How do we bridge the infrastructure gap?

If you’re reading this, you’ve used electricity today. Chances are you’ve also washed your face with clean water and traveled on a road to get to an office, a classroom, or a store. Those are basic infrastructure services, and it’s understandable if you take them for granted. But here are a few facts no one should ignore: right now, more than one billion people live without electricity; 2.9 billion people (most of this population clustered in rural areas of Sub-Saharan Africa, South Asia, and Eastern Asia) still use biomass fuels like wood and dung; at least one-third of the world’s rural population is not served by an all-weather road; and 60 percent of the world’s population lacks internet access.

Since we’re talking about the basics, I’m going to ask the most basic question an economist can ask.  If we are going to try to bridge the infrastructure gap, how much resources are required, and how should they be allocated?  Decision-makers at the highest levels are also concerned with this problem. As a matter of fact, the goal to “build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation” is among the 17 Sustainable Development Goals that the United Nations General Assembly formally adopted on Sept. 25.

There are no straightforward solutions. Our response depends on the targets we set — and some are more ambitious than others. In addition, methodologies, assumptions, timelines, and country coverage differ among projects.  This makes comparisons very difficult, and that’s one of the reasons it becomes almost impossible to pin down an accurate number.
But throwing our hands up and surrendering is not an option. That’s why my colleague Zichao Wei and I compiled and analyzed the most quoted figures on infrastructure investment requirements in the literature. Our goal was to shed light on the coverage, strengths and limitations of these numbers. Our new study, Infrastructure Investment Demands in Emerging Markets and Development Economies , is the first step in a much larger effort to apply real numbers to real infrastructure solutions.

The long and winding road to resource assessment
Emotional responses aren’t typical in economics, but when we began our research, we were deeply disturbed by the discrepancies we found. Most of the recent studies use different extrapolation techniques based on outdated studies, and they do not account for actual changes in infrastructure stocks since 2006. Rather than becoming disheartened, this motivated us, as it was clear that solid numbers could make a difference – both in the professional approach to meeting infrastructure needs, and also in the lives of those who would receive basic services.

We gathered infrastructure stock data spanning the years 1960-2012 from 145 countries to estimate the demand for infrastructure services in emerging markets and developing economies. We calculated that the average infrastructure investment requirements needed to satisfy consumer and producer demand given an expected growth rate (regional average of the last five years) to be US$836 billion, or 6.1 percent of current gross domestic product per year.

Research results proved to us that we were on the right path, so we then calculated that the breakdown between capital expenditure and maintenance cost shows that roughly half of the estimated amount should be spent on maintenance. When results are disaggregated by region, South Asia has the biggest requirements followed by Latin America and the Caribbean and East Asia and the Pacific region (without China). The energy and transport sectors have higher requirements.

This still-conservative figure means that, on average, countries should almost double their current spending on infrastructure.  (This will not be viable for many governments facing significant budget constraints.) For example, for low-income countries, infrastructure investment requirements to satisfy existing demand represent, on average, 14 percent of their GDP.

Just as our numbers are realistic, so are we — and we acknowledge that this methodology has some drawbacks, as the others do.  But we feel confident this approach provides a robust lower bound estimate and is a springboard to discussions about how to build, manage, and maintain infrastructure more efficiently. Arriving at answers can make a difference to those whose lack of access to infrastructure keeps them in poverty, and there’s nothing basic about that.

This post first appeared on The World Bank’s Public-Private Partnership Blog. Publication does not imply endorsement of views by the World Economic Forum.

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Author: ​Fernanda Ruiz Nunez is a senior infrastructure economist for the Public Private Partnership Group.

Image: Workers level the earth on a highway construction project. REUTERS/Elizabeth Nganga.