Opening Address by Mr Tharman Shanmugaratnam, Minister for Finance, at the World Bank-Singapore Infrastructure Finance Summit, in association with the Financial Times and the World Bank-ASEAN Infrastructure Finance Network
Mr Robert Zoellick, President, World Bank
Ladies and gentlemen
1 Good morning. I am delighted to join you at this inaugural World Bank-Singapore Infrastructure Finance Summit. To our overseas guests, a very warm welcome to Singapore.
Creating New Sources of Growth
2 We meet at a time as the world is emerging from its deepest recession in six decades. Here in Asia, we stand at the forefront of the turnaround, our recovery supported by timely and decisive policy actions in Asia and across the globe, as well as the near-term dynamics of global restocking.
3 However, the recovery will not bring us back to where we were before the crisis. As the economists have put it, this is not a mean-reverting event. The pattern of demand in the global economy has shifted, if not permanently, for the next decade at least. As consumers in the US seek to build up their savings or pay down their debts, Asia will need new, compensating drivers of demand over the medium term.
4 Hence, the key policy challenge for Asia is to build up new, self-sustaining sources of growth, within economies and across the region. Growth will have to come increasingly from domestic demand - higher rates of either investment or consumption, and in some cases both. Higher investment and consumption within Asia will in turn avoid a return to large and unsustainable current account imbalances globally especially at a time when the world economy is recovering. It will pave the way for the balanced and sustainable growth that the G20 recently called for in Pittsburgh.
5 The enhanced current account surpluses in most Asian economies earlier in this decade have largely reflected a decline in investment rates following the Asian crisis of the late 90s. With the exception of China, investment rates have not recovered since then. Investment as a share of GDP in Emerging Asia, excluding China, fell by about 10 percentage points following the 1997 crisis, and has remained essentially unchanged over the last five years.
6 The decline has reflected a fall in private rather than public investment. A number of academic studies have also found that investments in Asia are significantly lower than macroeconomic fundamentals would suggest. For example, Asian investments have not kept pace with the growth of exports and corporate profits.
7 Reviving investment rates should therefore be a key policy priority in Asia. It will provide the basis for a new era of growth that will be based not only on the rise of the Asian consumer - which is itself happening - but on more efficient and more connected Asian economies.
The Widening Gap in Asia Infrastructure Investment
8 Asian infrastructure is where the under-investment is most pronounced. It is also where, by most reckonings, new investments will yield the highest social returns. Investing to remove infrastructural bottlenecks will give the best returns in economic growth in the region. It provides connectivity, reduces the cost of transactions, grows markets and enhances foreign trade. Better infrastructure will also contribute directly to the welfare of Asia’s citizens - by improving their access to health care, modern sanitation and education, to electricity and to information. These are powerful effects, and there is no lack of studies at the World Bank and elsewhere to demonstrate how fixing these points of access develops more productive citizens, enhancing connectivity, boosting wages and incomes, and ultimately consumption itself. Investing in Asian infrastructure is not a silver bullet for curing current account imbalances, but it comes close.
9 Current estimates of the gaps in infrastructural investment vary, but they are all large. In a recent study, the Asian Development Bank (ADB) estimated that Asia needs to spend about US$8 trillion over the next ten years – to build and maintain new power, transport, water and sanitation and telecommunications infrastructure.
10 We know we need new and sustainable models of financing for infrastructure. They will require the joint efforts of the public and private sectors. Currently, the private sector accounts for only 20% of infrastructural investments in Asia. But governments have not been able to and cannot cope with funding the infrastructure needs on their own.
11 Governments in the region have been taking active steps to develop Public-Private Partnership (PPP) frameworks - which establish standard practices for the private sector to finance, develop and operate infrastructure projects for the public sector, in exchange for performance-based fees. A number of countries in Asia have by now successfully applied the PPP model, such as Korea, parts of India and Singapore to name a few.
12 The situation has been greatly complicated by the crisis of the last year. Private sector financing was in fact gaining traction in the region before the onset of the credit crisis sometime in late 2008. Many infrastructure projects have since then been either delayed or withdrawn, given the difficulties in securing private financing at acceptable cost.
13 The challenges for infrastructural financing following the crisis are in fact global. Banks’ appetite for lending for infrastructural projects has been sharply diminished. They have generally reduced the amounts which they are prepared to lend to any single project. Financing terms have also changed significantly. Margins have increased at least threefold and loan tenors have been greatly reduced, which adds to the refinancing risks for project sponsors.
Multilaterals’ Involvement in Infrastructure Financing
14 We need to restart private sector financing in Asia, using new and sustainable infrastructure funding models. The multilateral agencies, including the World Bank and ADB in particular, can play an important role. They have already been working actively at this - engaging all stakeholders along the infrastructure value chain to develop new funding solutions.
15 This Summit is a direct response to the need for greater coordination amongst host governments, private sector players and multilateral agencies. It is hoped that the event, which Singapore will host annually with the World Bank, will provide a forum where policy makers, industry leaders and private sector practitioners from across the globe can discuss opportunities, address challenges and showcase new developments and initiatives in infrastructure financing.
16 Singapore for its part will be working closely with the multilateral agencies to facilitate private sector participation in infrastructure development and financing opportunities in the region.
17 We launched the World Bank-Singapore Urban Hub in June this year. The Urban Hub will allow Singapore to share the many lessons it has gained over the years in urban management with other developing countries. I am pleased to announce that Singapore Cooperation Enterprise (SCE) and the World Bank (WB) will today be signing three sets of Memorandum of Understanding (MOU) with the respective governments of Chongqing Province in China, Mongolia and Vietnam, to embark on Public-Private Partnership (PPP) infrastructure projects, mainly in the areas of roads, power and water. These projects represent an important milestone in the World Bank-Singapore Urban Hub initiative.
18 We do look forward to deepening our partnerships with the World Bank and the ADB, in promoting efficient and sustainable solutions for urban challenges, including infrastructural financing solutions.
19 Finally, I hope all delegates and visitors here, whether from the public or private sectors, will gain insights from the discussions over the next two days, and that we can work jointly to tackle the challenges we face in Asia. I wish all a fruitful and enriching experience.