ADBI Dean Naoyuki Yoshino explains how more private sector money can be secured in order to further build infrastructure in Asia.
Increasing Infrastructure Investment with Spillover Tax Revenues
Description: ADBI Dean Naoyuki Yoshino explains how more private sector money can be secured in order to further build infrastructure in Asia.
Asia requires lots of economic growth, including infrastructure, private capital, human capital, and technological progress in R&D. These are four very important factors for sustainable growth in Asia.
I want to talk about infrastructure investment. Infrastructure requires long term investment, and the rate of return is very, very small. For example, roads, highways, and railways. User charges can contribute only a few percent of their production costs. That is why the public sector has to come into infrastructure investment.
However, public money is not enough to create infrastructure in various countries in Asia. If we visit many Asian countries, South Asia, Southeast Asia, Central Asia, all the big cities are crowded with cars and congested because of a lack of infrastructure and public transportation.
How can we bring in private sector money in order to construct infrastructure? Key is how to increase the rate of return from the investment. In the past, all those infrastructure investors only received user charges, and that was very low. However, infrastructure investment can create jobs, private financial activities, and private industries, along a highway and along a railway, as the infrastructure is being constructed. That will contribute to local tax revenues: corporate tax, income tax, and property tax.
All those tax revenues went to governments in the past. However, those tax revenues are part of the contribution to infrastructure investment. So if part of those tax revenues is returned to the investor in infrastructure, then the bank involved in the project would see an increase in the rate of return. I estimated the case of the Philippines, Uzbekistan and Japan. In the Japanese case, the rate of return would increase by 33 percent. In Manila, in the Philippines case, a highway, an increase of 16 percent,–and in Uzbekistan, the rate of return would increase by 17 or 18 percent.
Recently, the next US President Trump is talking about how to finance infrastructure in the U.S through the private sector. I think utilizing these pillars of tax revenues will bring part of the revenue back to the investor, and will create lots of bank projects in the region. Thank you very much.