Asian boom needs infrastructure

Asian boom needs infrastructure

HONG KONG (DPA): The numbers speak volumes: 120 million
peasants now living in China's big cities, 85 percent of
Indonesians without sanitary facilities, the average Bangkok
resident losing a total of 44 days annually in the city's
appalling traffic jams.

Asia's glittering success stories are known throughout the
world and often justly admired, but experts warn that growing
infrastructure problems in large parts of the booming region are
piling up social dynamite and threatening future growth.

The conclusion drawn from a conference of those experts here
was that only bigger investments in infrastructure can ensure the
success continues.

The renowned economist Lester Thurow, a professor at the
prestigious Massachusetts Institute of Technology, pointed out
that not only have 120 million people poured out of the
countryside and into China's booming coastal cities, but the
number is expected to more than double to 300 million before
long.

"If China does not improve conditions in the interior in the
next few years," he predicted, "what has until now been a success
story will soon become a disaster."

A quick look at figures from East and Southeast Asia
highlights the neglect of infrastructure, even though spending on
it has risen from three to four percent of gross national product
in most countries in the region 20 years ago to about six percent
now. In China, it has even reached seven percent.

"Yet the region -- above all Vietnam, the Philippines, China
and Indonesia -- is lagging far behind the investments other
comparable countries, those in South America, say, are carrying
out," East Asian expert Harinder Kohli of the World Bank told the
conference.

Just where "underinvestment" in infrastructure can lead, in
economic terms, can be seen in the setbacks suffered in some
countries in the region. According to the World Bank, a decline
of two percent in the Philippines' growth rate in 1995 could be
blamed on insufficient infrastructure investment.

The South Korean government even estimates that defects in, or
a lack of, infrastructure means an economy 16 percent smaller
today than it otherwise might have been. And in China, widespread
transportation bottlenecks entail huge economic losses.

At the same time, Kohli warned, underinvestment can trigger a
vicious circle with unforeseen social consequences. Above all, a
huge disparity exists in the level of infrastructure development
between Asian cities and the countryside: the imbalance is
typical of the region, with only a few exceptions such as the
city-state of Singapore, or Hong Kong, with its relatively small
land mass.

This is as true for energy and water as for transport and
telecommunications. In the Chinese metropolis of Shanghai, for
example, the number of automobiles has increased so steadily that
traffic congestion is a huge problem, and the living standards of
registered, permanent residents is relatively high. Yet out in
the countryside, most Chinese have access to neither sanitation
facilities nor electricity.

A natural consequence is that everywhere across China's vast
hinterland, an ever-increasing flood of migrant workers is
streaming toward the cities. Similar forces are at work
throughout the region, with the result that more than 100 cities
in East and Southeast Asia now have populations of at least one
million.

One-third of Southeast Asia's approximately 500 million people
is already living in urban areas -- and some 20 million are
joining them every year. By 2020, cities will be home to a
majority of people across Asia.

"Only rapid and sufficient investment in the building of
infrastructure can cope with this onrush," said Kohli.

Yet the sums required will be vast. According to World Bank
estimates, East Asia will need to invest 1.2 to 1.5 trillion
dollars in the sector over the next decade alone. And experts are
agreed that the hand of government cannot remedy the situation in
any of the countries.

"Not only money, but also the necessary administrative and
management knowledge is often lacking", Kohli said, adding that
only private investors could provide it. Yet in the past year the
share of infrastructure work carried out by private investors
barely reached 10 percent.

One dilemma is that the private sector is generally interested
only in those projects expected to recoup their outlay in seven
or eight years, and shuns the many large-scale projects that can
be profitable only in the longer term.

In fact, said Thurow, the public and private sectors can work
together - and the long-term public interest can only be served
when they do so. Governments can look after essential services,
as well as the provision of water and transport to more remote
areas, he explained. "Private investors, on the other hand, can
go into the more lucrative areas, such as energy and telecoms."

Speaking later to Die Welt, Kohli said Asia should keep its
distance from a type of thinking about infrastructure that has
for decades been well entrenched, especially in Europe. "Only
when infrastructure is no longer seen as something free, but as a
business, will there be more investment," he said.

In that way, initial skepticism over road tolls in Indonesia
eventually gave way to support after the public saw that service
had improved immensely, the World Bank advisor said, adding that
street user fees for drivers in traffic-choked Asian cities such
as Bangkok and Manila, combined with better traffic controls,
would quickly result in considerable improvement.

Thurow said the Chinese will also have to accept higher
infrastructure user fees.

"Energy, water and transport costs were allowed to remain low
during the first, economically successful phase of development.
There was hardly any competition", he said. "But only through
higher incomes, and also higher investments and better service,
in transport, say, will the high economic growth rate be
maintained in the second phase."

China has long had strong competition from India, Pakistan and
South American countries, and the assumption that higher user
fees and charges will automatically scare industrial investors
away is false, he said.

"What's most important here is service. Already today, huge
quantities of goods are sitting for months in railway stations
because of a lack of transport," Thurow stressed.

"If that does not change, investors will go away, despite low
costs for infrastructure and wages."