Asian leaders cite connectivity gaps

By Krista Angela M. Montealegre
National Correspondent

ALLIES of Southeast Asian nations are ready to help foot the mammoth bill needed to plug the region’s infrastructure gaps, with homegrown business leaders bringing to the fore the importance of public-private partnerships (PPP).

During the second day of the ASEAN Business and Investment Summit 2017 in Parañaque City, Prime Minister Dmitry Medvedev said the Russian Federation wants to deepen ties with the region, expressing willingness to provide infrastructure capability for airports, railroads, highways and high speed communication channels to improve regional connectivity.

“We have not been able to tap fully the potential that we see. Trade is rather modest. The potential is much greater, tens of times greater. We have to do what we can to develop these relations and bring them to a new level,” Mr. Medvedev said.

For his part, South Korean President Moon Jae-In pointed out there are “infinite areas of cooperation” with ASEAN, while identifying transportation, energy, water resource management, and information and communication technology as the four main sectors.

“South Asia and Southeast Asia will be the growth engine of the world. Hence, building connectivity with ASEAN is a key objective for India,” Indian Prime Minister Narendra Modi said.

Southeast Asia is in the midst of an infrastructure boom, as governments move to reverse decades of underinvestment in the sector.

Asian Development Bank (ADB) Vice-President Diwakar Gupta estimated that the bloc must set aside $60 billion in annual investments for road, rail, power, water, and other critical infrastructure to ensure sustained rapid economic growth.

“This kind of money will not come from the government (alone). You have to source it from the private sector and PPPs are an excellent way forward because they can leverage the relative strengths of both parties,” Mr. Gupta said.

The Philippines has adopted a “hybrid” infrastructure financing scheme involving official development assistance mostly from China and Japan and public funding for the construction phase and then auctioning off the operation and maintenance contracts of these projects to the private sector.

Ayala Corp. Chairman Jaime Augusto Zobel de Ayala said PPPs are crucial in building an “ecosystem” that will harness government funding for longer-term infrastructure projects and the capital and innovation provided by the private sector.

The Ayala group, an active participant of the PPP program under the previous administration, has expanded to power and water utility in other Southeast Asian nations.

“It takes time to bring down these invisible walls. It takes corporations and businesses to take this wall down. We cannot just ask government to do it themselves,” AirAsia Chief Executive Officer (CEO) Tony Fernandes said.

Mr. Fernandes pushed for “more PPPs,” while urging governments to look beyond big cities and consider building in tertiary cities to accelerate the roll out of infrastructure projects.

“We have a lot of catching up to do. There are certain infrastructure which governments have to do and other infrastructure projects that private sector can do and participate,” International Container Terminal Services, Inc. Chairman Enrique K. Razon, Jr. said.

The Philippines is ahead only of ASEAN neighbors Cambodia and Laos in the Global Competitiveness Index 2017-2018, the annual competitiveness ranking of the World Economic Forum. “My hope is that this administration can change the culture of how things get done in this country. Until something happens, we’ll still be ahead of only Laos and Cambodia in terms of infrastructure investment,” Mr. Razon said.

Thomas R. Hardy, director for congressional affairs and public relations at the US Trade and Development Agency, said it all boils down to transparency, sanctity of contracts and commitment from both the government and private sector regardless of the model in pursuing infrastructure projects.

“If you look at the economic curve, as countries move up on per capita basis, corruption also declines… If we focus on getting economies to grow, getting people empowered, and getting per capita income to go up, I think naturally, corruption will decline,” Ayala’s Mr. Zobel said.

For the Ayala executive, investment is key to pushing growth above 6-7% — a level at which economic gains are perceived to be felt by a greater majority of the population.

Adequate infrastructure and collaboration are also key to advancing financial inclusion in the region, with digital technology presenting opportunities to overcome investment barriers.

“The future is going to be digital… Certainly, digital has enabled reach we could never have dreamed of before,” said Nazir Razak, who heads CIMB Group, one of the largest banks in Southeast Asia.

Speakers in the same summit noted that Southeast Asian firms are increasingly relying on financial technology (fintech) to improve access to funding to spur retail and small business activities, while prodding banks to ease lending standards.

Much depends on digital solutions to unlock potentials for increased economic activity and wider financial inclusion across Southeast Asia, government and business leaders said yesterday, citing the need for a paradigm shift among traditional lenders.

“We have been too focused on our bottom lines. Here, inclusion must also be seen in the context of the need to change value systems of businesses, banks included. It’s not enough in this new era to think purely about shareholder returns,” CIMB’s Mr. Razak said.

“The new-era corporation, to me, looks forward with aggression, determination but must look sideways with love and compassion. That new framework is evolving, companies must then step up and make their own decisions in terms of what their new value systems are.”

Apart from integration, financial inclusion is now seen as an inevitable part of the ASEAN community, Mr. Razak said, with market players increasingly seeing the challenge of having close to half of the regional population without access to basic banking services.

The CIMB official went as far as describing fintech as the driver of the “fourth industrial revolution,” even as he said that ASEAN has so far failed in terms of achieving “respectable” levels of inclusion.

Stiff requirements set by banks keep small businesses and individual consumers out of the formal financial system. Small-value transactions are seen “expensive to process,” while lending to microenterprises are considered high-risk and, hence, come with a hefty price tag if they want to secure bank loans, added Anthony Thomas, chief operating officer at Mynt, the fintech arm of Globe Telecom, Inc.

This year’s ASEAN meetings have zeroed in on the micro, small and medium enterprise (SME) sector, which accounts for more than 90% of all domestic firms and as much as 90% of the non-agricultural workforce in the region.

Philippine MSMEs account for 99% of local firms and 60% of employment but contribute only 36% of gross value added, according to the May 2016 Investment Policy Review of the Organization for Economic Cooperation and Development.

In his speech on Sunday night, President Rodrigo R. Duterte said he wanted to “pour money” into developing the SME segment under the government’s 2018 national budget.

Alexander Feldman, president and CEO for the US-ASEAN Business Council, described the emerging digital economy as the “game-changer” to democratize financing and payment systems across the region.

“There’s common agreement that the future is digital… Government has to play a role here to manage competitive forces and identify areas for cooperation,” Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla, Jr. said.

Robbie Antonio, CEO at property startup Revolution Precrafted also cited the need to allow venture capital and early-stage financing options for business start-ups, which would stand as fund-raising alternatives apart from bank credit lines. — with Melissa Luz T. Lopez