Monday, September 17, 2012

Asean connectivity: is it for real?

Monday, 17 September 2012 13:56 Kavi Chongkittavorn    

(Commentary) – If the Asean connectivity scheme proceeds as planned, Asean will be a formidable global economic powerhouse in the near future.

Kavi Chongkittavorn

If Asean were a single country, with its 600 million people well connected, it would be the world’s ninth largest economy and the third largest population-wise. Asean is the world’s fifth largest trading power after the EU, US, China and Germany.

But it is a big “if.” Such a grandiose vision of a connected and integrated Asean is slow in coming, due mainly to the lack of funding for both “hard” and “soft” infrastructures.

Since last September, Asean has been able to mobilize a mere US$ 485 million under its ambitious Asean Infrastructure Fund (AIF) to help finance projects identified in the Master Plan of Asean Connectivity (MPAC), approved by the Asean leaders in 2010. The fund is rather small. The Asian Development Bank calculated that Asean would need $600 billion in 10 years to materialize the MPAC – about $60 billion annually. Such an amount is extremely high by Asean standards. Asean members need to do more and redouble their efforts. For the time being, Malaysia has committed the biggest amount of $150 million, followed by Indonesia with $120 million. The ADB, which will help manage the fund, pledged $150 million. Other Asean countries are thinking about it. Myanmar plans to join next year with an initial contribution of some $100,000.

Thailand also plans to contribute to the fund, knowing full well the huge benefits of a fully connected Asean, but it has to overcome domestic hurdles and approval by the National Assembly.

Asean Secretary General Dr. Surin Pitsuwan said in a recent interview that he hoped this fund would attract other Asean members to follow suit and most importantly their private sectors. By 2020, the fund is expected to offer $4 billion in loans and an estimated $13 billion worth of total leverage.

At a recent international symposium on the realization of MPAC organized by the Jakarta-based Economic Research Institute of Asean and East Asia (Eria) in Phnom Penh, it was clear that private sectors in the region were still not out of the woods when it came to information pertaining to the MPAC projects and what is needed. Representatives from private sectors lamented the lack of consultation with Asean governments on proposed projects.

They argued that “top-down” decision making does not augur well with private sectors, which need better information and clear policies, including analysis of costs and benefits. Asean decisions on projects, some investors contended, has discouraged their involvement from the very beginning.

Without sufficient data and incentives, private sectors are still reluctant to invest in numerous projects — over 700 — throughout the region, stretching from Mumbai cutting across the Bay of Bengal through Thailand’s central plain and meandering past landlocked Savannakhet in Laos to Vietnam’s Danang at the other end.

Large amounts of private-sector capital are available both within Asean and among the bloc’s dialogue partners. They want to invest, but Asean governments must ensure an enabling environment for their investment along with attractive incentives. Furthermore, private-sector players are willing to engage in public-private partnerships to fund some of the huge infrastructure projects. Some forms of guarantee such as viability-gap funding must be provided.

Whenever Asean discusses connectivity these days, members are embarrassed by the snail’s pace of progress on past projects. For instance, one of the principal infrastructure projects initiated in 1995 was the Singapore-Kunming railway link, which is still under construction.

It was supposed to be completed years ago. Somehow, there has been no additional supports from countries, which have substandard railways – and no incentive to invest. These railways are situated inside parts of Myanmar, Laos, Cambodia and Vietnam.

Thailand, which is the hub of this railway link, still has to reconnect with its neighbours in both the west and east to complete the regional railway network. Those missing links are short distances. For instance, the portion in Burma is only 6 kilometres and the one on the Cambodian stretch is 48 km. It is laudable that the Yingluck government has placed a high priority on huge infrastructure projects such as the Dawei deep-sea port development and the high-speed train linking Thailand, Laos and China. But other smaller projects that could be completed without much cost have been neglected.

Understandably, the “hardware” infrastructure projects are getting all the attention for the time being. Many dialogue partners have expressed interest in the MPAC including the “plus-three” countries (China, Japan and South Korea) as well as the US, Australia, India and Russia. However, for the time being only Japan has already mapped out flagship projects – nearly three dozen of them worth about $25 billion – to enhance connectivity in Asean. These projects when completed would link mainland and maritime Southeast Asia. China and South Korea have informed Asean that they have similar plans with a different focus to contribute to regional connectivity.

As the deadline for launching the Asean Economic Community (AEC) approaches in 2015, Asean leaders are becoming nervous as their countries and citizens are still not ready. More than they would like to admit, hundreds of action plans under the economic, political/security and socio-cultural pillars have not yet started. It is not surprising that the foreign and economic ministers of Asean were arguing whether the start-up date of the AEC should be on Jan. 1 or Dec. 31. Obviously, the economic ministers’ words spoke volumes. Now the AEC will begin at the end of 2015, or 365 days later than the foreign ministers intended. At this juncture, at least 33 per cent of economic measures – especially in services and investment – planned by Asean members have yet to be implemented.

Kudos must go to the economic ministers as they know the grouping’s reality well. Without extraordinary pushes from the Asean leaders, the envisioned community will be a defective one. Other connectivity “software,” both institutional and people-to-people, will be further delayed.

Kavi Chongkittavorn is a widely followed commentator on Asean and Southeast Asian affairs.

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