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Cross-Border Infrastructure Development Way to Boost Trade, Poverty Reduction

News Release | 5 May 2006

Asia and Pacific countries need to put more emphasis on regional cooperation to build cross-border infrastructure that will help spur trade, development, and poverty reduction, participants at a seminar heard today.

Development experts and financial officials at an ADB seminar on Infrastructure Beyond Borders spoke on the challenges of bringing Asia toward greater regional economic integration and the roles of public, local, and foreign capital to support cross-boundary infrastructure development.

The seminar is one of a series on the challenges facing economic progress in the region, held on the sidelines of ADB's 39th Annual Meeting of the Board of Governors at the Hyderabad International Convention Center this week.

Infrastructure is an important determinant of productivity, development, and poverty reduction both within borders and across them, participants said. Increases in income and overall national growth create new, greater demands for better infrastructure-based services, such as transport, telecommunications, energy, and water supply and sanitation. These services are important for both fueling and sustaining growth, which is vital to poverty reduction.

In turn, national growth can contribute to regional security and economic development - so long as the cross-border infrastructure is in place to support integration, such as airports, ports, tunnels and roads. For Asia and the Pacific to experience this kind of growth, it needs to gain ground on two fronts, presenters said: institutional coordination and physical investments.

Montek Singh Aluwalia, Deputy Chairman, Planning Commission, Government of India, told the session that there are political issues in promoting cross-border infrastructure; however, the political climate is rapidly changing. If opportunities arise in the neighboring countries it is only natural to explore the possibilities in cross-border investment.

Cross border infrastructure development in the region, however, is constrained by political challenges, structural adjustments, and fiscal imbalances. The failure of sectors to provide consistent services and complete infrastructure leaves certain areas with little hope of economic development, participants heard.

"This is particularly true of border areas, which are typically marked by extreme conditions of poverty, crime, and security lapses that play host to smuggling, trafficking, and HIV spread," said panelist Erna Witoelar, UN Special Ambassador for the Millennium Development Goals in Asia and the Pacific. "These are not just one country's problems."

The widening infrastructure gap between countries is costing countries in terms of lower productivity, high transport, and logistics costs, reduced competitiveness and slower growth. Bridging the gap means overcoming several formidable challenges:

  • High investment costs. For a country to benefit from cross-border infrastructure, seamless integration must be achieved between networks, which require expensive programs of shared support and investments.
  • Uneven distribution of benefits. The costs and benefits of regional projects are likely to be distributed unevenly between countries. This often leads to decisions based on national costs and benefits rather than regional benefits, resulting in cross-border infrastructure unprovided for.
  • Financing constraints. The public sector is often unable to provide infrastructure because of its weak financial sector, usually marked by underdeveloped long-term capital markets and recurring fiscal concerns. International markets also remain inaccessible to varying degrees because of the higher rates of return markets expect from such risks associated with investments in the public sector.
  • Varying regulatory response. The varying strengths and weakness of regulatory regimes between countries make regional infrastructure projects difficult to coordinate and develop, particularly in securing private sector financing that requires strong regulation to mitigate risks.

Many of the challenges are evident in the efforts to integrate the Greater Mekong Subregion, said panelist Narongchai Akrasanee of the Export-Import Bank of Thailand. He identified six areas where Cambodia, Lao PDR, Myanmar, Thailand, and Viet Nam are working to integrate: trade and investment, agricultural and industrial cooperation, transport linkages, tourism cooperation, human resource development, and public health. Changes are needed in the rules and regulation to enable people to use the cross-border infrastructure facility, he said.

Panelists agreed, however, that infrastructure investment is entering a new stage, marked by new operators and sources of capital, a redefining of the public sector's role, and new instruments for regulating and overseeing public services. The role of the private sector, whether through public-private partnerships (PPP), private sector participation, is becoming increasingly important.

But Neil Arora, Head of Asian Infrastructure and Executive Director for Macquarie Bank Limited, told the session that the massive global demand for private sector investments in infrastructure is particularly competitive in Asia. "To respond to the demand, the private sector also has specific needs. In a word - 'certainty.' Multilateral development banks such as the ADB can play a very important role in facilitating this," he said.

Experiences of Asia, Europe, Latin America, and to a lesser degree, Africa suggest that regional cooperation promotes greater prosperity and stability for participating countries. A major success factor is their ability to building regional initiatives that are based on shared strategic vision, participants heard.

Regional initiatives based on shared frameworks are often marked by activities that define mutual benefits, develop regional mechanisms to allocate the costs and benefits of the investments, and harmonize regulatory and institutional frameworks for sectoral and concession activities.

Rajiv Lall, Managing Director and CEO, Infrastructure Development House and Finance Company, said market logic so compelling that it will overcome political barriers.

ADB has been supporting greater regional cooperation and economic integration through initiatives in every subregion of Asia and the Pacific. These initiatives have helped facilitative cross-border infrastructure investments that link markets and people.

WooChong Um is Director of the Energy, Transport and Water Division of ADB's Regional and Sustainable Development Department