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Bringing electricity to all corners of Southeast Asia

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Providing electricity access for all remains a critical topic in many parts of the developing world. The challenge is especially acute in Southeast Asia, one of the most dynamic regions of the global energy system, but whose rich and varied environment defies one-size-fits-all energy solutions.

Thanks to growing economies and burgeoning and urbanising middle classes, energy demand in Southeast Asia grows at one of the fastest rates in the world. Still, around 65 million people across the ten Association of Southeast Asian Nations (ASEAN) countries are without access to electricity. In a recent special report on the region, we looked in detail at how to close this gap.

The momentum is considerable. Since 2000, around 170 million people have gained access to electricity across the region, including 95 million people in Indonesia. But reaching full electrification becomes progressively more challenging, since those who remain without access typically live in the most difficult places to reach – often in remote communities or on smaller islands.

While a large proportion of the region’s population (in much of Viet Nam, Myanmar, Cambodia, Laos PDR, Thailand and peninsular Malaysia) lives on the main Asian landmass, many are also spread across thousands of islands – ranging in size from Indonesia’s Java and Sumatra (home to more than 190 million people) to many small island communities. If people have access to electricity in these locations, it is often via expensive and polluting diesel generators.

The good news is that ever-cheaper renewable technologies are opening new options for cost-effective access, especially in remote areas. (That topic was explored in depth in the World Energy Outlook Special Report: Energy Access Outlook 2017). This is a key reason why countries across Southeast Asia achieve universal electrification by the early 2030s in our Outlook. Our detailed spatial analysis of four countries – Indonesia, the Philippines, Cambodia and Myanmar – shows that a variety of fuels, technologies and approaches are likely to be required to achieve full electricity access, depending on factors including regional population density, distance from the current grid and local resource availability.

Two examples from Indonesia underline the need for a flexible and pragmatic approach. In Papua, the location and relatively low population density of villages without access makes them prime candidates for mini- and off-grid technologies, powered mostly by renewables-based generation (predominantly solar and small-scale hydropower). This is the least-cost option for the vast majority of the 1.6 million currently without access to electricity, although other forms of generation and an expansion of transmission lines are also planned to meet increasing demand from the region.

The situation is different in East Java, where the population density is more than 80-times higher than in Papua. Each of the 225 recently electrified villages in East Java is on average less than 13 kilometers away from an existing grid. Therefore, grid extensions have formed the bulk of new electricity connections. These examples show why the electrification plans of the government of Indonesia are multi-dimensional; they include the extension of the existing grid, promoting micro-hydro and off-grid solar technologies as well as solar-diesel or solar-battery hybrids; only in relatively few cases are isolated diesel generators the optimal approach.

There is a similar range of solutions in other Southeast Asian countries: renewables-based decentralised solutions (particularly those powered by solar photovoltaics) are prominent in Myanmar, where they account for around 60% of new connections, with half of the 24 million people currently without access gaining access specifically through solar PV.

The road to lowest-cost electricity access in Cambodia runs a different course. Almost all of the additional new connections to 2030 can be serviced via the grid. This is also the case in the Philippines, where 90% of new connections are grid-based, but where off-grid wind and solar PV play a crucial role in bringing access to around 1.5 million people in small islands and remote areas.

Our analysis highlights two broad lessons. First, grid-based and decentralised technologies both have a prominent role to play, depending on local circumstances. Even in places like Cambodia, where decentralised electricity systems play a marginal role, they are crucial in bringing access to 240,000 people in the most marginal communities. In Papua, where the bulk of new connections come from decentralised technologies, innovative grid solutions including small-scale gas-fired plants dotted around the island and fed by liquefied natural gas, also play an important part in bringing universal access.

Second, the picture is not a static one: the relative competitiveness of different fuels changes over time. Renewable options become increasingly attractive as their costs continue to come down and projected fossil fuel prices edge higher. Providing universal, affordable and secure energy is not incompatible with the pursuit of cleaner energy.

This commentary draws from the Southeast Asia Energy Outlook 2017, a WEO Special Report, published in October. Source: IEA

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Southeast Asia

Infrastructure Drive, Strong Domestic Demand to Sustain Philippine Growth

MD Staff

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The Philippines’ economic growth is expected to sustain its quick pace in 2018 and 2019 as the government’s infrastructure program is rolled out, says a new Asian Development Bank (ADB) report.

In its new Asian Development Outlook (ADO) 2018, ADB projects Philippine gross domestic product (GDP) growth at 6.8% this year and 6.9% in 2019, up from 6.7% in 2017. Rising domestic demand, remittances, and employment, in addition to infrastructure spending, will drive growth. ADO is ADB’s flagship annual economic publication.

“Along with domestic demand, the government’s infrastructure investments will fuel the country’s growth in the next few years, supported by a sound economic policy setting,” said Kelly Bird, ADB Country Director for the Philippines. “We expect this growth to further lift wage employment numbers, add to household incomes, and benefit more poor families across the archipelago.”

The Philippines remained one of the strongest growing economies in Southeast Asia in 2017. Domestic investment recorded 9% growth last year, moderating from a brisk 23.7% in 2016, although growth in fixed investment in industrial machinery, transport equipment, and public construction remained robust. Household consumption grew by 5.8% in 2017, from 7% in 2016, on the back of higher remittances and employment, with the unemployment rate falling by 1.3 percentage points to 5.3% in January 2018 as 2.4 million jobs were added. Public spending rose by 7.3% last year from 8.4% in 2016.

Consumer price inflation reached 3.2% last year from 1.8% in 2016 due to strong economic growth, higher international fuel prices, and Philippine peso depreciation, but well within the 2% to 4% target by the Bangko Sentral ng Pilipinas—the country’s central bank. The country’s external debt further declined to 23.3% of GDP in 2017, from 24.5% of GDP in 2016.

Moving forward, ADB projects services will continue to drive GDP growth, along with manufacturing and construction industries. The approval of the Tax Reform for Acceleration and Inclusion law in December 2017 will augment tax revenues and provide additional fiscal space for more progressive public spending. The policy reforms are expected to yield additional 90 billion to 144 billion Philippine pesos ($1.73 billion to $2.76 billion) in tax revenue collection in 2018 and 2019, respectively.

With economic growth gaining momentum, inflation is projected to reach 4% in 2018 as global oil and food prices rise, and higher excise taxes on some commodities take effect. In 2019, meanwhile, inflation is expected to marginally decline to 3.9%.

The report notes there are external risks to the Philippines’ growth outlook from heightened volatility in international financial markets and uncertainty about global trade openness, although the country’s strong external payments position would cushion these effects.

A major policy challenge to the country’s growth outlook, according to the report, is managing the rollout of the government’s “Build, Build, Build” infrastructure program, which is expected to raise public infrastructure spending to 7.3% of GDP by 2022 from 4.5% in 2016. The report provides suggestions on ways to enhance government capacity, including strengthening coordination between government agencies and improving technical capacity of staff within these agencies, and fostering stronger partnerships between government agencies, the private sector, and development partners.

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Southeast Asia

Securing the future prosperity of the Greater Mekong Subregion

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The Greater Mekong Subregion (GMS) countries have made stunning progress over the past quarter century. Once plagued by poverty, they are now economic success stories.

The GMS Economic Cooperation Program has contributed significantly to this transformation. Since it was established in 1992 as a means to enhance economic relations and promote regional cooperation, its six member countries—Cambodia, the People’s Republic of China, Lao People’s Democratic Republic, Myanmar, Thailand, and Viet Nam—have built a platform for economic cooperation that has mobilized almost $21 billion for high-priority infrastructure projects. Foreign direct investment into the subregion has surged ten-fold and trade between its countries has climbed from $5 billion to over $414 billion.

But the subregion faces challenges to its prosperity. Further reducing poverty, climate change adaptation and mitigation, energy efficiency, food security, and sustainable urbanization remain priorities of the GMS Program. Countries also face new challenges, including growing inequalities, rising levels of cross-border migration, and the potential impact on jobs of the fourth industrial revolution.

Moreover, GMS countries have agreed to significant commitments under the Sustainable Development Goals and the Paris Agreement on climate change.

There are also emerging opportunities for the region, including incorporating new technologies in various sectors such as education, agriculture, health, and finance. GMS countries are situated at the crossroads of South and Southeast Asia, and hence they can benefit from the increased momentum for growth in South Asia.

As GMS leaders gather this week in Ha Noi to chart the future of the program, it’s a good time to consider how a new generation of initiatives can ensure the GMS Program remains relevant and responsive to the subregion’s needs.

The Ha Noi Action Plan and the GMS Regional Investment Framework 2022, both proposed for adoption at the Summit, provide a platform for countries to strengthen their cooperation through continuous innovation. These two documents will have a sharpened focus on the GMS Program’s strategic goals of enhancing connectivity, competitiveness, and community in the subregion.

Connectivity, the first objective, has been dramatically improved. More than 10,000 kilometers of new or upgraded roads and 3,000 kilometers of transmission and distribution lines have been added under the program. These transport networks have been transformed into an interconnected network of transnational economic corridors, building on 25 years of work to extend the benefits of growth to remote areas. The Ha Noi Action Plan calls for the continued expansion of these economic corridors to boost connectivity both between and within countries.

The subregion’s competitiveness is improving through ongoing efforts to facilitate transport and trade flows, enhance agriculture exports, and promote the GMS as a single tourism destination after receiving a record 60 million visitors in 2016. Looking ahead, it will be important to continue cutting red tape and to remove remaining barriers to transport and trade.

Finally, communities are being strengthened through cross-border initiatives to control the spread of communicable diseases, expand educational opportunities, protect the subregion’s rich biodiversity, and mitigate the impacts of climate change.

GMS countries have identified a new pipeline of 227 projects worth about $66 billion under the GMS Regional Investment Framework 2018–2022. These projects will expand economic prosperity by developing cross-border transport and energy infrastructure.

ADB, which has been the program’s secretariat since its inception, expects to provide $7 billion over the next 5 years for a range of projects supporting transport, tourism, energy, climate change mitigation and adaptation, agribusiness value chains, and urban development. This builds on more than $8 billion in financing provided by ADB so far under the program.

To deliver these projects and make headway on other priorities such as infectious disease control and environmental preservation, strong partnerships are vital. The GMS Program depends on the collaboration of many stakeholders, including local administrations and communities, development partners, academia, and the media.

The GMS will benefit from strengthened partnerships with other regional and global cooperation platforms, leading to new opportunities for future development.

Partnerships with the private sector will also be increasingly important, and it is gratifying to see them deepening through the GMS Business Council, the Mekong Business Initiative, the e-Commerce Platform, GMS tourism and agriculture forums, and the recent Finance Sector and Trade Finance Conference.

I am optimistic that the subregion will meet its challenges and capitalize on emerging opportunities. By working together, GMS countries can deliver rapid, sustainable, and inclusive growth for another 25 years and beyond. ADB will continue to be an important and trusted partner in that endeavor.

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Southeast Asia

Vietnam continues to reduce poverty

MD Staff

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Poverty in Vietnam continues to fall, particularly amongst ethnic minorities, who saw their rate of poverty decline significantly by 13 percentage points, the largest decline in the past decade, says a new World Bank report.

According to Climbing the Ladder: Poverty Reduction and Shared Prosperity in Vietnam, released today by the World Bank, improving income from highland agriculture can help Vietnam further reduce poverty, which has fallen by almost 4 percentage points since 2014, to 9.8 percent in 2016. Ethnic minorities – many of them living in highland areas – account for 72 percent of Vietnam’s poor, and encouraging them to grow more profitable industrial crops may improve their earnings.

“Vietnam has achieved tremendous results in reducing poverty and improving the quality of life for millions. The decline in poverty amongst ethnic minorities is encouraging, and more focused efforts on improving their incomes can further broaden their opportunities and reduce persistent inequalities,” said Ousmane Dione, World Bank Country Director for Vietnam. “The aspirations of those with less opportunities cannot be ignored.”

Outlining recent trends and patterns of poverty in Vietnam, the report proposes solutions for that untapped agriculture potential in highland areas where the poor are concentrated. Land use and cropping decisions, for example, contribute more to agriculture income differences between households. Low-income families in highland areas use their land to grow basic crops such as rice or maize instead of raising more profitable crops such as coffee, black pepper, or rubber.

Improving access to credit may help highland farmers make the necessary investments for higher-earning agricultural production. Strengthening earning capacity can help narrow inequalities between groups.  The average per capita consumption of ethnic minorities, for example, remains less than 45 percent of the Kinh and Hoa. Moreover, the poor faces a widening gap in terms of access to upper secondary education and improved water and sanitation.

At the same time, the report recognizes that 70 percent of Vietnam’s population is now classified as economically secure, including the 13 percent who are now part of the global middle-class. These income classes are growing rapidly, rising by over 20 percentage points between 2010 and 2017. An average of 1.5 million Vietnamese joined the global middle class each year since 2014, confirming that households continue to climb the economic ladder after escaping poverty. The rise of the consumer class changes society’s aspirations and the focus of the poverty and shared prosperity agenda shifts from combatting extreme poverty to effecting broad improvements in the quality of life and supporting the further expansion of the middle class. Rapid job creation and an ongoing transition to wage employment are driving gains in poverty reduction and shared prosperity.

The report suggests several areas of strategic priorities to further reduce poverty and promote shared prosperity, including:

  • Boosting labor productivity and investing in infrastructure to sustain job creation and wage growth without losing competitiveness.
  • Implementing education reforms designed to equalize opportunities and develop workforce skills.
  • Spurring agriculture structural transformation through changing farmland use patterns, strengthening land user rights, and improving skills of the poor farmers.

While reducing inequality remains a challenge, the report notes that the number of individuals vulnerable to falling back into poverty declined to only 2 percent between 2014 and 2016. In contrast, the period saw the middle class expanding by more than 3 million people.

One of the prioritized areas under the new World Bank Group Country Partnership Framework with Vietnam for the period from FY18 – FY22 is inclusive growth, with a specific objective for the “economic integration of the poor and vulnerable groups” under which the Bank will provide support for targeted interventions to expand economic opportunities for people in lagging areas.

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