Infrastructure key to unlocking the Blue Pacific

I asked myself this question in August last year when I was given the privilege of serving as ANZ’s Regional Executive for the Pacific.

“Right now in the Pacific, there is a real sense of optimism about the future. Spend a week in the Pacific and you will see why.”

The Pacific is an important part of ANZ's international footprint and we have a team of more than a thousand people across Fiji, Samoa, Vanuatu, Tonga, Kiribati, Solomon Islands, Cook Islands as well as Timor Leste.

Rather than viewing the Pacific as an area of small island states, to truly understand it one needs to appreciate the cultural, environmental, political and economic needs that bind these nations together as a large ocean state; the “Blue Pacific”.

Central to any debate about the future of the Blue Pacific is how these nations chart a path towards economic growth and a better standard of living for Pacific Islanders.

More sustainable, resilient infrastructure across the region will play a critical role in this. Nations are often defined by what they build, the infrastructure that allows the citizenry to go about their business, their culture and their simple day-to-day tasks.

Right now in the Pacific, there is a real sense of optimism about the future. Spend a week in the Pacific and you will see why. 

Infrastructure spend

I recently returned from Kiribati, which was a hive of activity, with a lot of donor support and government payments driving spending.

When I was in the Solomon Islands, everywhere you looked there was construction happening for the upcoming South Pacific Games and work on the ‘very bumpy’ roads.

In my own home, Fiji, there is heavy investment in new infrastructure, including new roads, airports and more efficient ports and telecommunications upgrades.

ANZ Research estimates the current infrastructure investment spend across the Pacific through to 2030 is US$1.8 billion a year. Despite this, more investment is needed.

It is no secret that overall infrastructure investment in the Pacific has lagged population and economic growth.

Across the Pacific, governments and the public sector have been doing most of the infrastructure heavy lifting – constrained by revenue and borrowing limits. They cannot do all the work.

How do you build long-term projects like roads or ports when things like health, education and law and order need to take priority? The fact is, most governments borrowed heavily to maintain budgets and manage economies through the pandemic.

Add to this the cyclones, floods, tsunamis and volcanic eruptions which wreak havoc on the Pacific, and it’s easy to understand why economies are playing catch-up.

Building on Asian Development Bank work, a recent ANZ Research report quantified the infrastructure investment needed across the Pacific in terms of roads, ports, electricity, telecommunications, harbours and jetties, water and waste services management.

Meeting the Investment Gaps: Selected ADB Developing Member Countries

2016–2020 (annual averages, $ billion in 2015 prices)

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It came to US$3.2 billion a year, which means there’s an average US$1.4 billion deficit.
At the current rate, the gap is forecast to widen and peak at US$1.6 billion in 2025. By 2030, ANZ Research estimates a cumulative infrastructure deficit of US$12 billion.

But if we can define the problem, we can also provide solutions. While governments are constrained, the private sector can step in and participate in capital projects to lift infrastructure spending and shrink the investment gap.

Green credentials

At the same time governments can work to develop enhanced ‘green’ credentials to improve the chances of accessing global green funds and philanthropic capital. One way to facilitate private sector involvement is through a public-private partnership style of financing for Pacific infrastructure.

Often used for complex high-value projects like toll roads and desalination plants, such partnership projects can compress a high volume of work into shorter periods.

The electricity sector is a great example. Addressing the high costs, scale, inconsistent procurement framework, credit risks and unbalanced funding structures could unlock the Pacific’s green electricity potential.

Millions of people across the Pacific lack access to electricity, making simple tasks a burden and curtailing growth opportunities, according to a recent International Finance Corporation report.

We can overcome the investment hurdles preventing reform in sectors like electricity. With the right long-term outlook, the right investment, the right infrastructure and the right institutional and governance environment, there is an enormous opportunity.

Sarah Stubbings is ANZ’s Regional Executive for the Pacific