STRENGTHENING POLICY, REGULATION AND INSTITUTIONS FOR EFFECTIVE TRANSPORT INFRASTRUCTURE DEVELOPMENT IN ASIA - Biswa Nath Bhattacharyay - ifo Institut
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STRENGTHENING POLICY, REGULATION AND INSTITUTIONS FOR EFFECTIVE TRANSPORT INFRASTRUCTURE DEVELOPMENT IN ASIA Biswa Nath Bhattacharyay
Venice Summer Institute 2013
Venice Summer Institute
22 – 27 July 2013
CESifo, the International Platform of the Ifo Institute of Economic Research
and the Center for Economic Studies of Ludwig-Maximilians University
THE ECONOMICS OF INFRASTRUCTURE PROVISIONING: THE
(CHANGING) ROLE OF THE STATE
Strengthening Policy, Regulation and Institutions
for Effective Transport Infrastructure
Development in Asia
Biswa Nath Bhattacharyay1
Adjunct Professor, Fore School of Management, New Delhi,
Visiting Professor, Institute of International Economy, University
of International Business and Economics, Beijing
and
Fellow of CESIfo, a Joint Initiative of Ifo Institute and and the
Center for Economic Studies of Ludwig-Maximilians University,
Munich
Abstract
Asia’s competitiveness and sustainable rapid growth largely depends on its capacity to
address the serious infrastructure deficiencies, inadequate infrastructure connectivity,
particularly transport connectivity The major challenges of connectivity include
deficiencies in the hard infrastructure (such as transport, energy, and information and
communication technology infrastructure) as well as soft infrastructure (such as polices,
1
Former Advisor (equivalent to Director, Asian Development Bank, Manila.institutions, regulations, systems and procedures, knowledge, capacities, and strategies to support development and operation of hard or physical infrastructure). This paper particularly underscores the role of soft infrastructure in developing effective transport connectivity in enabling economic, inclusive and sustainable growth, trade integration, and connectivity. The objective of the paper is to review soft infrastructure, namely existing policies, regulations and institutions related to transport development in Asia and to suggest ways and means to strengthen soft infrastructure for effective transport infrastructure development at the national, subregional and regional levels. It presents the roles, benefits, concept, and challenges of transport connectivity and reviews the role of policies, institutions, regulations and governance in effective transport development and environmentally sustainable infrastructure. It examines the challenges and prospects of the urban transport management. Furthermore, the paper discusses the issues concerning the effective financing as well as the issue of inclusive transport infrastructure including some empirical evidences. Lastly, it analyzes the role of policies, institutions, regulations in achieving inclusive, sustainable and seamless transport connectivity by addressing the challenges and utilizing the prospects. 1. Introduction The Asia-Pacific region (henceforth Asia) is the world’s largest (26 million square km) and most populous continent with 4.1 billion habitants in mid-2009 (UN ESCAP, 2009). The region accounts for more than 60% of the world’s population and 30% of the world’s total land area (ADB, 2007). Its economy today is almost equal to those of Europe and North America and in recent years has consistently recorded the world’s highest economic growth rates. It is a vast and socio-economically diverse region consisting of economies of various sizes, per capita income and various stages of economic development, population size and density, natural resources, access to suppliers and global markets, institutional capacity, financial sector and culture among others. The major factors behind the high growth in the Asia during past two decades are rapid infrastructure development for increased connectivity and the formation of the East Asian production networks and supply chain making Asia a factory of the world. The infrastructure development has contributed significantly toward poverty reduction, but Asia still houses more than two-third of the world’s poor(UN ESCAP, ADB and UNDP, 2010). At the same time, the rapid growth has not been adequately inclusive, causing high disparity in income and other non-income or social benefits among households and businesses within a country as well as across regions. The provision of basic services in improving the quality of life is highly diverse across countries. This could be a cause of future instability as witnessed in the Middle East and North Africa recently. There still exists significant development gap among Asian countries. Even though Asia has witnessed significant infrastructure development, the state of infrastructure in terms of quality and quantity is not uniform across Asia; it varies from country to country as well as from region to region within a country. Rapid economic growth, increasing population, rapid urbanization, poor maintenance, rising middle class
and depletion of resources are creating huge and visible pressure on the region’s existing infrastructure. Many developing countries in Asia are facing huge infrastructure deficits, which prevent these countries from providing basic services to their citizens, particularly in the rural areas. Basic infrastructure has a direct positive impact on the poor and plays a vital role in achieving the millennium development goals (MDGs). Electricity provides income generating options for low income people as they can access lighting, television or radio; it can also facilitate self-employment at higher income levels by providing access to heating, cooking etc. Likewise, access to information and communication technology (ICT), can assist the rural poor in connecting with wider communities, accessing knowledge and information on opportunities, early warning for natural disasters and so on. Another crucial area is health; improvement in health and sanitation hinges very much on people’s access to water, healthcare centers as well as education. For all almost these sectors, transport infrastructure (roads, for example) plays a very important role: it provides access to employment and markets, access to health and education services, saves commutation time and cost, and facilitates connecting with wider communities. Access to basic infrastructure, thus, has a direct impact on reducing poverty and improving the quality of life particularly of the rural poor. The patterns of Asian development demonstrate that the competitiveness of Asia’s trade and the expansion of its sophisticated production networks depend on economical, effective, quality and reliable integrated and connecting infrastructure networks, particularly transport, energy and telecommunications. Indeed, the economy of many Asian countries flourished as they have become more connected with each other and the rest of the world. Although parts of Asia’s infrastructure are comparable to the infrastructure in developed economies on a general level, it is far below the global average. The inadequacies of Asia’s infrastructure networks can hinder growth, reduce competitiveness, be a major obstacle to poverty reduction and create instability and conflict. To maximize gains from the region’s potentials, it is important that the Asian economies ensure adequate infrastructure connectivity. Among various connecting infrastructure, transport plays a very important role in poverty reduction, inclusive growth, trade and economic integration. Asian connectivity entails “hard” physical infrastructure connectivity within and across countries. However, the development as well as functionality of such “hard” infrastructure is not likely to be ensured if it is not supported by “soft” infrastructure – a facilitating framework consisting of effective policies, regulations, governance, systems and procedures, knowledge and capacity, strategies and institutions. The financing needs for soft infrastructure is much lower than that of hard infrastructure but it is more complex and time consuming to develop them. This paper particularly underscores the role of soft infrastructure in developing effective transport connectivity in enabling economic inclusive and sustainable growth, trade integration, and connectivity. The objective of the paper is to review soft infrastructure, namely existing policies, regulations and institutions related to transport development in Asia and to suggest ways and means to strengthen soft infrastructure for effective transport infrastructure development at the national, subregional and regional levels. Section 2 presents the roles, benefits, concept, and challenges of transport connectivity. Section 3 reviews the role of policies, institutions, regulations and governance in
effective transport development. Section 4 deals with urban transport management.
Section 5 discusses the issues concerning the effective financing while section 6
addresses the issue of inclusive transport infrastructure including some empirical
evidences. The Next section discusses the concept of environmentally sustainable
infrastructure. The last section analyzes the role of policies, institutions, regulations in
achieving inclusive, sustainable and seamless transport connectivity by addressing the
challenges and utilizing the prospects. This section develops a policy matrix for Asian
transport connectivity.
2. Transport Infrastructure Connectivity: Role, Benefits, Concept, and Challenges
2.1 Role and Benefits of Effective Transport Network
A transport network is effective if it is accessible, timely, inclusive, sustainable, seamless
(well connected and integrated), cost-effective, safe, and affordable. Ensuring the
effectiveness of a transport network requires both quality hard infrastructure (e.g., roads,
railways, waterways, airports, and seaports) as well as effective soft infrastructure (e.g.,
policies, regulations, governance, systems and procedures, knowledge and capacity,
strategies and institutions). A well developed hard transport infrastructure, supported by
adequate soft infrastructure, can:
strengthen connectivity at the national, subregional and regional levels;
facilitate trade and economic integration,
narrow down development gap among different groups of people, regions and
countries;
promote inclusive growth by providing economic opportunities to the poor,
disadvantaged and isolated people and region,
ensure that the growth is environmentally and socially sustainable; and
facilitate the provision of quality basic services at an affordable price (Figure1).
Enhanced connectivity not only promotes trade and economic integration and growth,
reduces poverty and improves household welfare (ADB, JBIC, and World Bank 2005); it
also brings prosperity across communities, regions and classes of people. Lack of
connectivity can create desperation, conflict, tensions and isolation. Connectivity, both at
the national and cross-border levels, can provide improved access to resources and
services. Therefore, well-developed and effectively connecting transport,
telecommunications, water and energy infrastructures network may help develop a
peaceful, balanced, harmonious and prosperous society or a region.
Figure 1: Role of Effective Transport NetworkImproved connectivity also facilitates minimizing information asymmetry and communication gaps, balances disparity among people, and helps in conflict avoidance and mitigation. Connectivity brings prosperity across communities, regions and classes of people whereas lack of connectivity can create desperation, conflict, tensions and isolation. When access to resources and basic services is usually low, such as in remote areas, a sense of depravity may arise among people, which may lead to desperation and tension. Connectivity, both at the national and cross-border level, can provide improved access to resources and services and thus infrastructure can work as “bridge for peace” (DFID, 2005). In order to cope up with the reduced export demand from advanced economies arising out of the ongoing global economic and financial crisis, Asia needs to focus particularly on transport connectivity at the national, subregional and regional levels to promote investment in the region, to enhance trade and economic integration and to rebalance its growth toward regional demand. Investments in national infrastructure need to be coordinated through regional cooperation for enhancing cross-border connectivity. However, building massive infrastructure is expensive and will also have profound implications for environment and climate change at the national, regional and global levels. In this evolving scenario, in order to remain competitive and at the same time
ensure sustainable growth, Asia needs to build efficient, word-class, financially, socially
and environmentally sustainable seamless transport connections within countries, the
region and with the rest of the world.
Developing national and regional infrastructure in Asia can abate the effects of the
recent economic and financial crisis for the following reasons:
Regional infrastructure enhances competitiveness and productivity, which could
help in economic recovery and in sustaining growth in the medium to long-term.
It helps improve standard of living and reduce poverty by connecting isolated
places and people with major economic centers and markets, thus narrowing the
development gap among Asian economies.
It promotes environmental sustainability through the trade of environmentally
friendly energy resources across borders.
It facilitates and accelerates regional trade and economic cooperation and
integration by increasing regional demand and intraregional trade necessary to
rebalance Asia’s and world’s economic growth.
Infrastructure can be national or regional in nature. Box 1 provides a definition of
regional infrastructure.
2.2 Concept of Connectivity
The recent ASEAN Connectivity Master Plan (2010) provides the broad concept of
connectivity and its components. Connectivity can enhance competitiveness and
resilience of a region through bringing peoples, goods, services, ideas, innovation,
knowledge, technology and capital closer together on an efficient manner. Connectivity
can provide the foundational support and facilitative means to establish the necessary
socio-economic, political-security and knowledge-cultural pillars for achieving an
integrated, sustainable, prosperous and harmonious region. The major components of
connectivity include:
(i) Physical connectivity
Transport;
Energy; and
Information and Communications Technology (ICT);
(ii) Soft Connectivity
Trade (goods and services) liberalization, promotion and facilitation;
Investment and financial sector liberalization, promotion and facilitation;
Agreements/arrangements on mutual recognition of standards, quality, and
systems;
Regional connecting infrastructure (e.g., transport, energy and
telecommunications) agreements;
Harmonized or standardized cross-border systems and procedures;
Capacity and institutions building programs; and
Research and development, ideas, innovation, knowledge and technology
networks; and
(iii) People-to-people, Institutions-to-institutions and knowledge connectivity
Educational, commercial and cultural networks;
Civil society, NGO, public and private sector networks; and
Tourism and hospitality network.Box 1. Defining Regional Infrastructure Regional infrastructure projects are defined as: projects that involve physical construction works and/or coordinated policies and procedures spanning two or more countries; and national infrastructure projects that have a significant cross-border impact: Source: ADB/ADBI (2009) The concept of “seamless, sustainable transport connectivity” (see Box 2 for definition) attempts to address the competing concerns of meeting extensive infrastructure requirements while at the same time remaining sensitive to their impact on the local, national and global environment. Box 2. Defining a Seamless Sustainable Transport Connectivity Seamless Sustainable Transport connectivity refers to — A physically, economically, and financially integrated region connected by world-class, efficient, and environment-friendly or sustainable (green) infrastructure networks in transport that promote trade and investments within the region and with global markets, widen access to markets and public services and thereby promote inclusive and sustainable economic growth and reduce poverty; Expanding, deepening, and increasing the efficiency of regional production networks and supply chains by streamlining policies, systems and procedures such as customs procedure and other bureaucratic impediments; Developing efficient regional financial markets that channel savings from Asia and the rest of the world into productive investments, notably transportation throughout the region; and Efficient and seamless connections across Asia and with the rest of the world to create a more competitive, prosperous, and integrated region, and to take advantage of Asia’s enormous untapped economic potential. Source: Adapted from Bhattacharyay (2010) The concept of connectivity through the development of regional infrastructure projects or infrastructure that links one country to another is not really new to Asia. History shows that transport connectivity in Asia started with the Silk Road in the 13th Century. The Silk Road used to be the most important cross-border artery with an extensive, interconnected network of pan-Asian trade routes linking East, South, Central, and Western Asia. A good example of pan-Asian connectivity is the pan-Asian transport master plan with three components -- the Asian Highway (AH), the Trans-Asian Railway (TAR), and the facilitation of land transport projects through inter-modal transport terminals (UNESCAP, 2010a). AH seeks to improve economic links between Asia, Europe, and the Middle East. It is planned as a network of 141,271 km of standardized highways—including 155 cross-border roads—that crisscrosses 32 Asian countries. The TAR network, covering a distance of 114,000 km in 28 countries (UNESCAP, 2010b), would link pan-Asian and pan-European rail networks at various locations, connecting major ports of Asia and Europe and providing landlocked countries with better access to seaports either directly or in conjunction with highways.
2.3. Challenges Facing Transport Infrastructure Development Transport infrastructure development in Asia faces several broad challenges that are presented below. The first great challenge is creating appropriate types of infrastructure that will support the continuing growth and development of the Asian economies and improve the quality of life of billions of people. Inadequate and poor quality infrastructure can constrain future growth in Asia. Conversely strong investment in new infrastructure and maintenance of existing ones can promote continued growth and create new opportunities to spread the benefits of growth and break the hold of poverty. The second great challenge for infrastructure investment in coming decades will be how to address pressing human needs of over two billion people in need of basic road and rail transportation, clean water, sanitation, electricity, and communications among others. Nearly two-thirds of the world’s poor live in developing Asia. The region has over 620 million people who live on $1 or less a day and about 1.9 billion people on less than $2 a day (UN ESCAP, ADB and UNDP, 2010). One of the root causes of poverty is the inadequate physical and social infrastructure. Improving infrastructure to promote human welfare is important in itself regardless of whether it is “good business” and can generate profits. A third great challenge is inclusion. The infrastructure planning should ensure that the resulting economic and social benefits have been very widespread across households and regions, despite the diversity of the region’s economies. Infrastructure should not only in promote rapid economic growth in Asia but also make the growth more inclusive by sharing the benefits of growth with poorer groups and communities, particularly in remote areas and small and landlocked countries. Infrastructure should also facilitate the access of the poor to basic services and should help to increase their income generating capacity. Infrastructure development for landlocked, small, poor and isolated countries is essential to narrow the development gap. They often lack the technical and financial resources to undertake large infrastructure projects and hence there is a need for regional cooperation for sharing capital, knowledge, services etc. On the other hand and rural population and population in remote and in mountainous areas, islands, etc. within a country are often left behind. A fourth challenge is to prepare a comprehensive and integrated infrastructure plan identifying priority bankable (or viable) transport projects and financing them through proper mechanisms and instruments. The investments for large projects are usually very high and complex, and can exceed the financial and technical resources available to many Asian countries. Therefore, regional financial cooperation is crucial as well as the private sector participation. A fifth challenge is dealing with the externalities of infrastructure development, including the social and environmental consequences. Conducive environment should be created so that the benefits of infrastructure development can be widely shared and that costs can be avoided or mitigated. The sixth challenge is managing urban infrastructure management. It is expected that 55% of Asia’s population will live in cities by 2030 (see table 5). 3. Policies, Institutions, Regulations and Governance in Effective Transport Development
The development and expansion of infrastructure networks depend on clear policies and effective regulatory arrangements (ADB, JBIC, and World Bank, 2005). Although governments are the key players in formulating infrastructure-related policies, rules and regulations, institutional arrangements, even if they are informal, provide the required coordination and related support on developing national and cross-border infrastructure networks (Schiavo-Campo and Sundaram, 2000). The major components of effective infrastructure policies, regulations and institutions include, among others; (i) coordination, cooperation and collaboration, among various agencies and stakeholders; and identification and prioritization of projects, (ii) development and standardization of appropriate regulatory policies and legal frameworks, (iii) strengthening capacity building initiatives, (iv) promoting private-sector participation, (v) managing social and environmental issues, and (vi) promoting good governance for cost-effective and quality infrastructure development, among others (ADB/ADBI, 2009). Some of these components are discussed below while some others will be discussed elsewhere in this study. 3.1 Coordination, Cooperation and Collaboration Coordination and collaboration among various agencies and the stakeholders is one of the most challenging and complex component of the implementation process of infrastructure projects. At the national level, such coordination needs to be effective between different planning, development and implementing agencies; local, provincial and central governments, sectoral agencies and so on. For subregional and regional infrastructure projects, intergovernmental as well as interagency coordination within and among the participating countries is also required. As there are many subregional infrastructure programs with overlapping country membership in Asia, there is a need for pan-Asia level coordination among public and private sector of participating countries, subregional programs, and infrastructure financing institutions. A recent ADB/ADBI (2009) study provides the framework for pan-Asian infrastructure cooperation, coordination and partnership through a proposed Pan-Asian Infrastructure Forum (PAIF). The objective of the proposed PAIF is to coordinate and integrate the ongoing subregional infrastructure projects in Asia. As the PAIF is expected to bring the major stakeholders in Asia together, it would be a forum for consensus building, prioritization and coordination of regional infrastructure-related initiatives as well as for developing harmonized standards for systems and procedures; legal and regulatory framework across the region. . 3.1.1 Coordination at the National Level Coordination of the preparation and implementation of transport policies even at the national level often prove to be challenging, particularly because it involves so many planning and implementing agencies and stakeholders with different priorities, systems and cultures. For example, although Japan has a sophisticated transport system through which it operates a complex network of roads and railways, both national and local transport policymaking in Japan faces certain challenges that arise from the “fragmented approach to policy development, implementation, and operation” (Enoch and Nakamura, 2008). For smaller, least developed economies such as Bangladesh, lack of coordination
has often led to a piecemeal approach, making many transport projects inconsistent and
economically irrational (Ali, 2011).
In India, there is increasing coordination in the transport sector through government
structure (Raghuram and Rangaraj, 2006), but the relationship and coordination
between national and state governments still remain problematic and complicated
(Wang, 2010). Table 1 provides the complex nature of the process of planning,
financing, implementation, and overall supervision and regulation of transport projects by
sectors in India, the third largest economy in Asia.
Table 1: Who Does What in Indian Transport Projects?
Overall
Planning Financing Implementation Supervision/
Regulation
Ministry of
Planning Shipping, Road National Highways
National MSRTH/
Commission of Transport and Authority of India
highways NHAI
India Highways (NHAI)
(MSRTH)
State State
highways, governments/ MSRTH/ State
State governments/
district roads, Ministry of Rural insignificant governments/
MORD
village and Development private financing MORD
other roads (MORD)
Government of
Ministry of
India/ Ministry of Ministry of
Railways Railways/ Indian
insignificant Railways/ IR Railways/ IR
Railways (IR)
private financing
National
National
National government
government
government (major (major ports)/
(major ports)/ Government of
Ports ports)/ State State
State India
governments (non- governments
governments
major ports) (non-major
(non-major ports)
ports)
Ministry of Civil Government of
Aviation/ Airports India (?)/ limited Ministry of
Airports AAI
Authority of India private Civil Aviation
(AAI) investment
Source: Based on the discussion of India’s transport sector by Wang ( 2010).
Similarly, in the People’s Republic of China (PRC), the largest economy of Asia with
immense needs for transport sector development, the institutional set up for
infrastructure policymaking, financing and implementation involves several players at the
central, provincial and local levels (see Table 2).
Table 2: Infrastructure Project Planning, Financing and Implementation Process in PRCSource: Liu (2005)
Note: MOR: Ministry of Railways, and NDRC: National Development Reform Corporation
3.1.2 Coordination at the Subregional and Regional Transport Programs in Asia
Infrastructure links between subregions of Asia such as Southeast, Central, East and
South Asia are being realized through several major regional and sub-regional initiatives
with overlapping country membership:
Asian Land Transport Infrastructure Development Project (ALTID),
Association of South-East Asian Nations (ASEAN),
Brunei Darussalam Indonesia Malaysia the Philippines-East ASEAN Growth
Area (BIMP-EGA),
Bay of Bengal Initiative for Multi-Sectoral Technical and Economic
Cooperation (BIMSTEC),
Central Asia Regional Economic Cooperation (CAREC),
Greater Mekong Subregion (GMS),
Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT), Mekong-Ganga Cooperation Initiative (MGC),
South Asian Association for Regional Cooperation (SAARC),
South Asia Sub-regional Economic Cooperation (SASEC),
Subregional Economic Cooperation in South and Central Asia (SECSCA) and
Greater Tumen Initiative (GTI).
Table 3: Major Regional and Subregional Land Transportation Projects in Asia
Region/ Particular Projects Main Status*
Subregion coordinating
bodies
Asia ALTID Asian Highway UNESCAP Ongoing
Asia ALTID Trans-Asian Railway UNESCAP Ongoing
Southeast GMS 3 economic corridors ADB and GMS Partly
Asia Secretariat completed
ASEAN 1 highway corridor ASEAN Ongoing
1 rail corridor Secretariat#
IMT-GT 5 economic IMT-GT Ongoing
connectivity corridors Secretariat#
BIMP-EAGA Air and maritime BIMP-EAGA Ongoing
connectivity projects Secretariat#
South Asia SAARC 10 road corridors SAARC Proposed**
5 rail corridors Secretariat
10 inland / maritime
gateways
7 aviation gateways
SASEC 1 road corridor ADB Ongoing
1 rail link
BIMSTEC 1 highway corridor Member Proposed**
countries#
Central SECSCA 2 road corridors ADB Ongoing
Asia CAREC 6 road corridors ADB and CAREC Ongoing
Secretariat
Notes: Asian Land Transport Infrastructure Development (ALTID); IMIT-GT: Indonesia-Malaysia-Thailand Growth
Triangle; BIMP-EAGA: Brunei Darussalam Indonesia Malaysia the Philippines-East ASEAN Growth Area; CAREC:
Central Asia Regional Economic Cooperation; SECSCA: Subregional Economic Cooperation in South and Central
Asia; BIMSTEC: Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation; SASEC: South Asia
Subregional Economic Cooperation. SAARC: South Asian Association for Regional Cooperation; ASEAN:
Association of Southeast Asian Nations; GMS: Greater Mekong Subregion.
*As of July 31, 2009. **Feasibility studies supported by ADB. #ADB is development partner.
Sources: ADB/ADBI (2009) and individual subregional programs websites
Under Pan-Asian initiatives, ALTID such as Asian Highway (AH) and Trans-Asian
Railway (TAR) have been implemented as part of sub-regional and national programs.
Table 3 summarizes major regional and subregional land and maritime transportation
projects in Asia. As discussed earlier, PAIF can coordinate national and subregional
infrastructure connectivity programs towards a pan-Asian seamless connectivity.
Due to diverse Asian economies, many overlapping subregional institutions are
operating with varied speeds and with multiple objectives—addressing issues in differentdegrees. Number of participating countries vary from 3 to 16 countries. Most subregional institutions are informal (except ASEAN and SAARC) without any legal binding or enforcement capacity. Even formal ASEAN follows non-interference, sovereignty, incrementalism, and consensual decision-making. Most operate at summit/ministerial level-some at senior officials level. Most take advisory, regulatory and financing modalities. Asia needs formal and strong institutions with (i) explicit treaty-based legally binding rules and (ii) regulations with compliance monitored by a standing body or secretariat 3.2 Identification and Prioritization of Projects Identification, prioritization and preparation of viable transport projects are often difficult and complex. Plans for infrastructure should allow for both maintenance of existing infrastructure and developing new ones. At the same time, it is important to note that a transport facility, even when it is well-built, is unlikely to help if it is not used. Therefore, relevant stakeholders should participate at the process of prioritization of projects both at the national and cross-border levels (UNESCAP, 2008). Appropriate cost and benefit analysis needs to be performed not only for the present generation but also for the future generation. Japan provides a good example of identification and prioritization of transport project: its road and rail (both regular and high-speed) networks have been developed keeping in mind the need for multi-modal and mass transit facilities for this small but densely populated country with high concentration of economic activities. Because of its huge geographical and demographic size, rapidly booming economy and increasing urbanization, national transport priorities in PRC have focused on a multi- modal system of roads, railways, airways and harbor networks. However, in order to make it inclusive, PRC needs to connect its rural areas and hinterland with it major economic centers. Initiatives have been taken to connect the villages with cities. Major cities are also connected through a robust 80000km railway network, with 6920km of high-speed lines in operation (AFP, 2010). The government envisions expanding the high-speed network to cover 16000km by 2020 and provide access to more than 90 percent of the population (Financial Times, 2010). Together with domestic infrastructure, PRC has also participated in the development of regional transport connectivity through the PRC-ASEAN networks (Kunming-Bangkok Highway, Nanning-Singapore economic corridor etc.), Xinjiang-Central Asia road, PRC-Russia road and railway network, PRC- Pakistan Karakoram Highway and so on. Based on the demand and supply situation of Indian transport sector, prioritization of projects in this fast developing South Asian economy is increasingly being shaped by the following features: increasing share of road transport; increasing urbanization; increasing personalized transport; increasing commercial orientation of infrastructure development; increasing sensitivity to public costs; increasing coordination through the governmental structure; and moving towards a supply chain perspective (Raghuram and Rangaraj, 2006). The GMS members, recognizing the economic benefits of increased trade and economic development through connectivity, has enhanced three economic corridors, connecting east and west, north and south and the southern region. The growth from the early 1990s to the mid 2000s shows economic benefits of greater connectivity. From 1992 to 2005, total exports increased by more than threefold while interregional trade increased
by more than twelve times. Aside from trade in goods, tourism also bloomed where annual tourist arrivals doubled in the decade 1995 to 2005. Meanwhile, net FDI inflows to the GMS rose from about $3 billion in 1992 to about $5.5 billion in 2005 (excluding inflows to the PRC and Myanmar). For subregional and regional connectivity, priority should focus on inter-regional integration, providing linking options to landlocked and underdeveloped countries and regions. Lao PDR has already benefitted significantly from integration with its neighbors. Nepal, another landlocked country, shares borders with India and PRC and connectivity can facilitate Nepal’s regional and global integration. The involvement of Myanmar is crucial in connecting East Asia and South Asia. Also, in India a “chicken neck” corridor separates the seven northeastern states from its central provinces and business centers. A small connectivity between India and Bangladesh can significantly improve the mobility of goods and people by shortening the distance from Assam to Kolkata port by 60%. This shows that regional connectivity can also enhance national connectivity. 3.3 Legal and Regulatory frameworks In order to create an effective transport network, countries need to strengthen existing legal and regulatory frameworks and create new laws and regulation to ensure inclusive, sustainable, affordable, safe, accessible transport network. Asian countries also need to establish independent infrastructure regulatory bodies for effective regulation. For example, for Indian railways sector, the planning and implementing agencies are also regulatory and supervisory body (see table 1). Harmonization of regulatory and legal frameworks is necessary for cross-border transport projects to operate efficiently. For instance, although India and Bangladesh maintain a bilaterally-agreed protocol for their inland waterways, lack of harmonization of customs procedures and standards, and restriction on the movement of vessels make the protocol less useful (ADB/ADBI, 2009). Often the regulatory offices in developing countries, particularly in Asia are small, understaffed and over-expensive to operate (Stone, 2008). The priority areas to strengthen laws and regulations for; i) strengthening safety, ii) encouraging private investment, privatization and public-private-partnerships (PPP), (iii) making transport services and utility affordable and accessible (iv) transparent and effective process of land acquisitions, (v) emission control, (vi) energy efficiency, (vii) reducing transport demand, (vii) rural and urban transport, (ix) tourism, 3.4 Knowledge and Capacity As the effectiveness of transport networks both at national and cross-border levels hinges upon their quality, developing knowledge and capacity is one of the very important aspects of transport policymaking and project implementation. In order to attain and maintain an acceptable level of transport infrastructure, it is necessary to nurture institutional specialization, building capacities and knowledge and developing and adopting appropriate technology. 3.5 Governance for Cost-effective and Quality Infrastructure Development Implementation of a project, as seen in many developing countries, often faces serious problems when laws are not properly enforced or when institutions are weak (ADB/ADBI, 2009). For transport projects (as well as other infrastructure projects), lack of
governance may result in design and construction distortions, and may raise the cost of
the project, thus reducing the overall value of the project (Tanzi and Davoodi, 1998).
Additionally, the autonomy, transparency, accountability, decision-making and decision
tools are critical for ensuring good governance for efficient, sustainable and inclusive
infrastructure projects (ADB, 1995, 2005; ADB/ADBI, 2009). At the same time the
attainment of good governance, as highlighted by ADB (2005), requires a sound
infrastructure supporting effective implementation.
3.5.1 Impact of Governance on National and Regional Infrastructure in Asian
Subregions
This section analyzes the impact of governance in institutions on national and regional
infrastructure across the subregions in Asia through an econometric analysis. It is based
on a sample of 30 Asian economies and conducted an econometric analysis to measure
the effectiveness of subregional institutions developing under various subregional
infrastructure projects (Central Asia, Southeast Asia, South Asia and Northeast Asia). As
there is no widely accepted definition of either subregion or regional governance, the
measurement of implementation effectiveness provides, at least partially, the impact of
governance on regional infrastructure.
The study used the governance indicators calculated from World Governance Indicators
(WGI) of the World Bank Institute (WBI) and four Asian subregions (Central Asia, South
Asia, Southeast Asia and Northeast Asia) and then estimated the impact of national
governance on an index over six key physical infrastructure indicators (roadways,
railways, airports, seaports, telecommunications and electricity). The base year of all
variables was 2006 (except otherwise noted).
The results demonstrated that the coefficients of governance for all the six infrastructure
indicators have had positive signs. In terms of impact, government effectiveness was
found to be highest while for voice and accountability the impact was lowest.
Subregional governance for Northeast Asia and Southeast Asia were found to be strong
for all six indicators, but most of the estimated coefficients of regional governance in
Central and South Asia showed negative signs. This may suggest that these two
subregions did not experience any positive impact of their quality of governance,
indicating that adequate improvements have not been done in their national and regional
governance to enhance regional infrastructure. Table 4 summarizes the regression
results for composite governance. The overall conclusion of the study suggests that
governance in general influences the development of regional infrastructure in the Asian
region; ceteris paribas, countries (such as the ones in Northeast Asia) with improved
governance gained in regional infrastructure development.
Table 4: Regression Results: Composite Governance
National Regional
2.226*** 2.611***
Lnper capita income (3.845) (4.709)
0.009** 0.010*
Trade (2.066) (2.571)
0.609** 0.631**
LnPopulation (3.617) (4.114)
PPI 0.014 0.065(0.342) (1.629)
Governance (National) 0.293*
(1.828)
Governance (Regional), of which
-0.047
Central Asia (-0.381)
-0.110
South Asia (-0.501)
0.338*
Southeast Asia (1.464)
0.759**
Northeast Asia (2.780)
Mean VIF 2.67 2.29
21.24 30.00
White-test, ch2(p-value)# (0.383) (0.414)
Observations 30 30
Adjusted R-squared 0.860 0.883
Notes: #Cameron & Trivedi's decomposition of IM-test (checking
homoscedasticity). $ VIF (variance inflation factors) to check
multicollinearity. ***, **, * significant at 1%, 5%, and 10% level. t-
values are in parenthesis.
Source: De and Bhattacharyay (2010)
4. Urban Transport Management
The rapid economic growth in the emerging Asian economies has been associated with
an increasing rate of urbanization in almost all major Asian countries during next 20
years (see Table 5). In 2011, seven out of 10 most populated cities in the world are from
Asia, namely Karachi, Shanghai, Mumbai, Beijing, Delhi, Manila Metro, and Seoul. In
2030, 55% of Asian population will live in cities. While urbanization brings significant
socio-economic benefits, it also causes a number of problems relating to the depletion of
natural resources, deterioration of the environment, increase in urban poverty, reduction
of quality of life, and overall destabilization of urban infrastructure and services (Roberts
and Kanaley, 2006). As the state of urban infrastructure in many of the Asian economies
is below-par, continuous urbanization – if not addressed through proper policy
responses – may jeopardize the whole urban governance mechanism.
Managing the urbanization for ensuring sustainable and inclusive growth in the cities of
emerging Asia requires huge investments in urban infrastructure projects. Transport is
one of the major areas that has been – and continues to be – stretched to its limit due to
rapid urbanization. At the same time, improvements in the transport sector also have the
potential to maximize the gains and minimize the detrimental effects of urbanizationTable 5: Urbanization Trends in Asia, 1950-2030
Source: Roberts and Kanaley, 2006
4.1 Urban Transport Strategy and Transport Corridors
The need for urban transport policy in most Asian countries came to forefront only
recently, and these policies vary from country to country. In India, the main focus of
urban transport policy is ensuring “easily accessible, safe, quick, comfortable, reliable,
and sustainable mobility for all” (Raghuram and Rangaraj, 2006). In PRC, urban
transport policy has mostly been formulated to address traffic congestion problems
(Peng, 2005). It is generally accepted that personalized modes (private cars, for
example) are not viable for urban transport. Japan in general and Tokyo in particular can
be an example of best practices in urban mass transport systems: the country has 700-
km long subway networks in eight major cities, while railways and good bus networks
serve for other areas (Hays, 2009).
The spatial concentration of people at the centers of economic activities can be
significantly minimized through appropriate policies and creating transport corridors that
connect economic centers with each other as well as with other remote areas, which will
increase trade and movement of people and thus create economic opportunities. In
major emerging economies, economic growth has already led to suburbanization, which
mandates urban transport systems to be developed for long-distance commutation
(ADB, 1999). Such long-distance commutation can enable people to live outside the city
but still go to their places of work. A good example of urban transport planning is
demonstrated by the Kunming municipal government (Box 4).Box 3. The Kunming Municipal Government: Transport Policies The Kunming Municipal Government in Yunnan province of PRC has adopted a policy that in order to develop Kunming’s urban network, the development of the city proper should be restricted but it will be connected with its secondary cities and satellite towns within the range of 50-100 km with highways and railways. Additionally, as urbanization is generally associated with increase in the number of automobiles, the satellite cities should also be connected to the center by high capacity roads. Source: ADB (1999) The urban poor, dwelling mostly in low-quality, overcrowded, makeshift housings/slums, basically come to the cities in search of income opportunities. Connecting cities with remote areas may enable the poor to benefit from the accessibility to the economic centers while at the same time residing in relatively better places in their own locality. Within the cities, effective policies, for example developing high-rise buildings capable of accommodating larger number of people near subway stations, may help reduce the surmounting pressure on urban traffic. 5. Issues Concerning Effective Financing. Financing huge infrastructure needs of Asia at the national and regional level is a considerable challenge, particularly for those countries with inadequate fiscal space. This section examines various sources and instruments for financing national and pan- Asian connectivity. Asian financial market integration could intermediate and enhance cross-border capital and to utilize Asia’s robust savings and foreign exchange reserve for national and regional infrastructure investment. A pan-Asia comprehensive investment treaty similar to the ASEAN Comprehensive Investment Agreement (ACIA) is essential to promote free movements of cross-border investment for infrastructure. 5.1 National and Regional Transport Connectivity Financing Needs in Asia One of the major challenges of transport infrastructure development is mobilizing adequate funds. In order to develop appropriate policy and planning as well as to identify appropriate financing sources, it is important to first assess the magnitude of both financing needs and financing gaps. Table 6 provides a detailed breakdown of financing requirements for national transport connectivity in Asia for selected countries. South Asian countries are expected to see half of their total infrastructure investment needs being diverted to the transportation sector, amounting to about $1.1 trillion. In absolute terms, the top five countries with the largest transport needs are – PRC, India, Indonesia, Bangladesh and Pakistan. It is worth noting that land-locked countries in East Asia (e.g., Lao PDR) and small island nations (Pacific Islands) are also projected to invest a large portion of their infrastructure investments to improve their transport connectivity, compared to countries in the Central Asian region. The national infrastructure needs of Asian countries for 2010-2020 are huge and vary significantly across countries as high as 12% of GDP in Mongolia as low as 0.58% in Kazakhstan (Table 6).
Table 6. Estimated Transport Infrastructure Investment Needs for National Connectivity:
2010-2020
Country
Transport Investment In % of GDP Transport Investment per year (US$ millions)
Central Asia 1.86% 9,515
Afghanistan 6.21% 1,238
Armenia 1.20% 132
Azerbaijan 0.60% 311
Georgia 1.20% 170
Kazakhstan 0.58% 973
Kyrgyz Rep. 3.94% 237
Pakistan 2.65% 5,201
Tajikistan 3.30% 212
Uzbekistan 2.65% 1,025
East & SE Asia 1.61% 144,576
Cambodia 4.43% 618
PRC 1.39% 102,395
Indonesia 3.88% 25,701
Lao PDR 10.62% 807
Malaysia 1.94% 4,966
Mongolia 12.04% 819
Myanmar 2.70% 882
Philippines 2.30% 4,401
Thailand 0.58% 1,857
Viet Nam 2.07% 2,544
South Asia 5.55% 108,729
Bangladesh 4.92% 5,607
Bhutan 2.84% 56
India 5.67% 100,702
Nepal 1.65% 253
Sri Lanka 4.23% 2,128
The Pacific 2.60% 401
Fiji 1.01% 36
Kiribati 5.17% 7
PNG 3.30% 291
Samoa 3.33% 16
Solomon Is. 3.50% 26
Timor-Leste 0.00% 0
Tonga 2.29% 6
Vanuatu 2.92% 20
Total Asia 2.30% 263,689
Source: Bhattacharyay (2010a), Centennial (2009)
Total investments required to meet demand for the identified 1202 regional projects are
estimated at approximately US$320 billion, with an average infrastructure investment
need of about US$29 billion per year for the period 2010-2020 (for details seeBhattacharyay 2010). Of this total, needed investment in transport projects accounts for
about 70% (Table 7).
Table 7. Investment needs for identified and pipeline regional infrastructure Projects By
Regional/Sub-regional Program: 2010-2020 (US$ Million)
Transport
Regional / Sub-regional
Program Airport / Port Rail Road Total
AH - - 17,425.00 17,425.00
TAR - 107,469.00 - 107,469.00
ACP 51,446.00 - - 51,446.00
CAREC 1,347.70 5,131.30 12,932.90 29,337.00
GMS 200 1,523.00 3,972.00 5,858.00
ASEAN - 16,800.00 - 16,800.00
BIMP-EAGA - - - -
SASEC - - - 203
Other** - - - 89.5
Total 52,993.70 130,923.30 34,329.90 228,627.40
** Includes projects connecting East/Southeast – Central – South Asia that do not explicitly fall under a
sub-regional program.
ASEAN - Association of South-East Asian Nations; BIMP-EAGA - Brunei Darussalam-Indonesia-
Malaysia-Philippines East ASEAN Growth Area; SASEC - South Asia Sub-regional Economic Council
Source: Author, and Bhattacharyay (2010a)
5.2 Potential Sources of Financing
5.2.1 Public Funding: Economic Stimulus Packages
Public funding has been the major financing source for infrastructure projects. Following
the 2008 financial crisis, Asian economies responded with economic stimulus packages
to increase domestic demand and to mitigate crisis impacts (Table 8). A major share of
these packages usually goes into public infrastructure projects including transport
projects.
Table 8. Infrastructure Investment in the Stimulus Packages of the Major Asian Economies
(US$ billion)
Infrastruc
Total Infrastructur
ture as %
Country Fiscal e Types of Infrastructure
of Total
Stimulus Component
Stimulus
Railways, airports, electrical transmission
technology, expressways,
PRC 600.0 275.0 45.80% telecommunications technologies, rural
roads, electricity, gas, water, and irrigation
projects
India 60.0 33.5 55.80% Highway, port, and power sectors
Communications and transport
Indonesia 7.7 1.3 16.90% infrastructure, rural infrastructure, and
development of ports and shipping industryViet Nam 8.0 4.8 60.00% Infrastructure spending
Water resource development and road
construction in villages and rural areas
Thailand 46.7 30.6 65.50%
along with transport, logistics, energy, and
telecom improvements
Low and medium cost housing, upgrade,
repair, and maintain police stations and
Malaysia 2.0 0.2 8.50%
army camps, and public and basic
infrastructure project maintenance
ROK 11.0 3.2 29% Roads, universities, schools, hospitals
-Yen 1.6 trillion for fostering
environmentally friendly technologies,
including plans to provide cheaper solar
power to homes.
Japan $154.55 16+ 10%+
-Up to $2,500 as tax breaks to consumers
on purchases of “green” cars; subsidies of
5% on energy efficient televisions and other
appliances.
Notes: PRC: People’s Republic of China, ROK: Republic of Korea
Sources: Author’s estimations from data in: Kang (2010); Sugimoto (2010); Kumar and Soumya
(2010); Patunru and Zetha (2010); Nguyen, Nguyen, and Nguyen (2010); Jitsuchon (2010); World
Bank (2009b); FAITC (2009); Alibaba.com (2008); IFCE (2009); Economy Watch (2010); (Tabuchi
2009) and ADB (2009a).
5.2.2 Pan-Asian and Sub-regional Infrastructure Funds
Asian connectivity can be supported by creating a Pan-Asian and/or a series of sub-
regional infrastructure funds. An Asian infrastructure fund (AIF) can be created with
capital coming from governments, multilateral development banks (MDBs), bilateral
agencies, private sectors, sovereign Wealth funds and pension funds. International
bodies with experience in developing and financing infrastructure in Asia, such as the
ADB, can be a potential manager of these funds. Additionally, subregional projects can
be financed by initiatives such as the proposed ASEAN Infrastructure Fund, which is
going to be operational in 2011.
5.2.3 Multilateral Development Banks and Bilateral Agencies
MDBs such as the ADB and the World Bank, and bilateral agencies such as Japan
International Cooperation Agency (JICA) are important sources of infrastructure
financing. These institutions can further reduce the financing gaps from their own
resources and by mobilising long-term funds through capital markets, explicit guarantees
and special co-financing arrangements. MDBs can also promote private financing by
introducing Public-Private Partnership (PPP) projects and assisting host countries to
improve business environment.
5.2.4 Capital Markets: Local Currency Bond Markets
Development of bond market, particularly local currency bond markets, can facilitate in
reducing foreign currency risks and minimising maturity mismatches. The Asian Bond
Market Initiative (ABMI) which was introduced in 2003, is an ASEAN+3 initiative that
aims to develop efficient bond markets in Asia, enabling the private and public sectors to
raise capital and to undertake long-term investments without currency and maturity risks.
Such initiatives can promote the utilisation of Asia’s savings and foreign exchange
reserves for Asia’s infrastructure development which is long-term in nature.5.2.5 Regional Infrastructure Companies for Financing Specific Sectors
Another option is to have regional companies manage and finance regional
infrastructure projects. These companies could be owned by Asian governments,
relevant regional public sectors and private sector firms who have adequate expertise on
infrastructure development. They could raise funds from capital markets through equity
or infrastructure bonds. The sale of public shares throughout the region would help
deepen equity markets and provide a needed outlet for household savings and
institutions’ investment funds.
5.2.6 Sovereign Wealth Funds
Another potential source of funding for Asian cross-border infrastructure investment is
sovereign wealth funds (SWFs), derived from the country's central bank reserves. Due to
the infrastructure projects’ size, long-term tenor, competitive returns and investment
guarantees, SWFs can be a good source of funding.
5.3 Potential Infrastructure Financing Instruments
5.3.1 Guaranteed and Linked Bonds
Transport infrastructure projects can be financed by instruments such as guaranteed
bonds to protect investors from various risks (such as fluctuating exchange rates and
inflation), insulate borrowers from negative changes in servicing costs and customize
issues to fit the specific needs of lenders and borrowers. New innovative instruments
should be created for different classes of borrowers who are facing different types of
risks and concerns (see Table 9).
Table 9: Types of Risk and Mitigating Instruments
Risk Instrument
Exchange risk Exchange rate guarantees; currency baskets
Inflation risk Inflation-linked instruments
Commodity price risk Commodity price-linked instruments
Credit risk Credit guarantees
Demand (traffic) risk Demand (traffic) guarantees
Economic risk GDP-linked instruments
Source: Bhattacharyay, 2010b
5.3.2 Mobilising Funds from Islamic Financial Markets
Islamic financial markets can be a potential instrument for infrastructure funding. Islamic
bonds (sukuks) from the Islamic Development Bank (IDB) as well as from financial
markets in the Middle East and Malaysia serve the purpose. However, access to Islamic
finance basically limited to some Muslim communities for basic banking services.
Increasing the access to these funds therefore remains a challenge. Another issue that
needs to be addressed is the lack of standardisation of instruments due to varying
Shariah (Islamic law) interpretations and the fact that infrastructure projects tend to
evolve sharing the profit or loss on specific projects.
5.3.3 Public-Private Partnerships and Privatization
Improvements in the transport sector will require nothing less than huge public and
private sector investments, although the public sector is still expected to shoulder the
bulk of the required financing. Historically, Public-Private Partnerships (PPPs) have
played an important role in funding infrastructure in various regions. From 1990-2008,
the total private investment committed to infrastructure amounted to US$1,640 billion forYou can also read
