air-polluted cities in the world, 2 are in EAP accounts for 18% of the world total greenhouse gas (GHG) emissions, with alone contributing 15%. 12
The Financing East Asia s infrastructure needs are large and increasing East Asia, estimated infrastructure expenditure, actual and projected, 1996 21 ($ billion / year) 18 16 14 $123 bil $147 bil $165* bil rail water and sanitation telecoms all, excluding Maintenance 12 1 roads 8 Investment 6 4 electricity 2 1996-2 21-25 26-21 by sector by country by economic classification Based on econometric simulations consistent with projected regional growth, and efficiency prices. Due to data limitations, the simulation excludes a number of key infrastructure services, notably ports and airports, and all but major roads. Source: Connecting East Asia, A New Framework for Infrastructure, ADB/JBIC/World Bank Report, 25 13
At the macro level, financing is not a constraint in East Asia Selected macroeconomic indicators (US$ billion) Foreign exchange Reserves 27 Current a/c Surplus 26 Gross domestic savings 25 1333 16* 196 In June 27, s foreign-exchange reserves had reached US$1.3trn Japan 893 17 194** S. Korea 25 6.9 257 By 28, they exceeded US$2.trn Malaysia 91 19.9* 57 Source: IMF International Financial Statistics database Source: Foreign exchange reserves - IMF International Financial Statistics database Current a/c surplus - World Economic Outlook database Gross domestic savings - World Development Indicators * Numbers for 25 ** Numbers for 23 14
supported by a virtuous cycle of savings, investment and infrastructure expenditures Savings and investment (% GDP) 1993-22 Infrastructure investment (% GDP) -3% 4-7% Over 7% Malay sia Thailand Cambodia Lao PDR Indonesia Mongolia Thailand Indonesia Philippines Mongolia Philippines Vanuatu Cambodia Expansion of infrastructure stocks, 199 2 Total road network Electricity generation capacity EAP MENA ECA SA LAC SSA 2 4 Lao PDR Philippines Indonesia Thailand Thailand Indonesia Lao PDR Philippines Investment Source: World Development Indicators, 24 Savings % 5% 1% % 5% 1% 15% Source: Connecting East Asia: A New Framework for Infrastructure, The World Bank 15
but, infrastructure needs vary significantly across countries Infrastructure financing needs over 25-215 in select EAP countries (US$ billion) Energy Water Transport Total 32 7.2 14.3 54 Philippines 11 6.4 6.9* 24 Indonesia 25 8 1 43 Mongolia 1.7 1.4.89 4 Cambodia.3** 1.4* 1.7 Source: World Bank Country Infrastructure Strategies; Cambodia: Enhancing Service Delivery through Improved Resource Allocation and Institutional Reform * Includes only road transport ** 88 Includes only urban water sector 16
Infrastructure finance: Spotlight on Investment Needs Infrastructure Financing Sources 8 8 7 7 US$ million 6 5 4 3 2 1 22 21 Transport Electricity Telecoms WSS US$ million 6 5 4 3 2 1? 22 21 Private Users Government ODA Potential financing gap of around 5% of GDP by 21 If ODA stays at roughly the same level, and user tariffs and government finance increase with GDP (7% growth) 21 needs based on: Sept 25 Min of Transport MTEF; Financial model used by EVN; Target of 35 telecoms lines per 1 people by 21; Targets of 85% access to urban water and sanitation and 75% for rural water and sanitation Government financing includes budget, government bonds & State-Owned Commercial Banks 21 financing requirement based on: Total of sectoral investment needs; ODA grows at 2% p.a. from 22 level; Government and user payments grow at GDP growth rate (7%); Private sector provides the remainder 17
Critical to make multiple sources of infrastructure finance work together 4 35 3 25 2 15 1 5 199 1991 Private sector investment in infrastructure ($ billion) To EAP (left axis) 1992 1993 1994 1995 Source: World Bank PPI Database 1996 1997 1998 1999 2 21 To all developing countries (right axis) 22 23 24 25 12 1 8 6 4 2 Public Sector incl. budget funding, government bonds, State Owned Commercial Banks; but need to create fiscal space and incentive framework for decentralized entities International Donors play a small financing role in most of the region, but provide catalytic role, leverage, innovation and policy advice Private Sector great potential, but cyclical; financing is available but regulatory frameworks still missing in most countries 18
General Business Implications Diverse region; diverse needs, but general trends: High sustained growth Sustained regional potential Move from exports to domestic markets Increased sophistication as revenues move up Increased Regional integration Competitiveness and logistics Hard competitive environment: efficiency 19
Fast urbanization and decentralization Messy business and policy environment More demanding civil society (environment, corruption) Local champions Local knowledge and partnerships Financing not binding constraint (at regional level) Value added and technology transfer Institutional development and management practices Diversified instruments Leverage Increasing focus on balanced and sustainable growth and on climate change 2