Overview

Chapter 1: Introduction and case studies: Creating quality infrastructure in Asia

While there is significant demand for infrastructure in Asian countries, and with economic growth and climate change making the case for considerable investments in this regard, too little is currently being invested in much of the region. In addition to expanding transport, energy and communications networks, and developing other kinds of infrastructure, countries in the region also need to ensure the ongoing maintenance of their existing networks, and to make improvements to the overall quality of their infrastructure.

Quality infrastructure is designed and implemented while taking into account a life-cycle perspective, employment creation, social and environmental impacts, alignment with broader development strategies, and resource mobilisation. Emphasising quality in infrastructure can require changes in how infrastructure is perceived and, in particular, in how benefits of infrastructure are measured. Investment decisions should be made with consideration of the full externality effects of these projects over the long term. To develop quality infrastructure, a comprehensive perspective of infrastructure impact evaluation is important. This does not simply consider the financial feasibility of an individual project, but attempts to judge the full extent of the externalities. These externalities are often strongest at the local level, but can also be far-reaching. Moreover, a comprehensive perspective also needs to be adopted at high levels of government, to achieve sufficient political support, and to institutionalise practice within government. Indeed, quality infrastructure can boost economic activity, creating employment opportunities and expanding the tax base; improves well-being and promotes inclusive growth.

Sixteen case studies describe recent and ongoing infrastructure projects in Asian countries. These projects include road and rail transportation projects in India, Indonesia, Lao PDR, the Philippines, Sri Lanka, Thailand and Viet Nam (Table 1). While these projects are not necessarily model examples of quality infrastructure, these case studies illustrate some of the ways in which the concept of quality infrastructure has been incorporated into recent infrastructure projects in the region.

Table 1. Infrastructure project case studies

Project

Location

Infrastructure type

Delhi mass rapid transport system

Delhi, India

Urban railway

National Highways Development Project (NHDP)

India

Highway

Gujarat state highway project

Gujarat, India

Highway

Railway double tracking on Java's south line

Java, Indonesia

Railway

Construction of a mass rapid transit system in Jakarta

DKI Jakarta Province, Indonesia

Urban railway

Champasack road improvement project

Champasack, Lao PDR

Road

Project to improve the transport network in the northern part of the Greater Mekong Subregion

Louang Phrabang and Xaignabouri, Lao PDR

Road

Enhancing the capacity of mass transit systems in Metro Manila

Manila, the Philippines

Urban railway

Southern transport development project

Southern Sri Lanka

Highway

Regional road-improvement project

Central and southern Thailand

Highway

Mass Rapid Transport Authority (MRTA) initial system (Blue line)

Bangkok, Thailand

Urban railway

Bangkok urban transport project

Bangkok, Thailand

Highway

Mass transit system in Bangkok (Purple Line)

Bangkok Metropolitan Area, Thailand

Urban railway

Construction of a tunnel at the Hai Van pass

Central Viet Nam

Highway tunnel

Third rural transport project

Viet Nam

Road

Construction of the Nhat Tan bridge (Viet Nam-Japan Friendship Bridge)

Hanoi, Viet Nam

Road bridge

Source: OECD Development Centre.

Delhi mass rapid transport system. The Delhi mass rapid transport system project is an urban railway being developed to address traffic congestion and air pollution in Delhi, India. In the first three phases, which ran from 1997 to 2017, the project set out to complete 351 kilometres of railway; an additional 100 km is expected by 2021. Delhi Metro Rail Corporation Limited (DMRC) was incorporated by the government in 1995 to implement the project. The DMRC made a number of efforts to develop a work culture that emphasises both timeliness and worker safety. It was possible to mitigate the project's environmental impact by using rolling stock with regenerative brakes, which save around a third of the energy that conventional systems would consume. The project also took steps to address its social impact with regard to workers' living and working conditions.

National highways development project. In 1998, India initiated a national highway development project to improve the quality of highways and to upgrade two-lane single carriageways into four-lane divided highways. The first phase of the project made improvements to highways in the Golden Quadrilateral (5 846 km). It increased the efficiency and safety of the highway network, as wider roads have improved transport capacity, and have reduced both travel time and the cost of operating vehicles. Local-level benefits have included the creation of jobs, both as a direct result of the project itself and from the indirect effects of communities' improved access to transport infrastructure. The project took account of environmental and social considerations by incorporating measures such as planting ten trees for each tree cut down, building adequate drainage measures into the road design, not allowing labour camps in forests, and implementing resettlement action plans and other measures for compensation and assistance.

Gujarat state highway project. Following an increase in vehicle ownership that put additional strain on the road network, Gujarat's state highway project – which ran from 2002-07 – set out to widen roads, and to improve them in a number of ways. The project also pursued institutional reform within the Gujarat government's roads and buildings department by developing and implementing an action plan for institutional strengthening. Gujarat also set up an environmental management unit in order to address environmental and social issues. This unit has taken actions on compensatory forestation, measures to protect wildlife, and resettlement.

Railway double tracking on Java's south line. The double-tracking project on Java's southern railway line ran from 1996 to 2007, at a total cost of 16.4 billion yen (JPY). Increasing use of the line’s single track had affected traffic, particularly in the congested stretch between Kroya and Yogyakarta, and had raised safety concerns. The project included the rehabilitation of existing lines and the construction of new ones. It succeeded thanks to effective governance on the part of the implementing agency. Moreover, it aligned with goals from the country's national development plans that targeted the rehabilitation of the railways and an increase in transport capacity.

Construction of a mass rapid transit system in Jakarta. The aim of developing mass rapid transit infrastructure in Jakarta was to improve transport capacity, and to make the metropolitan area of Indonesia's capital city more attractive to investors, by building a combination of subways and elevated railways. The first phase of the project runs from 2009-19. It is aligned with national goals – both the national mid-term development plan and the transport ministry's national railway master plan of 2011 have noted the need for a mass transit railway system in the capital city's metropolitan area. Measures taken to mitigate the negative environmental impact of construction have included the use of noise barriers and vibration-isolation mats.

Champasack road improvement project. In Lao PDR, the Champasack road-improvement project set out to rehabilitate and improve 200 km of basic road infrastructure in the southern part of the country, improving the connection between Chong Mek, on the Thai border, and Veun Kham, on the Cambodian border. The project is part of a north-south national road link developed by the government of Lao PDR and the Asian Development Bank (ADB). Although the project faced challenges with regard to equipment, its outcomes were judged to be highly satisfactory. Plans for periodic maintenance were incorporated into the project, and were mostly decentralised to provincial institutions. In turn, these institutions appointed villagers to take responsibility for certain roles. The project also made use of local labour in construction, thus generating employment in the local economy. The improvements in terms of road access delivered a range of benefits for the region, including boosting both tourism and the development of new businesses. It also facilitated the establishment of electricity distribution systems.

Project to improve the transport network in the northern part of the Greater Mekong Subregion. Also in Lao PDR, a project addressed relatively under-developed roads in the northern part of the Greater Mekong Subregion. This situation had hitherto limited economic opportunities in the region. This project, which ran from 2008-16, improved the quality of roads and linked rural roads to upgraded highways. Given its proximity to northern Thailand, northern Viet Nam, and the southern provinces of China, improving roads in this region also supported subregional goals of improving connectivity and developing strategic corridors. Moreover, the use of design-build contracts for civil works increased the project's overall efficiency. In 2002, a road maintenance fund was established. Furthermore, mobile scales and permanent weigh stations were constructed to detect overloaded vehicles and to improve sustainability.

Enhancing the capacity of mass transit systems in Metro Manila. In the Philippines, a project running from 2012-17 sought to enhance the capacity of Metro Manila's mass transit systems. In order to address the increasing strain that the city's Light Rail Transit (LRT) system had been facing, this project set out to enhance the capacity of the system's LRT 1 and LRT 2 lines. The project matched up with the goals of the country's overall development plan for 2011-16, one of which was to reduce traffic congestion in the capital. Financing from various sources was used for the project. These included the World Bank's International Finance Corporation, the government of the Philippines, official development assistance (ODA) from Japan, and private sources. Moreover, the project incorporated anti-pollution measures, including facilities for treating effluent. The project also made use of sound-proof walls and vibration-proofing sleepers in order to reduce noise and vibration. Furthermore, there was a resettlement action plan for people who had been displaced by the project.

Southern transport development project. Sri Lanka's southern transport development project was the largest greenfield road initiative the country had ever implemented. It included the construction of a four-lane expressway over 126 km, as well as access roads and other components. Road safety measures included the establishment of institutions to promote it, the use of special safety equipment, and the creation of a road safety fund. The Sri Lankan authorities also adopted a mechanism for redressing grievances under the committee for land acquisition and resettlement. Furthermore, an income restoration programme was set up to re-establish home gardens, and to provide training to people who had been negatively affected by the project. The ADB, The Japan International Co-operation Agency (JICA), and the Export-Import Bank of China provided technical, financial, and other forms of assistance.

Regional road-improvement project. Thailand carried out a regional road-improvement project in two phases (1994-2001 and 2000-05) to widen and improve major national highways in the centre and south of the country. The project, for which the highways department in the transport ministry took the lead, aimed to address the need for additional transport capacity. Several versions of Thailand's national economic and social development plan had called for this. Efforts to improve road safety in the project included installing extra traffic lights, street lights, and reflective plates. Changes were also made to road design to improve safety, such as by reducing the number of U-turn points. The establishment of weighing stations to control overloaded vehicles also made it possible to extend the lifespan of the roads.

Mass rapid transport authority initial system. From 1996-2004, the Mass Rapid Transit Authority of Thailand built the first subway line in Thailand, the Blue Line in Bangkok. Environmental considerations were an important factor in selecting bidders for the construction work. The project also featured detailed countermeasure plans for air pollution, dust, water pollution and noise. Indeed, air pollution on major roads in Bangkok decreased following the project’s completion. The subway line also introduced barrier-free guidelines in order to increase accessibility for disabled and elderly people. The operation and maintenance of the line were awarded to a private concessionaire for a 25-year period.

Bangkok urban transport project. Earlier in the development of transport infrastructure in Thailand's capital city, the Bangkok urban transport project extended a three-lane highway to the central business district by 5.1 km, in order to relieve bottlenecks in the city. At the beginning of the project in 1992, Thailand set up the Office of the Commission for Management of Land Traffic. In turn, this new body benefitted from technical supports to use analysis tools for transport and traffic and to plan more effectively, and from staff training programmes.

Mass transit system in Bangkok. Later, the project to develop the Purple Line in Bangkok's mass transit system ran from 2009-16, and at a total cost of JPY 455.5 billion. This project was part of the Thai government’s mass transit investment plan for 2005-12, which set out to develop seven rail lines in the metropolitan area of Bangkok. Unlike other lines, it also operates in outer Bangkok, alleviating air pollution by replacing buses. The project’s anti-pollution measures included noise-blocking walls and planting new trees.

Construction of a tunnel at the Hai Van pass. In Viet Nam, the Hai Van Pass tunnel project eliminated a tight bottleneck on a narrow and steep segment of National Highway No.1. This segment is important both in north-south transport within Viet Nam and as part of the east-west economic corridor that passes through Viet Nam, Lao PDR, Thailand and Myanmar. By removing a road-transport bottleneck, this project supported the development of Viet Nam's central region. Viet Nam's national socio-economic development plan (SEDP), as well as those of the province of Thua Thien Hue, and the city of Da Nang, had identified this as a priority, as had the country's national master plans for transport. During the project’s implementation, staff received training regarding tunnel operation, maintenance, and emergency measures. Successful communication between the executing agency and the operations and maintenance contractor during the construction period contributed to the smooth operation of the tunnel.

Third rural transport project. Also in Viet Nam, the country's third rural transport project, which affected 33 provinces in northern and central Viet Nam, followed on from the work of two previous rural road projects in improving connectivity. This matched up with the goals in Viet Nam's SEDPs for 2006-10 and 2011-15, and also with the transport ministry's five-year plan. Rural Road Surfacing Trials (RRST) were conducted in an adaptive approach to road design and maintenance, with road surface selected for their appropriateness to the local environment. Under a pilot programme, women from ethnic minorities took maintenance jobs on rural roads, under the guidance of the Vietnam Women’s Union.

Construction of the Nhat Tan bridge. Between 2006 and 2015, the Nhat Tan bridge (Viet Nam-Japan Friendship Bridge) construction project was carried out with loans from JICA. Viet Nam's transport ministry carried out this construction project, which also included new approach roads allowing the bridge to serve as an important new crossing over the Red River, and to reduce traffic congestion in Hanoi. The planning for this project matched up with Viet Nam's five-year SEDP for 2006-10, which prioritised the repair and new construction of roads, as well as other development plans and strategies. The bridge used construction methods that limited the environmental impact while also reducing costs.

Chapter 2: Investing in infrastructure at the local level

Across Asia, local governments play a significant role in the development and maintenance of infrastructure. The experiences of Indonesia, the Philippines and Viet Nam – three unitary states with local governments that take considerable responsibility for infrastructure – help to illustrate the local economic consequences of infrastructure projects, the roles and responsibilities of local governments, the means of financing investment, and the benefits and challenges of local governments’ involvement in the sector.

In Indonesia, the Philippines and Viet Nam, access to land-transport infrastructure varies among communities. In Indonesia, for example, unequal access to infrastructure at the local level is a greater challenge in some provinces than others. According to recent statistics, only 19.4% of villages and sub-districts in Papua had asphalt or concrete surfaced roads as their widest road, and only 29.6% had access to roads that are passable all year round. By contrast, more than 99% of Bali’s villages and sub-districts both had asphalt or concrete roads as their widest thoroughfares, and enjoyed access to roads that are passable throughout the year.

Several studies have found that investments in infrastructure have increased employment and output in rural Indonesia. In the Philippines, meanwhile, other studies have pointed to positive relationships at the local level between infrastructure and economic growth, and between income levels and tax revenues. Similarly, there is a positive association in Viet Nam between investment in infrastructure and multiple indicators of local economic development. The development of infrastructure also helps to reduce poverty at the local level, thanks to the economic activity it induces, and the impact – both direct and indirect – that this has on poor people's lives. For example, research has confirmed that Viet Nam’s national poverty-reduction programme, which included significant investments in rural roads and other infrastructure, has had a positive impact on the incomes of poor households.

Local governments in Indonesia, the Philippines and Viet Nam (Table 2) have considerable responsibilities for developing and managing land-transport infrastructure, such as local and regional rail and road networks. Indeed, through decentralisation initiatives in these three countries, new responsibilities were passed to these levels of government and divisions of responsibility with the central government were clarified. In Indonesia, for example, although railway infrastructure is primarily the responsibility of the central government, Law No. 23 of 2007 opened up additional roles for local governments to contribute to such projects. In addition, central, provincial and local governments in Indonesia divide up responsibility for the construction and maintenance of Indonesia’s road network. By length, most roads in Indonesia are district roads (80% of the total in 2015), followed by provincial roads (11%) and national roads (9%). Decentralisation in the Philippines, meanwhile, has resulted in a two-track delivery system for infrastructure. Local governments take the lead in devolved areas of responsibility, such as providing local roads and municipal ports, while the central government plays a role in augmenting or complementing local delivery. Urban and rural transport networks, and urban railways, are among the six main types of infrastructure that come under the mandate of local governments in Viet Nam, a country in which infrastructure investment planning is also decentralised.

Table 2. Tiers of local governance in Indonesia, the Philippines and Viet Nam

Regional or state level

Intermediate level

Municipal level

Indonesia

34 provinces (provinsi)

-

508 regencies (kabupaten) and cities (kota)

Philippines

81 provinces

1 489 municipalities and 105 cities

42 028 villages (barangays)

Viet Nam

63 provincial-level entities, including 5 city-provinces

710 districts (cities/towns)

11 145 communities

Source: OECD/UCLG (2016), Subnational governments around the world: Structure and finance.

Different combinations of local and central government revenues and private financing are used in local infrastructure investments in Indonesia, the Philippines and Viet Nam. Despite increased responsibilities at the local level, and the allocation of specific taxes to provincial and local governments in Law No. 28 of 2009, the central government retains most of the responsibility for raising revenues in Indonesia, which it then transfers to local governments. Transfers from the central government include the Dana Alokasi Umum, an equalisation transfer, the Dana Bagi Hasil, a fund of shared revenues from taxes and natural resources, and the Dana Alokasi Khusus, a special allocation grant for national priority projects. Moreover, taxes and other revenues are becoming relatively more important as sources of revenue, despite starting out from a small base. In the Philippines, the Local Government Code of 1991 granted local governments the authority to tap various sources of financing for development and infrastructure projects. These include loans and credits with banks and other lending institutions. They also include bonds and other long-term securities, and loans between local governments, as well as grants, subsidies, and loans from foreign sources through the national government (i.e. ODA). Moreover, they also extend to contracts with the private sector, including PPP arrangements. However, local governments in the Philippines have relied mostly on locally-sourced revenues (local taxes) and fiscal transfers (internal revenue allotment and other transfers) to finance local infrastructure investment. For 2016-20, Viet Nam allocated funds in five areas for its medium-term public-investment plan. These include counterpart funds both for PPP and ODA projects, funds for the repayment of construction capital, and funds both for unfinished projects and for new ones. Investment capital managed by local authorities reached 44.2% of total infrastructure investment in 2009, but declined to 35.7% in 2011 due to multiple factors, including capacity limitations on the part of local authorities.

Countries vary in the extent that they use PPPs and other forms of private-sector involvement in the development of local infrastructure. Still, Indonesia, the Philippines and Viet Nam have all taken steps to encourage greater private participation. In Indonesia, the contracting agencies for PPPs can be central government ministries or local government authorities. Steps towards decentralisation in Indonesia, and the state finance law of 2002, passed numerous responsibilities for managing PPPs from the national development planning ministry (Bappenas) to local authorities, as well as to the finance ministry. In the Philippines, meanwhile, local governments can use PPP arrangements for investments in local infrastructure. They may do so both under the country's build-operate-transfer law and its implementing rules and regulations (IRRs), and under section 302 of the Local Government Code of 1991. The relevant local and national approving bodies evaluate project proposals in the approval phase according to their nature, scope and cost. In Viet Nam, capital for local transportation infrastructure can be mobilised through bond issuance, loans from commercial banks, local funds for development investment, auctions of land use rights, and construction project bidding.

The decentralisation of responsibilities for the development and maintenance of infrastructure can produce gains in productive efficiency thanks to lower-cost local inputs and labour, to streamlined bureaucratic oversight and reduced corruption, and to the gains in allocative efficiency that come from improving the alignment of investments with local priorities. On the other hand, a range of factors can also limit the efficiency gains that decentralisation can generate. These include limited capacity within local government, the need to manage spillover effects, economies of scale, equity considerations, distortions to internal trade, and unproductive competition between regions. In Indonesia, the Philippines and Viet Nam, it may be possible to achieve further gains while also helping to address gaps in access to land transport infrastructure. Potential ways of doing this include improving co-ordination and planning, helping local governments to develop their capacity, considering new financing mechanisms, and integrating monitoring and maintenance in infrastructure planning. The lessons offered by the experiences of these three countries are also likely to apply more widely to other emerging economies in the region.

When it comes to infrastructure planning and co-ordination, there is certainly scope to make some improvements. Moreover, while effective planning is essential for the development of quality transport infrastructure, this can be complicated by the need for co-operation between various actors and across multiple levels of government. Therefore, enhancing the co-ordination between central and local governments on infrastructure issues can improve planning, project selection and allocations.

Wherever a lack of experience constrains local governments' ability to plan and implement infrastructure projects, capacity building will be an important response. Moreover, unlocking all of the benefits that local-level infrastructure development can bring also requires transparency and accountability. Furthermore, even where perceptions of corruption in local governments are less serious than those of the central government, addressing corruption and promoting transparency have an essential role to play in capacity development.

Expanding the development of infrastructure, and covering its life-cycle costs is also likely to require a greater mobilisation of financing on the part of local governments. Public authorities can also seek further private sources of finance, especially when it comes to the kinds of long-term financing for infrastructure assets that is currently available on the market. Furthermore, PPPs will continue to play an important role, both in the development of local infrastructure, and as a means of attracting investment and external expertise. Still, effective governance is a prerequisite for managing PPPs properly.

Regardless of the level of government that takes the lead in infrastructure projects, officials should pay attention to maintenance and monitoring throughout the project life-cycle. Indeed, project planners should estimate maintenance costs for a piece of infrastructure, add them to the initial cost and adequately allocate them during later periods. In addition, governments may also need to find better ways of mobilising contributions from the private sector and other sources for the maintenance of transport infrastructure.

Chapter 3: Financing quality infrastructure

Continued economic growth in Emerging Asian countries will place increasing strain on existing infrastructure, and financing will be needed not only for the development of new infrastructure, but also for the improvement, upgrading, and maintenance of existing infrastructure. Considering the magnitude of infrastructure investment that the region requires, government revenues – historically the main source of financing in the region – are likely to be insufficient. In order partially to plug the gap, aid agencies and donor countries have been actively pursuing infrastructure-related projects in the region. In addition, PPPs and other forms of private sector involvement are becoming more important. The experiences of OECD member countries offer examples for Emerging Asian countries of some of the available options to be considered for diversifying sources of financing.

At present, the public sector still bears much of the burden in financing infrastructure, and using general budgets to pay for infrastructure projects makes it necessary to improve tax-collection capacity. For example, Indonesia's ratio of tax to gross domestic product (GDP) stood at 11.8% in 2015, with Malaysia's at 15.3%, 17% in the Philippines, and 13.6% in Singapore. All of these fell below the OECD average of 34.3%, 32% in Japan (2014), and 25.3% in Korea.

Energy-related taxes can play an important role in financing infrastructure investments. For example, some countries channel fuel tax – or at least a part of it – into the financing of infrastructure, notably into the construction and maintenance of roads. In other countries, these revenues flow into the general revenues. Countries like Switzerland and the United Kingdom apply a carbon tax, which is linked directly to the level of carbon dioxide (CO2) emissions, and a petroleum tax – an excise duty on fuels used for vehicles and heating purposes. Some countries earmark fuel-tax revenues directly for infrastructure investment. Moreover, some Emerging Asian countries also use fuel taxes. These include China, which implemented a fuel-tax reform in 2009. Energy-related taxes are often applied not only for their capacity to generate revenue – which can then provide financing for infrastructure – but also for environmental reasons.

Another option is to use vehicle taxes and road-use charges to raise revenues for investments in infrastructure. Some OECD countries, including the United Kingdom, Sweden, Germany, and Italy apply taxes on vehicle ownership – as excise duties on registered vehicles – based on the vehicle’s CO2 emissions. Countries apply road-use charges in several different forms, including toll-road charges, heavy-vehicle fees, congestion charges, or motorway vignettes. Switzerland, for example, levies a performance-related heavy-vehicle fee at the federal level, and also requires vehicles on motorways to display vignettes. Moreover, some European cities use congestion charges to manage traffic congestion or to raise revenue. Some Emerging Asian countries have also implemented use charges to raise revenue. In this regard, Singapore applies registration fees and excise duty for car ownership. Moreover, India proposed in its 2016 budget to introduce an infrastructure cess charge on car purchases. The Philippines applies expressway tolls and other user charges.

It is also possible to capture revenues from the indirect and proximity benefits that transport infrastructure can generate. These include the increase in the value of real estate that can occur around new infrastructure developments. Tax increment financing (TIF) is among the tools that can capture such increases. It is usually applied so that local authorities can fund regeneration projects by borrowing against the increase in tax revenue that is likely to result. The United States has used TIF, as have local-level administrations in the United Kingdom. In Japan, Fukuoka City applies a city-planning tax, a spa tax, and a business office tax, while Osaka's municipal taxation system applies two special-purpose taxes: a fixed-asset/city planning tax and a business-facility tax.

While the public sector will remain as the primary source of credit in the near term, the large infrastructure gap in Emerging Asia requires the use of new approaches to financing. From 2007 to 2016, the extent of private involvement in publicly awarded projects in these Emerging Asian countries was comparable to that in Europe, Central Asia, Latin America, and sub-Saharan Africa. The ratio of investment commitments to project count reflects the scale of infrastructure projects in which the private sector can participate. Relative to projects in India and Southeast Asian countries, moreover, private sector involvement in China is generally limited to smaller-value infrastructure projects (Table 3).

Table 3. Infrastructure projects with private sector participation in Emerging Asia
Average investment by project, USD billion (2005 constant prices)

 

All projects

Transport

Land transport

1997-2006

2007-16

1997-2006

2007-16

1997-2006

2007-16

Cambodia

0.04

0.18

0.04

-

0.05

-

China

0.13

0.08

0.21

0.46

0.21

0.71

India

0.37

0.22

0.13

0.16

0.07

0.16

Indonesia

0.81

0.29

0.49

0.22

0.17

0.24

Lao PDR

0.46

0.50

0.005

-

-

-

Malaysia

0.62

0.37

0.38

0.32

0.44

0.32

Myanmar

0.73

0.17

-

0.06

-

-

Philippines

0.59

0.31

0.30

0.22

0.54

0.32

Thailand

0.21

0.17

0.18

-

0.48

-

Viet Nam

0.29

0.07

0.11

0.12

0.00

0.00

Note: Calculation only included projects with investment data. Headline CPI was used to adjust for inflation. Year refers to financial closure year as defined in the World Bank PPI database.

Source: OECD Development Centre’s calculations based on World Bank PPI database (World Bank, 2017).

Public-private partnerships have been used for a long time, but their use did not gain traction in Emerging Asian countries as quickly as in Europe. Despite a number of countries introducing a range of PPP-related statutes in 1990s, institutional weaknesses, capital market inadequacies, insufficient technical expertise, and a number of other factors, made these agreements less attractive. However, governments in Emerging Asian countries such as the Philippines have been more aggressive in creating business environments suitable for PPPs in the last decade or so.

Some OECD countries, particularly in North America, have made widespread use of specific-purpose borrowing to finance infrastructure. This means issuing debt instruments such as bonds in the capital market in order to finance a particular project. The income that the investments then generate usually helps to repay the bonds. In general, the use of infrastructure bonds in Emerging Asian countries has picked up since early 2000, especially in China and Malaysia, although there has recently been a pullback in issuances. In OECD member countries and elsewhere, a rising awareness of the importance of environmental issues has led to an increased use of green bonds to fund environmentally friendly infrastructure projects.

Increasing private-sector participation in infrastructure investment makes it necessary to develop financial markets. In many Emerging Asian countries, financial systems are bank-based. For example, China, Singapore, Malaysia, Viet Nam, and Thailand have higher ratios of bank lending-to-GDP than the OECD average, although the relative sizes of equity markets, and the scale of outstanding local currency bonds, tend to be smaller than in more advanced economies (Figure 1). It is also important that governments implement mechanisms that reduce the likelihood that infrastructure spending will contribute to financial-market risk, which is partly related to capital use efficiency, to the strength of due-diligence frameworks, and to regulatory stability.

In order to ensure an efficient administration of earmarked taxes, fees, and other non-tax revenues, such as proceeds from privatisation or mineral extraction, many OECD countries have infrastructure funds. These are seen as the most practical way of keeping earmarked revenues separate for special expenditures. Among the Emerging Asian countries, Thailand and the Philippines, for example, already use infrastructure funds, in addition to the ASEAN Infrastructure Fund.

Figure 1. Banks' provision of domestic credit to the private sector, 2016
Percentage of GDP
picture

Source: World Bank (2018), World Development Indicators (database).

 StatLink http://dx.doi.org/10.1787/888933841786

Chapter 4: Aligning infrastructure planning with development strategies

While complementary and co-ordinated development strategies and infrastructure planning at the national and local levels can contribute to the effectiveness of infrastructure investment, many Emerging Asian countries could do more to bring these into closer alignment. Three important issues in this regard are the development of efficient management mechanisms for public investment, effective processes of project appraisal and institutions for infrastructure governance.

In the absence of an efficient management of public investments, investment spending is unlikely to be fiscally sustainable or to promote growth and development. In many Emerging Asian countries, public investment management (PIM) systems are either weak or non-existent. In turn, the lack of solid PIM capacity leads to many forms of resource waste through bad practices that are economically and socially costly. In order to be efficient and comprehensive, PIM systems should cover a number of key areas. These include investment guidance, project development, and preliminary screening. They also include formal project appraisals and independent reviews of appraisals. Other key factors to take account of are project selection and budgeting, project implementation, project adjustment, facility operation, and basic completion review and evaluation.

An effective system of appraisal of infrastructure projects is key to ensuring that they will support a country’s economic and development strategies. Appraisals can provide checks and balances that reduce the risk of excessive construction and operation costs. Meanwhile, a rigorous system of project identification and selection screens inappropriate and inefficient projects from getting into the project cycle and gaining the kind of political support that may result in white elephant projects. There are several issues and key challenges in implementing an effective appraisal system, including the institutional arrangements for project appraisals, the clarity and coherence of guidelines, capacity issues, and the demand for high-quality project appraisals.

Political pressures can distort infrastructure investment and raise the costs of implementing approved projects. For example, political considerations may affect the prioritisation of projects in the planning phase, and project costs may be increased because of the risks to investors and developers arising from political uncertainty. These challenges can be addressed by institutionalising the management of infrastructure through the use of stable regulatory frameworks and long-term planning anchored in central agencies of government.

Viet Nam offers up an interesting case study, because officials have accepted many quality-infrastructure principles, incorporating these into the development of infrastructure projects. Still, further work could be done to strengthen the connections between socio-economic development plans and transport plannings. Infrastructure investment in Viet Nam is affected by the five-year and annual Socio-economic Development Plans (SEDPs) – themselves based on the ten-year Socio-economic Development Strategy (SEDS), transport development strategies and plannings (Table 4).

Table 4. Summary of documents on SEDS, SEDP and transport plannings in Viet Nam

Document type and name

Timeframe

Issued/Approved by

SEDS

National SEDS

Ten years

Central Party Executive Committee.

SEDP

Five-year SEDP

Five years

Drafted by the government, and approved by the National Assembly.

Annual national SEDP

One year

Drafted by planning and investment ministry, and approved by the National Assembly.

Annual provincial SEDP

One year

Provincial People's Council.

Planning or master plan

Master plan for the socio-economic development of special territories.

Ten to fifteen years and beyond

Drafted by the planning and investment ministry, and approved by the prime minister.

National or provincial planning for the development of sectors and products.

Ten to fifteen years and beyond

Line ministries approve national plans and the provincial People's Council approves provincial plans.

Transport development plans by key economic region, province and district.

Ten to fifteen years and beyond

The prime minister approves national plans, and the chairperson of the People's Committee approves plans at the provincial or district level.

National/provincial plans for roads, railways, inland waterways, aviation, seaports and highways.

Ten to fifteen years and beyond

The prime minister approves national plans.

Source: OECD Development Centre’s compilation based on national sources.

The five-year and annual SEDPs set out Viet Nam’s investments in transport infrastructure, ideally as approved in the country's ten-year SEDS. Indeed, the SEDS acts as a framework for the development of the shorter-term SEDPs. Local governments elaborate their own SEDPs, which they base on those from higher levels of government. Annual SEDPs detail specific actions to take under the five-year plan of the locality or sector. Transport plannings, meanwhile, have their basis in transport development strategies. These look ahead ten years for the development for transport networks, as well as setting out a broad twenty-year vision. Plannings can differ both between territories and in their modalities.

In Viet Nam, a seven-step process defines the relationships between SEDSs, SEDPs, and transport plannings. While the intention is to make sure SEDPs align with transport plannings, the latter tends to be more directive than obligatory, because the implementation of the SEDP depends on the availability of resources. It is possible to improve the connections between SEDPs and transport plannings by using an up-to-date database to formulate a national transport master plan. Improvements to the assessment process for infrastructure projects can also ensure that the projects that feature in infrastructure plannings and SEDPs are aligned and form a coherent part of the broader policy framework.

Furthermore, including detailed specifications for individual infrastructure projects listed in the five-year SEDPs would increase relevance to infrastructure planning. These specifications would include specific financial and physical measures, such as the length of roads or the scale of ports. It is also important to incorporate measurable objectives to help governments in prioritising among projects. Moreover, uncertainty about the availability of necessary financing, as well as its allocation among projects, makes it impossible to set out plans in more specific details other than the annual SEDPs. Detailed budgeting, time-specific targets, and clearer criteria, could be helpful in this regard. While attracting domestic and foreign private investors would be essential to improve the delivery of infrastructure projects in Viet Nam, stable regulatory arrangements would be additionally beneficial.

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