Facilitating development of Asia’s infrastructure | KPMG | SG

Singapore to play a key role in facilitating development of Asia’s infrastructure

Facilitating development of Asia’s infrastructure

This article was first published in Business Times on 27 April 2018

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With a current population of over 4.5 billion and investment in infrastructure needs of over US$600 billion in the coming decade, Asia is an attractive investment destination for global and regional infrastructure players.

Given the strong correlation amongst GDP growth rate, employment generation and investment in infrastructure, it is imperative for governments to remove any hurdles in the delivery of world-class infrastructure services.

In Asia, Singapore is a shining example of a country that has delivered on world-class infrastructure. It is renowned for its airport, ports, road network, housing, sanitation, and info-communications infrastructure. According to the World Economic Forum’s Global Competitiveness Index for 2017-2018, Singapore holds the second spot globally in the robustness of its infrastructure.

Underlying this success is a strong regulatory and legal framework that secures funders and donors’ capital and protects investors’ interests.

Singapore’s ability to reinvent itself by focusing on digital or ‘smart’ infrastructure such as autonomous private vehicles and urban transport is also the result of focused collaborations between a government willing to fund major projects and a private sector interested in sharing rewards in return for co-bearing the economic risks.

Complementing these successes are strong institutions that analyse and prepare projects for maximum public benefit, a developed and active finance sector and a supportive policy framework.

The wider Asian region, however, has not achieved the same success yet.

Land rights and regulatory approvals are often complex. Procurement processes to attract bidders are also not entirely transparent. In some countries, corruption issues are endemic and a lack of public-private partnerships have also slowed the development of necessary infrastructure.

Here, we share how Singapore can potentially play a key role for effective infrastructure delivery which supports economic development and financial inclusion as well as greater connectivity across Asia.

Singapore’s Role

The 2018 Government Budget has also shown that Singapore is ready to play an active role in the region’s infrastructure development.

In February, Finance Minister Heng Swee Keat announced the creation of a new Infrastructure Office1  to bring together local and international players from across the entire value chain – covering developers, institutional investors, management and professional services providers – to develop, finance and execute infrastructure projects.

The Infrastructure Office, to be set up by Enterprise Singapore and the Monetary Authority of Singapore, is to provide a platform for information exchange and facilitate infrastructure investments and financing. It will support firms in forging local and international partnerships.

This initiative stems from the Committee for the Future Economy (CFE), which envisioned Singapore exporting its knowledge and expertise, and regionalising ‘Singapore Inc’, acting as a one-stop shop for regional governments, developers and engineers to seek advice, technical assistance and financing from Singapore’s ecosystem for infrastructure development.

Given the regional infrastructure challenges, the Infrastructure Office could assist countries in three broad areas: policy and regulatory framework design, institutional capacity development and sustainable project structuring.

Policy and regulatory design

Over the years, the private sector in infrastructure has come to expect a clear and consistent policy framework that is predictable, and in line with international precedence on risk allocation. Precedences are crucial, rather than to reinvent the wheel, which has been the bane of most developing countries that face project delays and uncertainty.

Countries like the United Kingdom and Australia have standardised infrastructure project contracts by sector, thereby addressing the risk-sharing mechanism in a way that makes a project bankable.

Therefore, Asia will need to develop contracts that are bankable and offer a fair risk-return framework that is consistent across projects.

Risks pertaining to approvals, land acquisition, foreign currency, repatriation, payment security and force majeure are typically the key ones that lead to delays and uncertainty. A framework that standardises these along with incorporating political and sector-specific issues would be key in speeding up the delivery of projects.  

Institutional capacity development

Given the nature and complexity of infrastructure deals, a framework is needed to train and develop public-procuring entities involved in mega-size projects that have economic and societal long-term implications (20-30 years), and the ability to withstand public scrutiny.

A strong procuring agency staffed by capable and experienced professionals, and supported by relevant advisors, will aid successful project design, contracting and delivery. The Infrastructure Office could facilitate training, project visits, sharing of best practices and funding development of project feasibility studies. They could also advise on regulatory policy best practices.  

Sustainable project structuring

Sustainable project structuring is also a key ingredient that impacts the ability to implement a project successfully.

Robust feasibility studies supported by necessary technical and engineering assessment and commercial viability assessment are important considerations for private financing. These validate the need of a project, technical relevance, affordability and functionality in the best interests of the society.  

Infrastructure Office to serve as centre of excellence

Singapore is already home to the World Bank Hub for Infrastructure and Urban Development which supports transferring expertise to developing countries.

Together with the Asian Development Bank (ADB), the Asian Infrastructure and Investment Bank (AIIB) and Clifford Capital providing financing for regional infrastructure projects, Singapore’s Infrastructure Office can help deliver innovative solutions and act as a platform for knowledge exchange to contribute to the region's development.

The new Infrastructure Office will also have the opportunity to partner with and complement these important institutions.  

Support Asia in deploying digital technologies

Recent advances in digital technologies offer opportunities to improve infrastructure quality.

By making use of technologies such as Building Information Modelling, developers can detect and rectify design clashes, avoiding setbacks and delays during the construction phase.

Drones also allow remote project monitoring, and smart sensors allow for predictive maintenance to extend an asset’s lifespan and reduce repair costs. KPMG has extensively used drones in our Major Projects Advisory practices around the world, including in the UK, Canada and India. Such drones could also be used to monitor progress of major cross-border projects.

Singapore has a long history of implementing effective infrastructure projects – from economic projects in world-class rail and road transport networks, airports, and power and water systems, to social infrastructure such as sports and tourism facilities. Coupled with its digital capability evidenced in the Smart Nation policy, Singapore can offer the region the needed support for infrastructure investment, project design and implementation, regulation and policy and the deployment of technology.

Using data as a differentiator

Another key potential for cooperation is in data collection and use.

Multilateral agencies can assist with structured data collection in the region to create benchmarks for infrastructure projects in terms of user pricing and production costs, and the impact of technology in reducing costs.

In turn, this information can also be used by the Infrastructure Office and local businesses in better understanding regional project finance needs.

Singapore is already the infrastructure finance hub of South-east Asia, with up to 60 per cent of ASEAN project finance transactions arranged by Singapore-based banks.

The new Infrastructure Office, in cooperation with partners, will further reinforce Singapore as the infrastructure knowledge hub for South-east Asia. This will also help local and regional businesses contribute to the major projects such as the Belt & Road Initiative and the Asia-Africa Growth Corridor.

Conclusion

Singapore is an ideal nerve centre to lead and strengthen regional infrastructure cooperation due to strong investor protection policies, a willingness to embark on public-private partnerships (PPPs), as well as a strong ecosystem of developers, financiers, advisors and suppliers.

With an ongoing mandate to spearhead the growth of the new Infrastructure Office and rich experience in rolling out world-class infrastructure, Singapore should strive to be the regional centre of excellence across the entire infrastructure value chain. In moving towards its vision of a smart, connected and livable nation, it definitely has a defining and key role to play in taking infrastructure development, partnerships and funding in Asia to the next level.

This article is contributed by Sharad Somani, Head of Infrastructure & Project Finance at KPMG in Singapore. The views expressed are his own.

1 http://www.sgsme.sg/news/singapore-budget-2018-infrastructure-office-scheme-help-companies-forge-strong-regional

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