Southeast Asia: Sounds Of A Building Boom

During most of the period after the 1997 Asian financial crisis, Francis Yeoh Sock Ping, chief executive of Malaysian construction firm YTL Corp., focused his business away from his home region. Today he runs a power transmission grid in Australia, a water utility in Britain, and construction projects in several other countries. But these days, Yeoh is also busy back home, scouring Southeast Asia for opportunities to build toll roads, bridges, and power plants. "Indonesia is the next big infrastructure opportunity," says Yeoh.

Make that Indonesia, Malaysia, and Thailand -- in fact, all of Southeast Asia. Indonesia in January unveiled a five-year, $145 billion plan to improve infrastructure. The first tranche, 91 projects worth some $22.5 billion, will be under way later this year and includes two coal-fired power plants, an extension of Jakarta airport, and a $1.47 billion gas pipeline. In April, Malaysia said it would spend $4.4 billion to modernize its railways and launch 625 smaller projects. And Thailand has approved $59 billion in spending on projects such as new subways, elevated trains, and a causeway across the Gulf of Thailand. All told, Southeast Asia will spend nearly $30 billion on new infrastructure this year alone, according to investment bank Credit Suisse First Boston (CSR).

Why the rush to build? Governments across the region have held off on upgrading infrastructure for years, but as private consumption, which fueled growth after the crisis, begins to taper off, officials believe public spending can keep their economies expanding. "Clearly, some countries in Southeast Asia have underinvested in infrastructure, and there is a realization that they have a lot of catching up to do," says Chua Hak Bin, an economist for DBS Bank in Singapore.


It helps that money's becoming available. With its economy growing and more revenue flooding in, Indonesia says it can pay for perhaps 20% of its program out of its budget. But most of the construction, in Indonesia and elsewhere, will be paid for through bond issues and help from lenders like the International Monetary Fund and World Bank. Indonesia and Malaysia will also encourage government pension plans to invest in infrastructure projects. And Jakarta is considering legislation to allow private companies to build and operate toll roads and power plants for a profit -- laws already on the books in Malaysia and Thailand.

Some, though, wonder whether foreign investors will want to join the party without major changes in the investment climate. Corruption, an opaque court system, and, ironically, lousy infrastructure have long hurt Indonesia. "It's a chicken-and-egg situation," says Fauzi Ichsan, a Standard Chartered Bank economist in Jakarta. "It's difficult to attract new investment with poor infrastructure, and you need foreign investors to get an ambitious infrastructure program going."

One thing is certain: There's no shortage of potential projects. Developing Asia (excluding China) needs to spend more than $1 trillion in the next five years on roads, power, water, and telecom, Japan's Bank for International Cooperation says. "As the economies in Thailand and Malaysia slow, they need more stimulus like this new wave of infrastructure spending," says Manu Bhaskaran, Singapore-based economist for consultants Centennial Group Inc. Clearly there will be enough work near home to keep Francis Yeoh's YTL busy for years to come.

By Assif Shameen in Singapore

The Good Business Issue
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