Apec clears money highway for infra projects

WITH market development being seen as crucial to building more vital infrastructure to support and sustain economic growth, the Asia-Pacific Economic Cooperation (Apec) is leading the way in making sure capital flows would be free and robust across its 21 member-economies.

One of the Philippines’ initiatives as this year’s Apec host-economy is the so-called Cebu Action Plan, which has infrastructure development as one of its four pillars.

The Cebu Action Plan, which will be pitched to Apec chiefs when they meet in Manila in November, highlights the crucial role of infrastructure in attracting investors and connecting urban and rural areas.

The plan signed by Apec finance leaders in September aimed to develop an Apec public-private partnership (PPP) knowledge portal in collaboration with the Global Infrastructure Hub. This will serve as an online repository of PPP infrastructure projects.

Finance ministers also noted how developing quality infrastructure as an asset class for institutional and long-term investors in the Apec region can facilitate the mobilization of regional savings into long-term investment pools.

The Apec Business Advisory Council (Abac) said pension funds and insurance firms in more developed Apec economies are very interested in financing infrastructure projects in developing Asia.

“There is very strong demand from pension funds for investments … They are keen to invest in infrastructure projects in Asia,” said Hiroyuki Suzuki, chair of Abac’s finance and economics working group.

Besides sharing best practices in PPP, governments should come up with profitable projects and develop capital markets to attract more infrastructure investments, said Julius Caesar Parreñas, a senior advisor at Nomura Institute of Capital Markets Research.

Citing Organization for Economic Cooperation and Development data, Parreñas noted pension funds and insurance companies in developed countries have an estimated $97 trillion in assets under management. This could well cover the $8-trillion infrastructure requirement in the Asia-Pacific region until 2030, an estimate given by the Asian Development Bank.

However, “money is not flowing into infrastructure because there are not enough bankable projects,” Parreñas claimed.

Also, pension funds and insurance firms that invest in infrastructure through capital markets are hindered by “not well-developed” Asian markets, he added.

Capital market development

Abac 2015 chair Doris Magsaysay-Ho told Philippine Secretary Cesar V. Purisima in August that the private sector in the region supports capital market development to boost infrastructure financing under the Cebu Action Plan.

Specifically, Ho said Abac supports the establishment of a public-private Financial Infrastructure Development Network to help build credit information systems and improve policy frameworks for secured transactions and the use of movable assets as collateral.

This will complement the Asia-Pacific Financial Forum (APFF), a platform for improving capital market depth and liquidity in the region. The APFF brings organizations and agencies together to come up with initiatives in developing the financial markets.

Abac also wants to accelerate project completion through greater collaboration among members of the Apec PPP Experts Advisory Panel, the Asia-Pacific Infrastructure Partnership, the Global Infrastructure Hub, and the Urban Infrastructure Network.

The advisory panel will be tasked to identify best practices in establishing private funds for equity investment, as well as standards, policies, regulations and practices that will boost the appetite of insurers and pension funds in investing in long-term infrastructure projects.

Funds passport

Abac is also pushing for regional public-private sector dialogues to increase participation of jurisdictions in the Asia Region Funds Passport, a facility that will hasten the cross-border movement of funds.

On the sidelines of Apec’s 22nd Finance Ministers’ Meeting in Cebu, six Apec economies signed a statement of understanding for the Asia Region Funds Passport. This initiative is also aimed at allowing financial service professionals to sell market investment products to retail customers in neighboring Asian countries.

Purisima signed on behalf of the Philippines, alongside finance leaders from Australia, Japan, New Zealand, South Korea and Thailand. They signified their intent to join the initiative when it goes on full swing late next year.

Signatories would be given 12 months to implement the passport arrangements domestically.

“[The Asia Region Funds Passport] will not only reduce the amount of red tape faced by fund managers across our region, but will provide investors with greater choice of investment products,” Australian Finance Minister Mathias Cormann said.

“Specifically, the Asia Region Funds Passport aims to give investors access to a larger range of well-regulated funds. This will help to further strengthen the international competitiveness of our financial services sector across Asia in relation to other parts of the world,” Cormann added.

According to Apec, the Asia Region Funds Passport is “intended to reduce regulatory inconsistency and overlap which makes it difficult for collective investment scheme operators to offer products such as mutual funds to retail customers in multiple economies in the region.”

“Once the passport is fully up and running, it could save the region’s investors $20 billion annually in fund management costs, offer higher investment returns at the same or lower degree of risk, and encourage the establishment of locally domiciled funds which could create 170,000 jobs in Apec economies within five years,” Apec said last June, citing a 2014 economic cost-benefit analysis conducted by the Apec Policy Support Unit.

Under the theme “Building Inclusive Economies, the Road to Financial Resilience,” the Cebu Action Plan “seeks to coordinate the policies, rules and practices across Apec economies to support strong, sustainable, inclusive and balanced growth throughout the region.”

Specifically, the 10-year roadmap aims to: Facilitate trade and investments in the region; pursue good governance and sound fiscal policies; deepen financial markets that offer diversified financial instruments, advance financial inclusion for all households and business (including those led by women); enhance financial resilience to global market volatility and natural disasters; and mobilize more financing for quality infrastructure development to sustain growth.

The time period of the Cebu Action Plan, along with its initiatives and deliverables, is ideally envisioned to last through 2025, though interested member-economies may also pursue these initiatives within a time frame that is consistent with their domestic policy considerations.