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."