More investments needed to fill APEC’s infrastructure gap

BANDAR SERI BEGAWAN (The Brunei Times/ANN) - Asia Pacific Economic Cooperation member countries can help build and mobilise the region’s long-term investor base, particularly insurers, pension funds and Islamic finance institutions, to fund infrastructure projects, a report prepared by the Asia-Pacific Business Advisory Council said.

Investments in infrastructure and capital markets need to be promoted among countries in Asia Pacific Economic Cooperation (APEC) to help bridge a large infrastructure gap, a report by the Asia-Pacific Business Advisory Council (ABAC) said.

ABAC said that while investors have plenty of appetite for making investments, there are too few bankable infrastructure projects available due to insufficient capacity for project preparation in the public sector.

In its report entitled 'Quality Growth and Human Development' to leaders in APEC, the council said that APEC member countries can help build and mobilise the region’s long-term investor base, particularly insurers, pension funds and Islamic finance institutions, to fund infrastructure projects.

“Many of the region’s local currency capital markets lack the depth and liquidity to effectively serve as channels for investment in infrastructure,” said the report.

In order address the gap between financing and large-scale infrastructure projects which increase connectivity, ABAC called on the APEC economies to pursue a range of activities.

This includes the Asia-Pacific Infrastructure Partnership, a regional platform for dialogues between governments, business, banks and academics on complex infrastructure matters and cooperation with the Global Infrastructure Hub, a non-profit company initiated by the G20 and is mandated to grow the pipeline of bankable infrastructure projects.

ABAC also called for the establishment of an Islamic Infrastructure Investment Platform as a way to tap into the growth of the Islamic financial industry, which has seen tremendous growth due to its asset-backed nature and risk sharing concept.

Other recommendations by ABAC to APEC countries was to establish mandatory retirement systems, introduce stronger tax incentives to promote retirement savings and regulations on accounting standards.

The increase of standards on accounting would enable insurers and pension funds to invest long term and encourage participation of relevant authorities in the seminar on expanding the region’s long-term investor base that the Asia-Pacific Financial Forum plans to hold in 2017.

APEC is seeking to improve trade and connectivity which can only grow with the right infrastructure.

However, funding for infrastructure often requires a large amount of financing which is too risky for banks alone to bear or too expensive for governments to shoulder on their own.

ABAC has been proponents of using the long-term nature of insurance and retirement pools to fund large-scale infrastructure projects developed over longer periods of time.

The advisory council has also advocated for the use of Islamic finance industry, which is expected to grow to $5 trillion by 2020, to help fund infrastructure projects with instruments such as sukuk or Islamic bonds.

Unlike conventional bonds which are debt obligations, sukuk is backed by assets.

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