As the world makes great strides on the path to development, the gap between infrastructure needs and the resources governments possess to meet those needs is ever growing on account of governments’ razor thin budgets, rapid urbanization and population growth.
Asia’s overall infrastructure investment needs are estimated at USD 9 trillion till 2030, 68% of which is for new capacity and 32% for maintaining and replacing existing infrastructure. The average annual infrastructure investment during this period is about USD 750 billion.
As countries move up the value chain and urban populations expand, demand for transport, logistics and utilities will only continue to grow, increasing the burden on public funds. If cash-flushed investors have an appetite for Asia’s infrastructure projects, what is keeping them at bay?
For infrastructure development, statistics show that Asian nations have been turning to Public Private Partnerships (PPP), which seemed to be one of the main tools to attract financing and keep pace with rapid growth. Although the PPP models are established in several Asian countries, such as Singapore, South Korea and Japan, others are relatively immature. Indonesia, China and India, in particular, have announced ambitious infrastructure programs with governments developing mechanisms to encourage PPP investment and address barriers to PPP development. The new game-changers of the 21st century – India and China are showing aggressive signs of opening their domestic markets to international investors.
While PPPs hold significant potential for Asia, they also present formidable challenges. Case studies of PPP markets in Australia, China, India, Indonesia, Japan, Korea, Malaysia, Singapore and Thailand provide an Asian perspective enabling recommendations for Azerbaijan.
The Azerbaijani government has achieved great progress over the last decade in integrating the country into the global economic marketplace and increasing foreign investment mainly due to its oil resources. Now, the government’s focus is on diversifying the economy outside the oil sector. Azerbaijan is facing increasing demand for investment in infrastructure development, overstretching the government’s budget. There is need for not only private sector investment but also private sector knowledge and expertise. The traditional approach of the government for infrastructure development of any kind has been to use the state’s own budget or privatization. The first is markedly insufficient to meet the country’s needs while the latter only works in a sound legal and financial framework and is not appropriate for all public service delivery projects. So there is a need to see if the time is ripe for public private partnerships.
PPPs may not be the ultimate solution, but they can help address many of the issues systemic to the region in the field of infrastructure development. All it needs is a systematic approach undertaken through joint efforts of private and public sectors.
Book co-authored with Mahir Humbatov: Public Private Partnership, Asian Perspectives, Recommendations for Azerbaijan @SAM (Center for Strategic Studies, Baku, Azerbaijan), ISSN: 2218-8436