Figure 1: Market size and growth of blended finance in ASEAN
In 2022, the Association of Southeast Asian Nations (ASEAN)* was one of the fastest growing regions in the world, with an annual growth rate of approximately 5.5%. While growth is expected to slow slightly in 2023, it is still forecasted to be higher than the global average, with Vietnam, the Philippines, and Cambodia expected to have real GDP growth above 5%. Despite this, the region continues to face numerous economic challenges, such as the energy infrastructure gap. To power its manufacturing and meet rising consumption needs, ASEAN countries must invest approximately $490 billion cumulatively between 2025 and 2030. This gap will be more of a challenge to close in the lower income countries in the region. Other challenges, such as the region’s vulnerability to climate change, in combination with global macroeconomic conditions including higher inflation rates, a high debt burden, and the Russian invasion of Ukraine, mean there is a need to use scarce public and philanthropic funding in a catalytic way.
Blended finance can help address these challenges by de-risking investments in areas critical to achieving the Sustainable Development Goals (SDGs) in the region. The latest Data Brief from Convergence analyzes 107 blended transactions targeting ASEAN in part or in full, representing aggregate committed financing of US$20.7 billion.
Key takeaways from the Brief:
Renewable energy is a key sub-sector in ASEAN: Within the ASEAN energy sector, which accounts for 41% of ASEAN deals in Convergence’s historical deals database (HDD), renewable energy is currently the largest sub-sector by deal volume (33%). The Cambodia Solar Project is one example within this category. The project involved constructing and operating the first utility-scale solar power project in Cambodia with a capacity of 10MWp DC. The Asian Development Bank (ADB) provided A and B loans and concessional debt through the Canadian Climate Fund for the Private Sector in Asia. Recently, ASEAN countries have agreed to increase the share of renewable energy in installed power capacity to 35% by 2025, with eight out of ten members committing to net zero by 2050, and one by 2060.
Figure 2: ASEAN transactions by sector
Indonesia is ASEAN’s largest blended finance player by deal count and financing: Indonesia (42 transactions) is the most active blended finance market in the ASEAN region, accounting for more than a third (39%) of all the blended finance deals in the region. Indonesia is followed by the Philippines (28), Vietnam (28), and Cambodia (25). The breakdown of aggregate financing received by individual ASEAN countries mostly matches the breakdown by deal count. Cambodia, however, accounts for lower aggregate financing among ASEAN countries when compared to the number of transactions. This reflects smaller transaction sizes in Cambodia when compared to other countries, including Myanmar and Thailand, which have a lower deal count but higher deal size and financial flows. Note the HDD has not captured transactions in Singapore or Brunei.
Figure 3: Deal count and aggregate financing by ASEAN country
Commercial investors are more active as deal sponsors in ASEAN: Commercial investors (39%) have been more active as deal sponsors in ASEAN-focused transactions than in the global market. During an interview with a blended finance practitioner, it was suggested that commercial investors have more capacity and capability to scale private sector engagement in the region. Meanwhile, Development Finance Institutions (DFIs)/Multilateral Development Banks (MDBs) and impact investors have been less active (24% and 9% respectively). The former can play a role in providing concessionary funding, but often participate in blended finance deals on commercial terms.
Figure 4: Deal sponsors of ASEAN transactions by type of organization
There are opportunities and challenges for blended finance in ASEAN: Throughout our interviews, several themes became apparent regarding challenges and opportunities for blended finance in ASEAN. One challenge is the long runway between a deal’s conception and its launch. This is partly due to the complex and unique structure of each individual transaction. Different organizations may also have different timelines and objectives, which can cause delays in decision-making.
Scalability and a lack of bankable projects in the region are additional challenges. Several interviewees noted the difficulties of finding transactions of an adequate size that fit within the mandates of their organizations. Macroeconomic challenges such as supply chain issues and currency volatility can also complicate committing to regional development projects for investors.
However, there are important opportunities for blended finance in the region. For example, sustainable debt is becoming an important market, especially with the recent increase in the issuance of green, social, and sustainability (GSS) bonds and the growing popularity of the blue economy. Since the mandates of many DFIs and MDBs in the region also do not currently support the large-scale use of catalytic funding, there is an opportunity for these institutions to increase their use of capital in a more catalytic way.
Moreover, blended finance will be essential to achieving the transition to net zero by 2050. The cost of the transition is estimated at over $9 trillion annually through to 2050, with an additional need to fill the current annual funding shortfall of $3.5 trillion and to reallocate $1 trillion of current spending from high to low emission assets. Catalytic financing can help to crowd in private investments for otherwise risky projects in the energy sector, allowing the region to move closer to its target.
Overall, ASEAN is primed to benefit from an increase in catalytic capital. Its commitment to net zero, the availability of financing, and its focus on sustainability, combined with its high projected economic growth, means that blended finance can be an effective tool in solving some of the challenges facing the region.
*Member states include Brunei, Cambodia, Lao PDR, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
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