7 - Infrastructure Development in ASEAN

Summary

I. Introduction

Since the formation of ASEAN Free Trade Area (AFTA) in 1992, ASEAN has made significant strides in transforming the region into an area for free movement of capital, goods, services, and its people. In 2003, ASEAN moved a step closer towards a greater regional integration by adopting the Bali Concord II that comprises three pillars — ASEAN Economic Community (AEC), the ASEAN Political- Security Community (APSC), and the ASEAN Socio-Cultural Community (ASCC). ASEAN leaders later agreed to accelerate the establishment of the AEC from 2020 to 2015, with the belief that integration can close the development gap amongst its member states.

The AEC vision is to ensure that the ASEAN region be a single market and a production hub by 2015. One of the measures for achieving this vision is the level of regional intra-trade. The intra- ASEAN trade is stagnant at around 25 per cent, with trade between Malaysia and Singapore accounting for more than half of the total. Economists believe that to ensure self-reliance, ASEAN has to achieve at least 40 per cent of intra-regional trade. The availability of a good physical infrastructure system that connects ASEAN member states is an important and necessary factor that can increase intra-regional trade and contribute to regional integration.

According to the Asian Development Bank Institute,1 there are four reasons why infrastructure can generate a higher cycle of higher demand, productivity and growth, consistent with ASEAN's long-term development goals. These are:

1. Infrastructure plays a significant role in promoting and sustaining economic growth in the region;

2. Infrastructure development is necessary to accelerate economic integration within the region, particularly in the area of trade and investment;

3. Addressing inequalities in infrastructure development is critical to the wider objective of reducing development gaps among ASEAN countries and income inequality and poverty within each country; and

4. Infrastructure development is necessary to improve resource sharing and efficiency in the region to provide basic needs, such as water and electricity.

Realizing the importance of infrastructure, ASEAN countries initiated cooperation in the areas of transport, ICT and energy facilities even before the AEC.