Transcript: Trade Opportunities in the Asian Century - Infrastructure in ASEAN
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>>Anthony Weymouth: The three things that I’m going to talk about this afternoon – ASEAN, the ADB and then finally the Philippines which is where I’m based. They’re the three topics I’m going to touch on this afternoon; what I won’t be doing is giving you a detailed analysis and briefing in all of those topics but hopefully giving you enough information so you can make an informed decision on whether you’d like to consider ASEAN or the Philippines or doing business with ADB a little bit more.
We’ve all seen the map of ASEAN – just thought I’d put it up there just to remind us of the ten markets that ASEAN comprises of. As Cheryl said, it’s one of the fastest growing consumer economies in the world and as a result of that growth; there is dramatic demand and need – particularly need – for infrastructure. Some of the markets within ASEAN have well-established infrastructure such as Singapore, Thailand – whereas other markets like the Philippines, Vietnam, Indonesia particularly – have a long way to go.
If we look at the numbers and the numbers are always large when you talk about infrastructure - $8 trillion – it’s a very large figure but the key thing for me is that 80% of that will be spent on two areas; mainly energy and transport. These are key areas where Australia does have a lot of experience and where, importantly in the ASEAN markets there is a need but also a commitment from the governments of the markets to improve the infrastructure in these areas.
These are the sort of high level opportunity areas that we exist in ASEAN across the region. I’m not going to go into details about all of those areas because we don’t have time this afternoon but if we think about Indonesia for a moment, Indonesia’s government have put out a mid-term plan, an estimate of $200 billion will be invested in infrastructure during this next five year period. The areas of opportunity in terms of where that investment will go are in toll roads, seaports and rail. The government of Indonesia believes that they will be able to fund 30% of that and they’re there looking for the private sector to bridge the gap for 70%.
It’s a very large chunk of the funds required that they are hoping to get from the private sector and that will be through vehicles including PPPs.
If we look at Malaysia for a moment, Malaysia does have very good infrastructure as a whole but there are areas in Malaysia such as in social infrastructure where there are some challenges. The Austrade office in Kuala Lumpur is working on areas in water treatment particularly and also the Malaysian government has a PPP agenda as well so they’re the two areas that the Austrade Kuala Lumpur office is working in.
If we go to Vietnam, the Vietnam government anticipates they need $160 billion – again a very large number – of investment in infrastructure over the next ten years. The main areas where that money will be spent will be in energy, roads and seaports. I’m not going to go into any more detail in terms of those opportunities for the time being but what I will come back to a little bit later is what are some of the key decisions that Australian companies seem to be looking for from those agencies when they’re thinking about infrastructure projects; I’ll come back to that a bit later.
If we just talk about the ADB – the Asian Development Bank – the Asian Development Bank is headquartered in the Philippines, in Manila; it’s a member bank – there are 53 member countries. Australia is the fifth-largest shareholder of the Asian Development Bank and just recently, we’ve now secured two board positions on the ADB. What does that mean to Australia? It actually means that we have a bigger say at the table when priorities are being set and in influencing how the $21 billion that the ADB spends every year on infrastructure is allocated so important to note.
I’ve just mentioned the $21 billion per year that ADB spends – a lesser figure, $148 million; that’s the amount of money that the Asian Development Bank spends on consultancy services each year. If you think about the sorts of projects that the bank invests in with their member countries each year – they’re building a dam in Bangladesh – it’s very unlikely that the Australian companies will be able to go to Bangladesh and build that dam but the opportunity for Australia is to help the ADB make a decision as to whether or not that dam should be built in the first place. It’s about working out whether or not the project that’s been put forward by the Bangladeshi government makes sense.
The process is the Bangladeshi government says “We’d like to build a dam”, it gets put through to the ADB, it gets considered in the context of the five year plan and at that point in time ADB will contract a technical assistance arrangement where they will seek independent consultancies to do an evaluation and feasibility study of that project.
That’s where you guys come in. From my point of view Australia has a key strength in this area and as the slide shows, last year ranked number two in terms of consulting services to the ADB. Many years we have been number one and I personally would like to see that go back to where we should be as number one. We in Austrade in Manila are hosting an event at the bank next week; we’ve got 23 Australian companies coming up and I’m pleased to say there are quite a few Queensland companies coming. Apart from Sean, is anybody else in the room coming up to Manila next week? Somebody else raise their hand, even if you’re not.
Yes, so we’re looking forward to that. We’ve got 23 companies coming up – it’s basically around an event called the “Business Opportunities Fair”. What happens during those two days is the bank explains how to do business with the bank; it talks about the priorities for each of its member countries, about the procurement process and, importantly, how to win business from the bank.
This is just an example of some of the projects that the bank puts out there; I’m not going to go through them. If you’ve not been on the Asian Development Bank website before, it’s worth having a look. You can set up little alerts or reminders that will tell you if there’s a water project happening in India or whether there’s an airport project happening in Afghanistan or whatever the projects of interest, you can go in there and set up some alerts.
The key thing when doing business with the bank is to be known and anybody – consultants – can register with the bank. I think there are about 2,129 consultants – that was the figure on that slide before – registered with the bank. There are a lot of people registered but if you’re not registered, you won’t ever get a chance of being considered. You will have to go through a tender process in most cases for some of these consultancy or technical advisory contracts but from time to time – and we’ve seen it happen quite a lot lately – the bank has a very specific need.
They’ll trawl through their database and try and find the person who can meet that very specific need, they’ll pick up the phone and they’ll offer a contract on the spot. A company up in Darwin who I know very well just won a six month contract with the bank on that basis; not through a procurement basis – they happened to have the right set of skills that the bank needed for a particular project and they just got a phone call.
If you don’t register, you’ve got no chance of getting that phone call but if you’re interested in doing business with the bank, consider events like the Business Opportunities Fair which is every April. The other activity that we run with the ADB is a seminar series across Australia in the second half of the year; somewhere around September we’ll be looking at doing an event where members of the Asian Development Bank board will come down and talk to Australian business.
Cheryl, my colleague, asked me whether that was my quote – “From sick man to one of the fastest growing economies in Asia”. I’m pleased to say it’s not my quote but it is the quote of the Philippines president; the Philippines president made that quote.
From my point of view I’ve been in the Philippines for 15 months so far. I think it’s the right time in history to be in the Philippines with all of the positive environment that’s going on in terms of 6.6% GDP growth, this far off getting investment grade rating so we’re talking towards the end of this year the Philippines will get investment grade rating; business confidence is very high – the rich families – there are about 20 families who control the Philippines in terms of most of the economy – they’re very cashed up at the moment.
From an historical point of view, my humble view is this is the best time to look at the Philippines in probably the last 30 years; it’s a very different market to what we’ve seen in the past. Some of the priorities of the government are listed up there – infrastructure being number one. The Philippines government through the last 20 or 30 years have not invested in infrastructure. For colleagues in the audience who have been to some of the airports in the Philippines, you know what I mean. The road system that takes you from the airport up to Makati – EDSA – it’s, again in dire need of further refurbishment and expansion.
The Philippines government has realised that infrastructure is one of the key areas they need to invest money in. The other one is tourism – they see tourism as being a critical catalyst to achieving the president’s agenda of eradicating poverty in the Philippines. One of the other drivers that he’s put a lot of his political capital in, in his time in office, has been eradicating corruption. You can’t eradicate corruption – it’s very, very hard to do – but he’s taken a lot of important steps to reduce it; not the least being the impeachment of the chief justice of the Philippines – very important step.
The president put a lot of his political capital into that; it took him about a year to achieve it but he was successful. It’s not only the president who’s undertaking those sorts of activities; it’s his cabinet secretaries as well. The Philippines has got the second highest energy cost in Asia and one of the reasons – no investment in infrastructure; not replenishing plant and equipment.
Another reason why the energy cost is so high is because not many people are paying for it; the secretary of energy has now gone on a very dogmatic approach I should say in going out there and collecting unpaid bills – in fact turning the power off in whole communities until the local mayor pays the bills for energy. All I’m trying to say on the government side there’s a lot of political will to remove as much leakage from the public purse as possible. Further evidence of this is in his first year in office he stopped public spending completely on infrastructure so he could review the procurement processes; this took two percent off the economy – 4.2%. It was the first year when he was in office but he was so serious about it, he believed it was necessary to do that. Now that he’s turned the tap back on we’re at 6.6%.
This is an example of how Australian companies are thinking about the Philippines now as well; we all know Macquarie Bank – Macquarie Bank has just recently won the right to manage a $625 million infrastructure fund in the Philippines. It’s the first infrastructure fund the Philippines government has put out there and Macquarie competed with other international organisations for the right to manage that fund. $625 million – it’s a ten year fund but in talking to Michael Rodriguez who’s the manager of that fund in Manilla – he sees this as the first ten years; there will be a revolving fund, they’re looking to do investments in energy to start with but other infrastructure as time goes by.
Commercial development in the Philippines is very significant at the moment; last year talking to some of the key players - Ayala, ArthaLand and others – US$10 billion was spent in commercial development last year in the Philippines. That’s ranging from everything from office buildings, tourism infrastructure such as hotels and casinos and also importantly, condos.
On that previous slide you would have seen a large figure next to something called “OFWs – Overseas Foreign Workers” – the Philippines remits about $21 billion per annum back home – 10 million Filipino workers abroad send $21 billion home; contributes 10% to GDP and this is one of the things that is driving the consumer economy in the Philippines so there is a lot of condo development going on in the Philippines at the moment but not only condos; as I say, tourism is one of the key priorities of the Philippines government at the moment and there are six new five-star hotels being built as well as three casinos. One of the casinos is being built by our friend from Victoria so a lot of activity in this space.
I just thought I’d touch on commercial development very quickly. This is a photo of the ARIA Towers – they’re located in Fort Bonifacio, west of Makati. It’s the first green-rated condo complex in the Philippines; it won Best Condo of the Year 2012 in Asia and it was designed by Australian architects.
If you think about why you would choose an Australian architect – within the Philippines market, as I said before, there are 20 or so families who control most things; they’ve got capability to build condos at will and that’s what they’re doing – they’re building lots of condos, thousands of them. One particular develop who’s not at that top echelon in terms of size wanted a point of difference so they came to us wanting to find out what Australia had to offer to make them more competitive.
This particular developer, ArthaLand, came to us and asked “Tell us about Australia’s green building credentials”. After a while – it took ten months – the project was designed and I’m pleased to say that the tower on your left is finished and they’ve just commenced the tower on the right but it’s not only Australian design in terms of the architecture; it’s also Australian paint, Australian building materials in terms of the glass in the structure.
The CEO of that particular company, Angie – I met with her about three weeks ago – is looking out for more Australian green building products. They want to continue this drive as their point of difference when they’re building these condos.
I mentioned before the PPP agenda of the Philippines government – the numbers up there aren’t that large; 17 projects – that’s not a lot of projects - $4.6 billion, again it’s not a lot of money but the difference with the PPP agenda in the Philippines relates to the last dot point on that slide – the PPP Centre. The PPP Centre is a government body that reports directly to the National Economic Development Authority, he reports to the president of the Philippines so when a Philippines government organisation comes forward and says “I want to build a toll road” they have to go to the PPP Centre who will look at the project, that then goes off to NEDA and ultimately the president for a decision.
Now, the PPP Centre has actually received $18 million in funding from Australia; not directly – we didn’t say “Here’s $18 million” in a blank cheque – we’re delivering it through ADB so that when that toll road project comes from the Department of Transport to the PPP Centre, they’ll do the first cut, they’ll have a look at it and, if they think it’s worthwhile, they will then engage a transaction advisor – not a local transaction advisor, an international transaction advisor that can have a look at the project, work out whether or not it should go ahead.
There are two Australian companies that are already on that panel and there are 18 organisations from around the world that are on the panel – Ernst & Young Australia and SMEG from Australia.
These are the 17 projects and I’ve put the PPP Centre’s website up there. There is a lot of information on there but the key thing with the PPP Centre is full transparency – all of the projects are listed; the stage, the name of the person to contact is all on the website, the name of the person overseeing the project is one the website, the value so it gives you a good opportunity to see what stage each project is at and whether or not it could be an opportunity for you to participate.
This is the sort of information that’s on the website; it’s not in this format – we just quickly cut it and paste it so we can drop it on the screen so you can have a quick look but you can see this is a 27.5 kilometre toll road – estimated cost about $1 billion and it lists the person at the PPP Centre to contact. That’s all available from the website.
If we think about PPPs – and again why would the Philippines need our help? If we think about what’s happened in Australia over the last 30 years, 127 projects; some of them not so successful, some of them very successful – that’s the key reason why the Philippines is looking at Australia - we’ve got the experience; we’ve got 30 years – 127 projects – under our belt. Last year when President Aquino visited Australia I had the pleasure of accompanying him and we brought down some of the executives from the PPP Centre, unfortunately only to Sydney – it was a very tight visit from the president – and we did put him in front of some of the key decision makers in the PPP industry in Australia but most importantly, the one that I really wanted them to meet was New South Wales Treasury.
New South Wales has had the most PPPs in Australia and it was important from my point of view to help the Philippines government understand what constitutes a good PPP because not everything should be done through this model so what’s the decision process to get you there? Danny Green who’s with New South Wales Treasury provided a fantastic education I’ll call it to executives from the PPP Centre to help them make informed decisions in their process.
I’m pleased to say that some Australian companies are already getting business out of the PPP projects in the Philippines, not only from a point of view of consulting and contracting but also as bid partners so they’re already on the table.
I’ve been given a bit of a wind-up by Cheryl. You will get a copy of these slides; this diagram here, what I’ve tried to do is to show you where Australian companies can participate in different types of infrastructure arrangements. If you look at ADB just quickly – technical assistance mainly, consultancy services – on the PPP side, right from the transaction advisory services through to helping the bid partners – let’s say San Miguel who wants to build a toll road – maybe working with them as a bid partner to actually build the project and it goes down on that commercial construction right at the end, the example I gave you around how Crone Partners were successful in the Philippines - it’s about having something unique, something that is not already available that you can help improve their competitiveness in the market.
I’ve covered a lot of ground; I said straight up that I won’t be able to go into any detail. I do have colleagues who are much smarter than I am in KL and in Indonesia and Singapore, Bangkok, all around ASEAN who are ready, willing and able to work with you so if you’ve got any interest in ASEAN, feel free to contact me and I can put you in touch with those guys.
In relation to ADB, feel free to contact me directly and also on the Philippines. If you haven’t thought about the Philippines and you’re looking for new growth opportunities in your business, I think now is the right time.
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