Financing Infrastructure and SME
For sustainable growth in Africa
Naoyuki YOSHINO
Dean & CEO, Asian Development Band Institute (ADBI)
and Professor Emeritus of Keio University
May, 2018
Busan, Korea, Africa Day

OUTLINES
1. Promotion of Domestic Savings and circulate them for domestic
investments
2. Promote Small and Medium Sized Enterprises (SME)
3. Financing for Start-up businesses
4. Infrastructure investment: invite private financeby utilizing spillover tax revenues
5. Education (Secondary school and University)
6. To avoid TAX evasion
Possible use of Satellite pictures to detect tax compliance
7. Reduce Income inequality for stable political situation
8. Remittances (Philippines etc.)2Determinants of Savings Ratio
1, Population Growth: Number of children, Population bonus
2, Income Growth
3, Economic Growth4, Government Support for pensions
and unemployment insurance programUse of Postal Savings: Stock Budget and Flow Budget
Postal Savings
Pension Funds

PostalSavings

MinistryOf
Finance

Loan to SME
Infrastructure

PrivateFinancial
Institutions

Private Loans
Private Investment

Government
BondGovernment
Expenditures

Postal Insurance
Pension Funds

PostalSavingsSME Loans
Infrastructure

Financial Technology (Fin Tech)
1, Combination of FinTech and Post office
2, Opening of Accounts,Identification (Post office)3, Access to various financial products
4, Regulation of FinTech companies
Registration of Fin Tech industries
5, Financial products of all over the world
International regulation

Infrastructure Investment Needs in AsiaPacific (2016-2030)($ billion in 2015 prices, annual average)
Baseline
Total% of GDP

ClimateAdjusted% of GDP

Central Asia

33

6.8

38

7.8

East Asia

919

4.51071

5.2

South Asia

365

7.6423

8.8Southeast Asia

184

5.0

210

5.7

The Pacific

2.8

8.2

3.1

9.1

Asia & Pacific

1503

5.1

1744

5.9

Source: Meeting Asia’s Infrastructure Needs, ADB (2017)

Various Risks and Risk Sharing
1. Risks: Infrastructure Investment
i. Political risk (government),
ii. Construction risk,iii. Operation and maintenance risk,
iv. Exchange rate risk.
v. Environmental risk

2. User charges cannot be set too highUser charges << Total costs

3. How to maintain stable income stream ?
Utilize Spillover Tax Revenues
USA: Uses property tax revenues

Spillover Effects ofInfrastructure Investment

Injection of Increased Tax Revenues toIncrease the Rate of Return
Total rateof return

Possible rateof return forinvestor aftertransfer
Increase of tax
revenue by
spillover effect

User Charges

Southern Tagalog Arterial Road (STAR)
Philippines (Yoshino and Pontines, Chapter 3)• STAR tollway built toimprove road linkage
between Metro Manila andBatangas International Port.
• Tax revenue increased
during construction andafter completion incommunes along thetollway.

Uzbekistan Railway

Railway(Yoshino and Abidhadjaev, 2017)

Time11Case study of Tashguzar-Baysun-Kumkurgan(TBK) Rail connection in Uzbekistan
Concept: Infrastructure impact evaluation
Objective: Examine the nature and magnitude of economic returns
from railway connection as observed by regional GDP,
Agriculture, Industry and Services value added
Context: TBK railway connection in Uzbekistan, 2005-2012
Methodology: Difference-in-difference approach
Point of novelty and Empirical strategy allowed mapping out differential impact offindings: infrastructure provision across economic segments, geographicallocations and time frames. Study showed that newly provided
TBK rail line connection generated positive impact far beyond theactual regions of the rail line, reinforcing the hypothesis ofspillover effects*Note: Infrastructure (n): The basic physical and organizational structures and facilities (e.g. buildings, roads, railways, powersupplies) needed for the operation of a society or enterpriseGDPGDPDi

Connectivity effect
D g = connectivity

Regional effect
D g = regional

Spillover effect
D g = spilloverDt

D t=2010:2009
D t=2011:2009
D t=2012:2009

2.83***[4.48]
2.5***[6.88]
2.06***[3.04]

0.70[0.45]
0.36[0.29]-0.42[-0.29]

1.33[1.14]
1.27[1.46]
2.29**[2.94]

1 year

D t=2010:2008
D t=2011:2008
D t=2012:2008
D t=2012:2010

0.19[0.33]
0.31[0.51]
0.07[0.13]
1.76*[1.95]

0.85[1.75]
0.64[1.30]-0.006[-0.01]-1.49[-0.72]-0.18[-0.20]-0.02[-0.03]
0.50[0.67]
2.58*[2.03]

2 years

Launch effects
Short-term
Mid-term
Long-term
Anticipation
effects
Short-term
Mid-term
Long-term
Postponed
effects
Anticipation
effects
Short-term
Mid-term
Long-term
Postponedeffects

D t=2010:2007
D t=2011:2007
D t=2012:2007
D t=2012:2011-1.54[-1.66]
0.32[0.44]
0.11[0.15]-0.14[-0.20]

1.42[0.78]
0.84[1.42]
0.10[0.16]-1.71[-1.35]-1.32[-0.92]
0.13[0.13]
0.87[1.19]
1.05[1.44]

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(Yoshino and Abidhadjaev, Chapter 2)

High Speed Train: Japan
Travel time to Kagoshima
BeforeAfterTokyo

9h 00m7h 20mShin-Osaka

6h 20m4h 40mHakata3h 50m2h 10mKumamoto

2h 30m1h 00mShin-Yatsushiro

2h 10m35m

Kyushu Shinkansen
JapanSource: https://www.acprail.com/rail-passes/japan-rail/bullet-train/kyushu-shinkansen

(Yoshino and Abidhadjaev, Chapter 2)

Estimation Results by Group of Prefectures
Group 2200000

Group 5Group 3

Difference-in-difference coefficients across periods

15000010000050000
0-50000

During Construction Period[1991-2003]

Total Tax

During 1st Phase ofOperation [2004-2010]

Personal Income Tax

During 2 Phase of Operation[2011-2013]

Corporate Tax

Other Taxes

Group 7Group 8.

Impact took place during construction,
decreased during operation ofsegmented(autonomous) rail line andbounced back after connection togreater rail system
Note: Numbers for tax revenue amount adjusted for CPI with base year 1982. Preshinkansen construction period covers years from 1982 to 1990. Non-affected groups
include rest of the prefectures. Treated groups:
Group 2: Kagoshima, Kumamoto
Group 3: Kagoshima, Kumamoto, Fukuoka
Group 5: Kagoshima, Kumamoto, Fukuoka, Oita, MiyazakiGroup 7: Kagoshima, Kumamoto, Fukuoka, Oita, Miyazaki, Saga, Nagasaki
Group Con.: Kagoshima, Kumamoto, Fukuoka, Yamaguchi, Hiroshima, Okayama, Hyogo,OsakaInjection of Fraction of Tax Revenues
as Subsidy
Toll revenue
fromHighways

Return toprivateinvestors

Injection ofsubsidies
Increase in tax revenues
by spillover effects

Private funds

Financing for Infrastructure
Various Private Financial Investors in Asia
1, Banks --- Safer projects
Brown field (infrastructure)
Invest into operation period
Securitization after certain period of time
Privatized projects by the government
2, Insurance and Pension funds (Brown fields)
Long term projects (10 years –20- 30 years)
3, Revenue Bonds (floating interest rate)
uncertain income streams

4, Equity Investments
Construction period and Green fieldsDifferent Classes of Infrastructure Assets
Safer Assets
Different
Infrastructure
ClassesRiskier Assets

Banks

Insurance
Pension Funds
Revenue BondEquity

Source: Yoshino and Nakahigashi (Chapter 4)20

Macroeconomic Effect of Infrastructure
Investment
Spillover Effects Estimated from a Macroeconomic Translog Production
Function

1956-60

1961-65

2001-05

2006-10

Direct effect

0.696

0.737

0.114

0.108

Indirect effect (Kp)

0.452

0.557

0.091

0.085

Indirect effect (L)

1.071

0.973

0.132

0.125

20% returned

0.305

0.306

0.045

0.042

Increment

0.438

0.415

0.390

0.391

Source: Yoshino and Nakahigashi (2016)

Financing for Start-ups along Roads(Hometown crowd funding)Possible Solutions
Start up businesses, farmers
Hometown Investment
Trust Funds : Springer-------------------------------------------------A Stable Way to Supply Risk Capital

Yoshino, Naoyuki; Kaji Sahoko (Eds.)
2013,

Japan, Cambodia
Vietnam, Peru, Mongolia

Access to Digital Technology
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Internet On-line trade

Startups
Farmers

InternetCompany

Consumers

Advertize

Innovators

FSA： registration

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Infrastructure & Education
Yoshino and Umid Abidhadjaev (2016)
Dependent variable: log difference GDP per capita in 1991-2010
Regression number
Variables
lnY_1991

ln(n+g+d)ln(Kg)

REG.1
Coef.
-0.06
(-0.54)-3.09(-0.59)0.23(1.17)

REG.2
Coef.
-0.14
(-1.35)-5.75(-1.23)0.31(2.00)ln(Sec)ln(Kg)xln(Sec)

REG.3
Coef.
-0.14
(-1.38)-4.36(-0.77)0.53(3.30)
0.00(0.46)

0.20(1.59)ln(Uni)

0.21(2.07)

ln(Kg)xln(Uni)Constant-0.28(-0.33)0.24(2.76)
0.56(0.69)

Number of observationsR-squared
F-statistic

44.00
0.21
2.62

44.00
0.30
4.14

0.48(0.57)
44.00
0.30
3.29

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Public-Private Partnership (PPP)

Give incentives to operating companies
SOE Reform → Increase efficiency and rate of return

Pooling Various Infrastructure Projects

27

New Book on Infrastructure• “FINANCING INFRASTRUCTURE• IN ASIA AND THE PACIFIC:• Capturing Impacts and New Sources”• Edited by Naoyuki Yoshino, Matthias Helble, and Umid
Abidhadjaev––––

the latest evidence on the impact of infrastructure
investment on economic and social indicatorscountry studies on how infrastructure investment canincrease output, taxes, trade and firm productivity
innovative modes of infrastructure financing
DOWNLOAD FOR FREE:
https://www.adb.org/publications/financinginfrastructure-asia-capturing-impacts-and-new-sources

28

SMEs Share in Employment (%)

29

Borrower, Lender and Market

Borrower
SMEs
Individuals

MarketLenderBanks
MicroCredit

Information Asymmetry
Especially SME market
30

Access to Finance by SMEs andLarge Firms in Japan

31

Barriers for SMEs in Accessing Financial Institutions,Collateral,Higher rate

Source: ADB–OECD study on enhancing financial accessibility for SMEs: Lessons from recent crises.
Mandaluyong City, Philippines: Asian Development Bank, 2013

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33

Four different accounts by SMEs
1, Account to show to Tax authority
2, Account to show Bankers
3, Account to show to owner’s wife
4, Account for his own
SME starts to keep his accounts every day to report to CRD.
SME becomes to aware about his own company in daily basis.
SME becomes to see their changes of their business.
SME becomes to think about for long term perspectives.
Very good financial education for SME by keeping their books
every day.

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TAX-GDP Ratio

41

42

TAX Revenues in Asia (Share)

43

Yoshino, Naoyuki and Masaki Nakahigashi （2004） “The Role of Infrastructure in EconomicDevelopment”, ICFAI Journal of Managerial Economics, 2, pp. 7-24
Nakahigashi, M and Yoshino, N. (2016) “Changes in Economic Effect of Infrastructure andFinancing Method”, Public Policy Review, Vol.12, No.1.
Yoshino, N. and Pontines, Victor (2015) “The Highway-Effect on Public Finance: Case of theSTAR Highway in the Phillippines”, GIE | AAA Special Kick-off Edition, GIE Network
publishing.
Yoshino, Naoyuki and Victor Pontines （2015） “The Highway Effect on Public Finance: Caseof the STAR Highway in the Philippines”, Asian Development Bank Institute （ADBI）
Working Paper No.549.
Yoshino, Naoyuki and Umid Abidhadjaev (2017), “An impact evaluation of investment ininfrastructure: The case of a rail way connection in Uzbekistan”. Journal of Asian
Economics, 49, 1-11, 2017
Yoshino, Naoyuki and Umid Abidhadjaev (2017), “Impact of infrastructure on tax revenue:Case study of high-speed train in Japan”, Journal of Infrastructure, Policy and Development,Vol.1, Issue 2.
Yoshino, Naoyuki, Umid Abidhadjaev and Makaki Nakahigashi (2018), “Closing the AsianInfrastructure Gap”, HORIZONZ, Journal of International Relations and Sustainable
Development, Issue No.10, Winter 2018.
Yoshino, Naoyuki, Matthias Helble and Umid Abidhadjaev (2018), Financing Infrastructurein Asia and the Pacific: Capturing Impacts and New Sources, Asian Development BankInstitute.
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Thank You for your Attention

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