Why you should care
Because economic growth in Southeast Asia could help spur jobs and income everywhere.
Nothing seems to turn on construction companies like talk of sexy infrastructure projects — long-legged railroads, polished ports and hot new highways. That’s why Southeast Asian countries — like Indonesia, which expects to double its power consumption while rolling out more than a dozen airports and two dozen seaports over the next several years — are getting so much attention these days. The excitement about possibilities in the region for American companies such as Caterpillar, one of the world’s biggest construction equipment makers, is palpable. “We at Caterpillar love roads,” says Ann-Marie Padgett, who’s responsible for the company’s advocacy with Southeast Asian governments, “especially ones that are not yet built.”
They’re not the only ones. Over the next five years, an estimated $2.8 trillion will be spent in Southeast Asia on infrastructure for boats, trains, cars, electricity supplies and other areas, according to the Asian Development Bank, which facilitates economic development there. And the building bonanza has the U.S. government scrambling to get a piece of the action for companies based here. In fact, it’s creating a new one-stop shop with services of up to 10 agencies that are scattered across the government and aim at helping American businesses overseas, and businesses are pushing hard to impress those who are doling out lucrative contracts.
After years of trailing China, Southeast Asian economies are getting ready to move into the fast lane. An opening has popped up as China’s wages have rapidly risen, making them too expensive for many export industries. Meanwhile, the country’s growth has slowed significantly even as it has kept pouring money into factories and buildings, meaning that the investment bang for a buck just isn’t what it used to be. The spectacular crash of the Chinese stock market only further illustrates how much air has escaped the Chinese growth bubble.
Whether U.S.-based ventures can actually walk through the door is another question.
But before Southeast Asia can really take off, countries need to fix their plumbing — in more ways than one. Around 60 percent of a product’s cost sourced from Indonesia, for example, is tied up in costly transportation expenses, compared with an average of 6 percent in other regions, says James Carouso, director of maritime Southeast Asian affairs at the U.S. Department of State. Electricity expenses can also climb off the charts — 40 cents a kilowatt hour for diesel generation in Indonesia versus about 12 cents a kilowatt for American consumers across different sources of electricity.
Still, as any developed nation has learned, these are fixable problems. And, naturally, nearby countries seem to be growing increasingly nervous about their own building plans, prompting some to go public with major initiatives. In May, Japan announced a $110 billion fund to support Asian infrastructure investments. That seemed vaguely like one-upmanship, following a controversial move where China launched the Asian Infrastructure Investment Bank, whose investment capital is expected to reach $100 billion. Part of the brouhaha: The U.S. government earned a diplomatic black eye when it failed this spring to dissuade close allies like Britain, Australia and South Korea from joining the bank, arguing unsuccessfully that existing institutions like the World Bank and the Asian Development Bank could do the job.
All of these diplomatic (or, in this case, not so diplomatic) moves have consequences. Padgett, for one, cites America’s failure to join the bank as a lost opportunity, saying it will now be “exceedingly difficult” for the U.S. to shape the governance of the new bank, which is widely welcomed in the region despite some fears of Chinese economic domination. David Dollar, a senior fellow at the Brookings Institution think tank, notes that this kind of behavior “plays into the narrative” of China being on the rise, as America declines, but that it ultimately might not sting economically. That’s partly because the new bank has promised an “open procurement” policy, meaning that anyone can apply for finance, including U.S. companies.
Whether U.S.-based ventures can actually walk through the door is another question. Tien Le, economic counselor at the Vietnamese Embassy in Washington, says that American companies have a good reputation in many areas — for, say, being high-tech, or strong with standards linked to the environment, ethics or employing local labor. “But in practice,” he recently told conference attendees at the Stimson Center think tank in Washington, “they are lagging behind” as companies in nearby countries scoop up most of the business. That’s because, unlike officials in the U.S., many other governments walk in offering complete projects that are already planned and financed — even if all their promises don’t eventually pan out. Some of the issues at hand? Cost overruns, environmental problems and the use of illegal foreign labor, Le says. “We hope for more U.S. government involvement,” he adds.
That’s what Carouso has got in mind. He’s working to open an office in the region that will house everything from the U.S. Export-Import Bank and the Foreign Commercial Service to the U.S. Agency for International Development and the Overseas Private Investment Corp. If it sounds like a confusing alphabet soup, it’s easy to see why these agencies with different functions might need to be in one place. “Hopefully, this one-stop shop will make it easier for private companies to put together a package,” Carouso says.