Developing Infrastructure to Develop Cities: A Southeast Asian Will and an Australian Way

AAYLF delegate from Australia Miguel Vera-Cruz investigates congestion and infrastructure as barriers to economic development and equality.

On 22 July 2008, after nearly a decade of delays caused by disputes between the government and international contractors, Terminal 3 of Manila’s Ninoy Aquino International Airport (NAIA) opened. The original terminal was well behind its time, reaching capacity in 1991, and consistently rated well into the 2010s as among the worst in the world [1]. In as much as its delays reflected local cynicism and hopelessness up to the mid-2000s about the Philippines, once characterised as the ‘Sick Man of Asia’, its opening became a harbinger of the economic growth to follow.

Yet infrastructure remains a challenge of Manila and other ASEAN megacities. Cities including Jakarta and Bangkok featured among GPS developer TomTom’s list of cities with the world’s worst traffic [2]; traffic app Waze has on various occasions listed Manila and Cebu as the world’s most congested [3,4]; and the ADB rated Manila as the most congested city in Asia [5]. Much of this can be attributed to a lack of public transport options, which affect not only a city’s economic development, but also economic equality, due to its significance in enabling people to escape poverty [6]. While there is no silver bullet to more inclusive economic growth in ASEAN megacities, infrastructure, especially transportation, is crucial.

The willpower, resources and expertise exists, yet NAIA’s problems reflect the challenges of this mobilisation. While the Philippine public sector has historically underinvested in infrastructure [7], large conglomerates, which like many ASEAN economies dominate the Philippine economy, have expressed willingness to address the country’s infrastructure deficit [8]. PPP funding has been steady since the mid-1990s, and conglomerates provide an alternative to foreign financing (which carries political implications). However, a lack of financial products and the opaqueness of regulatory processes[9], including those that plagued NAIA, remain barriers. Since the 1986 collapse of the Marcos dictatorship, the domestic private sector has somewhat compensated for the shortfall of government investment. Yet, even if the government lacks the capacity, it could still support the private sector by facilitating a smoother PPP tendering and investment process. Enter the potential for Australian expertise and advisory.

Australia is a leader in both asset management and public-private partnerships. Australia’s pension fund industry is among the world’s largest [10], a particularly remarkable statistic for its small population, and is home to large infrastructure investors including Macquarie Capital, the world’s largest by assets under management. Australia has had its share of hiccups, yet with experience, PPPs have become key to infrastructure development. An ideal solution would combine the best principles of private sector and intergovernmental development finance, and could be done in either or both of two ways.

The first would be for Australian pension funds to co-invest with local conglomerates directly into projects. Australian professionals could assist in drafting contracts, processes, and payments based on tried-and-tested systems; and being of the private sector mitigates political concerns that come with other options including aid. Encouraging openness to riskier emerging market investments among Australian asset managers would be a key challenge; as would the openness among Southeast Asians to foreign ownership of critical public assets. Additionally, there is more risk of local communities not realising direct benefits via investment returns or project-related employment unless explicitly mandated.

The second would be to establish infrastructure private equity funds, with a minority Australian pension fund stake the remainder owned by ASEAN governments and private investors. This would allow Australian funds to contribute within their area of expertise – asset management – and maintain local control of assets for decision making in local communities’ interest.

With its investment expertise, Australia could assist the public sector in ASEAN countries to make infrastructure investment more effective. With increasing discussion within political and academic circles concerned with Australia’s future place in the region, it could offer a uniquely Australian model for development financing. Most importantly, it would engage Australia with the Asian century via a unique opportunity for partnership in a sector crucial to equitable nation building.

The views and opinions expressed are solely the author’s own and do not reflect those of any group or organisation the author is associated with.

References

  1. Santos, Rudy. ‘NAIA no longer on worst airports list’. The Philippine Star, 18 October 2017, accessed 9 November 2019 at https://www.philstar.com/headlines/2017/10/18/1750341/naia-no-longer-worst-airports-list
  2. McCarthy, Niall. ‘These cities have the worst traffic congestion in the world’. The World Economic Forum, 13 June 2019, accessed 9 November 2019 at https://www.weforum.org/agenda/2019/06/chart-of-the-day-the-cities-with-the-worst-congestion/
  3. ‘Metro Manila traffic congestion may be world’s worst, says Waze’. ABS-CBN News, 29 October 2019, accessed 9 November 2019 at https://news.abs-cbn.com/business/10/29/19/metro-manila-traffic-congestion-may-be-worlds-worst-says-waze
  4. ‘Traffic app Waze tags PH city as ‘worst to drive in’’. ABS-CBN News, 14 September 2016, accessed 9 November 2019 at https://news.abs-cbn.com/news/09/14/16/traffic-app-waze-tags-ph-city-as-worst-to-drive-in
  5. ‘Metro Manila is Asia’s most congested city – study’. ABS-CBN News, 25 September 2019, accessed 9 November 2019 at https://news.abs-cbn.com/video/spotlight/09/25/19/metro-manila-is-developing-asias-most-congested-city-study
  6. See, eg. Bouchard, Mikayla. ‘Transportation Emerges as Crucial to Escaping Poverty’. The New York Times, 7 May 2015, accessed 9 November 2019 at https://www.nytimes.com/2015/05/07/upshot/transportation-emerges-as-crucial-to-escaping-poverty.html; Majeski, Quinn. ‘Assessing the Effect of Commute Time on Poverty in the United States’, accessed 9 November 2019 at https://depts.washington.edu/esreview/wordpress/wp-content/uploads/2016/06/Commute-Time-on-Poverty-.pdf
  7. Schuster, S., Balbosa, J., Tang, C., Komatsuzaki, T., and Peiris, S. J., ‘Scaling Up Infrastructure Investment in the Philippines: Role of Public-Private Partnership and Issues’, Asian Development Bank, June 2017, pp. 1-3, accessed 9 November 2019 at https://www.adb.org/sites/default/files/publication/330981/seawp-13.pdf
  8. Miraflor, Madelaine B., ‘Government still needs private sector to build infrastructure projects’, Government of the Philippines Public-Private Partnership Center, 14 November 2017, https://ppp.gov.ph/in_the_news/government-still-needs-private-sector-to-build-infrastructure-projects/
  9. ‘Investing in Transportation Infrastructure in the Philippines’, Milken Institute, 2017, pp. 10-12, accessed 9 November 2019 via http://milkeninstitute.org/sites/default/files/reports-pdf/112817-Philippines-Infrastructure-FIL.pdf
  10. ‘Australia Has the Fourth Largest Pension Fund Assets in the World’, Australian Trade and Investment Commission, 2018, accessed 9 November 2019 at https://www.austrade.gov.au/news/economic-analysis/australia-has-the-fourth-largest-pension-fund-assets-in-the-world

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