Malaysia too has pledged to invest significantly in infrastructure development, as the country seeks to accelerate its recovery and further improve its economic prominence. In Malaysia’s most recent budget announcement, the government highlighted that it had earmarked a total of RM75.6bil for development expenditure. Boosting transport connectivity will continue to be prioritised.
SOUTH-EAST Asia’s infrastructure has developed rapidly, but remains far from adequate.
According to the Asian Development Bank or ADB, the infrastructure gap in the Asean region from 2016 through 2030 is approximately US$2.8 trillion (RM12.5 trillion), or US$184bil (RM819.7bil) annually.
The lack of infrastructure connectivity continues to impede industrialisation and economic growth in many parts of South-East Asia, as well as impact the quality of life for its people.
However, the region may be at a turning point as Asean governments increasingly invest in infrastructure to facilitate economic expansion and better serve the public.
Achieving high-quality infrastructure growth has the potential to facilitate economic progress fuelled by increased construction activity, a boost in employment opportunities, as well as incentivise foreign direct investment (FDI) investments into the country.
According to the Asian Development Bank or ADB, the infrastructure gap in the Asean region from 2016 through 2030 is approximately US$2.8 trillion (RM12.5 trillion), or US$184bil (RM819.7bil) annually.
Nearly all Asean markets have announced specific nation-building infrastructure projects, in a quest to stimulate economic activity.
Malaysia too has pledged to invest significantly in infrastructure development, as the country seeks to accelerate its recovery and further improve its economic prominence.
In Malaysia’s most recent budget announcement, the government highlighted that it had earmarked a total of RM75.6bil for development expenditure.
Boosting transport connectivity will continue to be prioritised.
This is evidenced through the ongoing development of key projects, including the East Coast Rail Link or ECRL, Mass Rapid Transit 3 (MRT3) and Pan Borneo Highway.
But government budgets, world over, already under strain from fiscal relief measures will be hard-pressed to pay for an infinite number of projects.
Private and public partnerships are therefore key to economic development, and Malaysia has already kickstarted its efforts.
As an example, to meet the RM31bil construction cost for the MRT3 project, MRT Corp is adopting a hybrid financing model to keep its options open, which could possibly be in the form of direct funding when Malaysia’s economy picks up in future.
For now, the government has given MRT Corp the green light to explore the private finance initiative (PFI), meaning that the private sector will finance the upfront costs which will be reimbursed by the government through deferred payments, and also to step in when there is shortage of funds.
Yet, while the country is making headway, Malaysia’s public and private sectors cannot afford to rest on their laurels and will instead need to continuously offer value to unlock more capital for infrastructure development.
One way the country can do this is by offering more innovative financing structures that will encourage greater public private partnerships.
Bringing together various sources of financing through an appropriate process to fund the complete project lifecycle requires competitive financing models.
Banks can play a critical role in coordinating and delivering the financing.
This includes providing access to working capital, offering deferred payment options and providing structured trade financing options amongst others.
Offering these financial approaches could provide potential avenues for removing barriers to private finance.
Attracting foreign investment into national infrastructure projects will also be crucial.
Historically, strong exports typically attract investment across other areas including transport and that has been the case for Malaysia, which has been able to attract a growing share of the FDI pie.
But against a backdrop of shrinking global FDI supply, and rising competition from other countries who are seeking to muscle in on Malaysia’s electronics assembly, Malaysia will need reforms to its investment framework to make it easier for MNCs to invest in the country.
The third vital element in positioning Malaysia for its next phase of growth is ramping up investment in sustainable infrastructure.
The development of sustainability-linked infrastructure, using public and private sector financing, is a key factor in how Malaysia can address the growing threats and opportunities of climate change.
Malaysia has a global climate commitment to reduce its economy-wide carbon intensity (against GDP) of 45% in 2030 compared to the 2005 level.
In line with this ambition, the government plans to increase the share of renewable energy sources in its installed capacity to 31% by 2025, and 40% by 2035 under its power generation plan.
The country’s commitment to large-scale solar power growth as the main source of the renewable energy mix, in addition to hydropower, gives the private sector a market signal to back projects in this space.
For example, the large-scale solar programmes project tenders issued in 2020 and 2021 generated keen interest from investors, and the government is also encouraging industries to explore opportunities for floating solar farms and waste-to-energy projects.
Collaborations matter in the fight against climate change – neither the private nor public sector can close the financing gap alone.
In light of this, last year, HSBC and Temasek announced a partnership to establish a debt financing platform dedicated to sustainable infrastructure projects with an initial focus on South-East Asia, as part of efforts to reduce climate change.
The platform aims to catalyse significant capital flows to the sustainable infrastructure space, deploying blended finance at scale over time to unlock more marginally bankable projects and create a tradable asset class, crowding in private and institutional investors.
Smart cities too, with their emphasis on innovative, sustainable technologies, will open up opportunities for companies, attract talent and investors and uncover new avenues of investment – through sustainable financing – as projects and schemes are rolled out.
Smart Selangor, for instance, which is focused on making Selangor a liveable Smart State in Asean by 2025, is creating the demand and investment opportunities especially within the digital infrastructure ecosystem.
Infrastructure development sits at the nexus of economic growth, however, massive new investment is required to achieve this.
Although Malaysia has made considerable progress in recent decades to increase infrastructure investment, more needs to be done – by both the public and private sector to unlock capital to enable infrastructure expansion.
Its impact on both the lives of the rakyat and on the economy has the potential to be transformational.
Christina Cheah is head of global banking, HSBC Malaysia. The views expressed here are the writer’s own.
