MARKET OVERVIEW

Sustaining Global Value Chains
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The public sector is the main player in infrastructure investment worldwide. It finances about 92 percent of infrastructure in Asian economies, where the importance of public finance varies. Driven by China, about 90 percent of investment in East Asia is publicly financed, while only 60 percent is in South Asia (Asian Development Bank, 2017). Public sector involvement is greater in certain sectors, such as transport and water (Asian Development Bank, 2017). Overall infrastructure investment can be estimated using several measures, although the emerging consensus is that gross public fixed capital formation, augmented by some private sector investment statistics, provides the best estimate, especially for cross-county comparison (Fay, Lee, Mastruzzi, Han, and Cho, 2019).

The private sector, however, is becoming important. First, market-based financing reflects the extent of private capital mobilization, which is critical to fill Asia’s infrastructure gap. Second, many public sector projects increasingly have some private sector participation. Third, private sector transactions deliver a timelier update on market sentiment and development, which provides policy makers with insights. Overall, the private infrastructure market has remained resilient despite the pandemic.

Key highlights are the following:

  • Private sector transactions are declining in Asia, but a bright spot is information and communication technology (ICT).
  • Investors continue to shift from loans to bond financing.
  • Brownfield infrastructure foreign direct investment (FDI) into Asia is robust.
  • Bankability could require greater downside protection post pandemic.