How Much Should Asia Spend on Infrastructure?
Article | 28 February 2017
The Asia and Pacific region's infrastructure has improved rapidly, but remains far from adequate.
Asia and the Pacific has seen dramatic improvements in its transportation network, electricity generation capacity, and telecommunications and water infrastructure, among others. Better access to infrastructure has driven growth, reduced poverty, and improved people’s lives.
Yet over 400 million Asians still lack electricity; roughly 300 million have no access to safe drinking water; and 1.5 billion people lack basic sanitation. Given the links between infrastructure and development, reducing deficiencies and closing infrastructure gaps makes sense.
Developing Asia will need to invest $26 trillion from 2016 to 2030, or $1.7 trillion per year, if the region is to maintain its growth momentum, eradicate poverty, and respond to climate change (climate-adjusted estimate). Without climate change mitigation and adaptation costs, $22.6 trillion will be needed, or $1.5 trillion per year (baseline estimate).
Who Funds Asia's Infrastructure?
Infrastructure investment in Developing Asia is still primarily done by the public sector, providing over 90% of the region’s overall investments. This amounts to 5.1% of GDP annually, far above the 0.4% of GDP coming from the private sector.
Given the region’s large infrastructure needs and the public sector’s dominance in providing infrastructure, it is critical that policymakers evaluate how much room they have to increase infrastructure investment.
Large infrastructure investment in the People's Republic of China (PRC) is well-known, as estimates show the PRC on average invested 6.8% of GDP in infrastructure from 2010 to 2014. Less well-known is that several countries—including India and Viet Nam—are also investing more than 5% of GDP in infrastructure. Bhutan also shows high investment—partly because it exports power and its budget data are for planned rather than actual investment.
* Central government budget only
Infrastructure Investment Needs Vary Considerably by Sector
Power and transport are the two largest sectors of total infrastructure investments under both the baseline and climate-adjusted estimates. Climate mitigation costs are estimated at $200 billion annually - these primarily come from the power sector, which is particularly important in controlling carbon emissions through investments in renewable energy, smart grids, and energy efficiency. The transport sector is also important for mitigating climate change through shifts from more carbon-intensive modes of travel (private cars) to less carbon-intensive modes (public transit and railways).
Estimates suggest much future infrastructure investment will go to maintenance and rehabilitation costs. The ratio of new investment to maintenance and rehabilitation is 4:3 for baseline estimates and 3:2 with climate change factored in.
How Much Infrastructure Is Needed?
ADB's 25 developing member countries invested almost $881 billion in infrastructure in 2015—well below the estimated $1.34 trillion annual investment needed over the five-year period from 2016 to 2020 if climate change-related expenditures are included. This infrastructure investment gap amounts to 2.4% of annual average projected GDP for the same period.