Speech by Ms Indranee Rajah, Minister in the Prime Minister's Office, Second Minister for Finance and Education, at the Singapore Regional Infrastructure Summit 2019, Friday, 16 August 2019, at The Ritz-Carlton, Millenia Singapore

High Commissioners and Ambassadors

Mr S. S. Teo, Chairman of the Singapore Business Federation

Distinguished Guests

Ladies and Gentlemen

1. Thank you for inviting me to join you for this event today. I would like to congratulate the Singapore Business Federation for bringing together such a stellar group of stakeholders with different expertise from around the globe. I understand that there are speakers and guests from around 40 countries present today.  Indeed, there is much interest in infrastructure financing in the region, and I hope that what I have to say today would further convince you of the worthiness of such investments. 

A Look at Infrastructure through a Bicentennial Lens

2. This year, Singapore is commemorating its Bicentennial. We are commemorating the founding of modern Singapore since 1819 in the context of our longer 700-year history. The Singapore story is also the story of our port and our port infrastructure. The Singapore story is very closely aligned to our infrastructure. Embedded in this are insights that we can glean from the importance of the port and its infrastructure, and contribution to modern Singapore.  

a. In the very early days, 700 years ago, Singapore, then known as Temasek, was a relatively large trading centre with archaeological records dating back to the 14th Century. Some known trading settlements at the time were Longya-men, near the Keppel Straits and Banzu, near Fort Canning Hill.

3. So from the earliest times, we have been a regional port. Then came the founding in 1819, and Singapore’s free port status under the British made Singapore an attractive port for traders within the region as well as from other parts of the world, because the setting up of Singapore as a free port helped plug us into what was then global trade back in 1819. The British recognised the strategic location of Singapore and sought to build new trading outposts and strengthened Singapore’s port infrastructure along the Keppel Straits and the Singapore River. 

a. Concurrently, the Tanjong Pagar Dock Company in 1864 built and expanded wharf facilities along Tanjong Pagar with a capital of $300,000 – a lot of money at that time.

b. In 1868, the Victoria Dock was opened. It was then, the largest granite graving-dock in the East.

c. A second dry dock, Albert Dock, was built in 1876 and completed in 1879 to meet greater demands following the surge in trading ships after the opening of the Suez Canal in 1869. 

4. The establishment of the port infrastructure saw Singapore become a major port of call for trading ships plying the routes between Europe and East Asia. The growth of the port led to growth of business and the city centre, which in turn led to the creation of grid layout for the road network to improve connectivity between the housing and commercial quarters that spread out from Tanjong Pagar.  Singapore flourished with the emergence of new technological inventions and expansion of physical infrastructure and industries. 

5. Even today, the infrastructure building work started by the Tanjong Pagar Dock Company continues, but of course it is now undertaken by PSA today. PSA’s newest facilities at Pasir Panjang Terminal feature state-of-the art automation technologies and deliver unparalleled efficiency and connectivity to the world’s largest shipping alliances.

a. In 2018, it handled a total of 36.3 million TEUs (a unit of cargo capacity) in Singapore, or approximately one-seventh of the world’s transhipment volumes. This makes Singapore the single largest container transhipment hub anywhere in the world.

b. At the same time, PSA continues to invest heavily for the future, and is in the midst of developing and delivering Singapore’s next-generation megaport at Tuas. Here’s a short video on what the Tuas megaport may look like when its first phase commences operations in 2021.^[1] 

6. Through tracing the journey of Singapore’s port infrastructure, you can see the importance of infrastructure and how it can be a catalyst and driver for economic activity and social growth. Today, there are more than 5,000 maritime establishments in Singapore, contributing about 7% to Singapore’s GDP, and employing about 170,000 personnel. It connects markets and people, contributing to a better quality of life for our citizens. 

7. So the key takeaway of all that I have said so far, is really about the transformative nature of infrastructure. Done properly, done well, it can transform a country, which in turn can transform the lives of its people, and make a huge difference.

The Present – Challenges from an Uncertain Environment

8. Today, many countries can see the importance and benefits of infrastructure in Asia, both within the countries as well as cross-border infrastructure, in bringing about trade and development.

a. For example, infrastructure relating to connectivity and supply chain is an identified area for economic growth for Vietnam, as geographically Vietnam situates along the coast bordering the South China Sea. It provides an outlet to the rest of the world for the countries next to it like Laos and Thailand.

b. In terms of the power sector, Indonesia is aiming to convert 23% of its energy supply to renewable energy by 2025.

9. Governments within Asia are seeking to sustain their infrastructure needs as their populations grow. Even within ASEAN itself, it is estimated that its urban population will increase in 90 million by 2030. The bulk of this growing population will lead to increase in demand for power, transport needs, sanitation, telecommunications, and water.

a. According to reports by the Asian Development Bank (ADB), Asia will need to invest about US$ 26 trillion in infrastructure up to 2030 in order to meet the needs of the region. If you put this into per annum terms, it would mean Asia needs US$1.7 trillion annually, which is more than twice the US$881 billion currently being spent in the region.

b. Against this backdrop of significant infrastructure needs, public sector financing is insufficient and unsustainable. Worldwide, government financing accounts for 40% of infrastructure expenditures. Among emerging markets, 70%. Yet in Asia, this stands at 90%. This rate of government financing is unsustainable and governments are looking at how to crowd-source private sector investments to help fill the gap.

10. However, there are significant challenges to project finance and closing this financing gap due to the current global climate, and challenges inherent in project finance.

a. Geopolitical tensions like the US-China trade relationship, rising nationalism across the world like Brexit, and macroeconomic developments are adding uncertainty to the sourcing and continuity of such infrastructure investment. The combination of these factors are predicted to drive down investment activity as credit no longer becomes as readily available.

i. It affects infrastructure financing even more so, as it is long-term and particularly sensitive to the credit environment, especially in Asia where it remains predominantly driven by bank loans due to less-developed capital markets. 

b. There is also concern in some cases as to whether the infrastructure projects contemplated would bring benefits to the country, and in some cases, scepticism towards the projects ranged beyond the financial realm. Complaints of environmental and ecological damage from the rapid developments have also surfaced. 

i. For example, the rapid construction of hydro-electric dams along the Mekong river has been raised as a source of concern by the WWF for  threatening the ecology of the Mekong, which may affect the surrounding countries’ agriculture sector.^[2]

ii. And environmental concerns are a growing trend as issues of climate change looms heavily over many organisations’ priorities. 

c. For investors, there are also concerns that these infrastructure projects would not be sufficiently bankable. There are worries that the expected returns may not commensurate with the risks.

i. This is largely due to the complexity of infrastructure projects. They require not only financial services, but also legal, consulting, and engineering services. And a lot of additional expertise is also required in order to make a proper evaluation of the projects. So in some cases, investors have to ask themselves: “Why go with infrastructure financing when there are other financial products that may be less risky, with potentially better returns?”

11. So I highlight these points certainly not to discourage investment in infrastructure, but because these are things that have to be considered, and I understand that some of these points and considerations will be discussed today as you would think about these things. The question then is: “How then can we smoothen the path for infrastructure financing and tackle these issues?”

Tackling the Problems One Step at a Time

12. While there are certain things that may not be within our control, we first have to recognise that most of these challenges are short-term and to keep in mind the longer-term benefits. We must be cognisant and convinced that infrastructure remains a force for good and remain open-minded to the possibilities. 

a. Transport infrastructure improves social outcomes by improving physical access to social services such as schools and health clinics, and this has been empirically verified.

b. It affects healthcare and the quality of life of its people. This is the broader function of infrastructure and it is important that we do not lose sight of this, notwithstanding the challenges.

13. And there are opportunities even amidst uncertainties. 

a. Asia’s share of global GDP is projected to reach 40% in 2030, near-term uncertainties notwithstanding. This shows that there are still willing investors around looking to invest in Asia.

b. ASEAN as a region has sustained positive economic growth. The region is on track to becoming the world’s fourth largest single market by 2030. 

14. Governments can therefore position themselves for the future by leveraging on positive factors amidst these challenges. This means going upstream to ensure that the projects risks are properly managed. This will lower the barriers to entry for private capital to flow into the market, into the region. Because if you want to bridge the financing gap by crowding in private capital, then you also have to have regard to what does the private capital pay attention to, and the risk factor obviously is something that will be high on their checklist.

a. One way of addressing this and making projects more bankable is to better structure projects at the preparation stage and create a conducive environment for infrastructure financing to occur. 

15. To do so, a marriage between the public sector project needs and private sector capabilities and expertise is required. Not only that, but proper feasibility studies and impact analyses are needed to convince both investors and the beneficiary citizens of the benefits of the projects. 

a. Governments will hence need to build up capabilities and work with the private sector in order to generate a pipeline of investment-ready projects. Multilateral Development Banks (MDBs) such as Asian Development Bank, Asian Infrastructure Investment Bank and World Bank group are aware of this, and have set up project preparation facilities to assist financially with the aim to create a pipeline of bankable projects. 

b. Identifying legal reforms is also needed to develop an enabling environment for project development and facilitating investments. Stakeholders will need assurance that their exposure is within their risk appetite and profile, while financiers need a degree of certainty that they will either get back something or if they don’t, that it is within the acceptable margin of loss.

c. In addition, the financing that we undertake must also be sustainable. And I don’t mean just fiscally, but also environmentally. Increasingly, there are demands from investors for green financing options as a means for sustainable development to combat climate change. And this is a foreseeable growing trend. Encouraging sustainability and green practices for financing will be necessary to alleviate some of these investors’ concerns.

16. Combined together, there will be better assurance of the risks and confidence of the expected rewards of the projects, and this will give investors better clarity of the bankability of the projects. 

a. And at Singapore, we are looking at ways to support countries in their infrastructure endeavours. Infrastructure Asia, a government agency, is working on harnessing the networks and collaborative capabilities of public-sector agencies and private-sector firms, partners, and stakeholders across the region to meet Asia’s Infrastructure needs by: firstly, improving access to financing across the infrastructure lifecycle; secondly, connecting good fitting solutions to infrastructure demand; and thirdly, through good structuring and capacity building. They have had some success and will be sharing more on some of their projects later.

17. It will of course be challenging in the initial stage, but once the complex projects take off, more players will have confidence to invest in longer-term opportunities.

18. So if there is one takeaway that you have from this conference, it is this - Singapore has the eco-system in which infrastructure players and stakeholders are located. The services that are needed for infrastructure are all available here. What we want to do to make Singapore an infrastructure hub, is to connect the services, connect the expertise, and connect the financing with the demand in the countries in the region. In short, if you need something for infrastructure, look to Singapore. Speak to Infrastructure Asia, we will connect you to the services that are available here, to help infrastructure take off in Asia.

Conclusion

19. Let me end by reminding everybody what infrastructure is really about. Let me show you a picture of this lady. Her name is Shyamoli Sutradhar.^[3] She used to live in a slum on the banks of the Manu River in Bangladesh. It did not have any water, electricity or latrines. 

a. With the support of ADB’s Urban Governance and Infrastructure Improvement Project and representatives of the participants pourashavas – or municipal townships, the project financed 581km of improved roads, 264m of new bridges, 260km of improved drainage systems, 14 bus terminals, 10 markets, and upgraded sanitation and solid waste management facilities. 

b. With better infrastructure, motorised traffic increased, which in turn improved the performance and prospects of many businesses. Now Ms Sutradhar lives with her husband, daughter, and two sons in a new housing complex with water, electricity, toilets, and paved roads.

20. So amidst all the complex challenges and technicalities, it is important to remember that at the end of the day, what infrastructure does is that it benefits real people and individuals. And properly done, it can make a huge difference to the lives of large bases of populations. Let us continue to collaborate together and make infrastructure in Asia a success.

21. I thank the SBF for inviting me today for this event, and I wish you all the best at the conference today. 

22. Thank you very much. 

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^[1] Video can be viewed at this link:

www.youtube.com/watch?v=9IHrkx_KRSU

^[2] “Killing the Mekong, Dam by Dam”, The Diplomat, 2016.

^[3] “Transforming Poor Communities, Changing Lives in Bangladesh”, ADB, June 2015.