Paul Wolfowitz
World Bank President
May 29, 2006 Kiyoto Ido: Good morning ladies and gentlemen. It is my great honor to announce the opening of this year’s Annual Bank Conference On Development Economics, ABCDE. I would like to thank all of you to come to Japan to discuss development issues. I participated in last year’s ABCDE in Amsterdam and I was deeply impressed by the insightful discussion among academics, practitioners, policy makers and participants from the private sectors. As was the case at the past ABCDE, I wish the discussion from today will beneficial to all of you and participants. Now let me introduce my colleague at the World Bank, Chief Economist François Bourguignon, who is in charge of this conference on the Bank’s side. François please. François Bourguignon: Thank you very much. Ladies and gentlemen let me echo the welcome just offered by Mr. Ido to this Annual Bank Conference on Development Economics. On behalf of the World Bank and I am delighted to welcome you to this annual event, which has evolved over the years in to a major opportunity for the development community in all its parts to convene and to consider ways to address the challenges that face us. I look with all of you forward to the presentations and discussions that await us for the next two days. In some instances we will be joined by video links by participants in sites located in the Philippines, in Australia, in Mongolia, in Singapore and in Sri Lanka. I would now like to ask our two speakers for this opening session to join us here on stage Mr. Sadakazu Tanigaki, Minister of Finance of Japan, and Paul Wolfowitz, President of The World Bank. Please join me in welcoming our speakers with a round of applause. (Clapping) Ladies and Gentlemen, it is my pleasure now to introduce the first speaker in our opening session Minister Sadakazu Tanigaki, he is currently the Minister of Finance of Japan, the position he has held since September 2003. Prior to that he has held government position as Minister of State for Food Safety and with the Industrialization Revitalization Corporation of Japan along with several others. A graduate of the University of Tokyo and an attorney by training, he was first elected to the House of Representatives in 1983. We are all delighted and honored to have Minister Tanigaki with us today to help us open the conference. The Minister has informed me, that unfortunately, it will be necessary for him to leave shortly after his remarks because of his scheduled session at the Diet, but let us now welcome him to this podium. (Clapping) Mr. Sadakazu Tanigaki: President Wolfowitz, distinguished guests, ladies and gentlemen, it is a great pleasure for me to host the first Annual Bank Conference On Development Economics, ABCDE in East Asia. Before going to the subject, I would like to express our sincere condolences to those who lost their lives or suffered from the earthquake on Saturday in Java Island, Indonesia. Last May we announced at the ABCDE in Amsterdam that we would host this meeting, since then we have been preparing for this conference in close collaboration with the World Bank headquarters and its offices in Tokyo and Paris. I would like to extend my appreciation to President Wolfowitz, Chief Economist François Bourguignon and to the Bank staff for their cooperation. Distinguished academics, practitioners, policy makers and participants from the private sector have gathered from all over the world to make our discussion fruitful. My thanks also go to all of them who will take part in this meeting. Ladies and gentlemen, the thinking infrastructure for development, this is the theme for this year’s ABCDE. Since established in 1945, the Bank has been engaged in infrastructure. Japan has its own experience to have relied on the Bank lending in the 1950s and 1960s, to build physical infrastructure such as the Kurobe No. 4 hydroelectric power station, the Tokaido Bullet train and the Tomei Expressway. Some of these Bank assistances brought significant impact not only in providing financial resources, but also bringing new technologies. However, we must not forget that the environment surrounding infrastructure support and the perspectives on infrastructure have been changing considerably. The global economic situations surrounding developing economics have changed substantially. We can find these changes in the expansion of free trade, the development of the international financial and capital market and widening gap or intensified competition among developing countries. There has also been major shift in the view on who should play a central role in infrastructure provision. During the 1990s, it was the prevailing thought that private capital should be a main source of infrastructure investments even in developing countries. However, the necessity of public sector involvement has been recognized again and it became necessary to further develop the concept of public private partnership fully reflecting the past experience. Moreover, infrastructure assistance for decades has yielded a great deal of experience and lessons. We have had debates on quite a number of issues in infrastructure development including, "Hasn’t donor support simply left white elephants behind? Have we paid enough attention to adverse environmental and social impacts? Have we had sufficient dialogue with stakeholders?" Outcomes of these debates have been reflected in the actual operations of the Bank today. For instance, great emphasis is placed on the institutional and policy form in the infrastructure related sector. The Bank increased its focus on enhancing the infrastructure service delivery, detailed environmental and social safe guard policies are in place. When further efforts are needed to achieve the millennium development goals, there is no question that efficient and effective infrastructure support is indispensable to advance development. For example, children need lights to study and patients need roads to go to hospitals. The role of infrastructure is also critical in the context of creating employment opportunities through improving business environment and fostering private sector development. As we see here, the assistance in infrastructure health and education are all complementary to each other. Recent Bank service on clients also show the importance of infrastructure, which ranked infrastructure as one of the most important sector in both significance and Bank effectiveness. When we consider our further engagement in infrastructure we must not confine ourselves to the conventional idea of building brick and mortars. We must develop a new perspective while taking into account, what I mentioned above, namely, both the change in the external environment and the lessons we learned. I hope the discussions at this year’s ABCDE will bring together cutting edge knowledge on infrastructure from both theoretical and practical aspects; thus, shedding a new light on infrastructure assistance in the future. I believe that the discussions will also give Japan, a major donor in the area of infrastructure, valuable insights into the subject. Ladies and gentlemen, four topics will be featured in the two-day discussion. They are: Infrastructure for Growth Sustainable Development and Infrastructure, Rural Infrastructure and Agricultural Development and Infrastructure and Regional Cooperation.
Let me elaborate on each of them: The first topic, ‘Infrastructure for Growth’ seeks to further explore the impact of infrastructure on growth in developing countries. This should also help clarify how we should deal with infrastructure in the context of overall development strategy for our country. As to the second topics ‘Sustainable Development and Infrastructure’, it is meaningful to discuss climate change or energy efficiency in Asia, where energy consumption is expected to increase rapidly. This topic is timely and particularly important among all the infrastructure related themes. The framework for clean energy and development, is under discussion at the Bank and the G-8 summit will focus is on the energy issue. The significance of the third topic, ‘Rural Infrastructure and Agricultural Development’ is evident in the fact that many poor live in rural areas. President Wolfowitz mentioned at the last annual meeting that agriculture would be one of the focus areas for the Bank. I hope that discussion on this topic will give some valuable input to the assistance for agricultural development. The fourth topic is ‘Infrastructure and Regional Cooperation’. Given the increase in intra-regional trade and the delayed development in landlocked countries, regional cooperation has a significant role to play in developing cross border infrastructure. I would invite you to discuss such a correlation between infrastructure and regional cooperation based on the experiences in Asia and Africa. Lastly, I would like to touch upon strengthening cooperation between the Bank and Japan in the academic field. Hosting the ABCDE in Tokyo provides us an opportunity not only to deepen our discussions on infrastructure but also to provide an impetus to strengthen the relationship between the Bank and Japan in research and analysis. Japan is determined to further promote such cooperation. Specifically we plan to participate in the Knowledge for Change Program, KCP, a World Bank’s initiative to support research and analysis in the area of development. Through our participation in KCP we intend to support the Bank’s research and analysis in such areas as agriculture and climate change. The involvement in KCP will also increase the opportunity for Japanese researchers and institutions to exchange their views on development or to conduct joint researches with the Bank. I am glad here to announce that Japan will contribute up to US $2 million for the KCP. In closing, I would be grateful if you could have cutting edge discussions on development here in Tokyo and if you could capitalize on this rare opportunity through active exchange overviews and opinions. I also hope that this conference will add new insights into the pool of knowledge on infrastructure and this in turn will contribute to sustainable growth and poverty reduction in developing countries. Thank you very much! Kiyoto Ido: Thank you Minister Tanigaki. Please welcome once again Mr. Tanigaki with applause, thank you. Now I would like to introduce today’s second prominent speaker, President Wolfowitz of the World Bank. Mr. Wolfowitz received a PhD. from the Chicago University and occupied a teaching position at Yale University. Mr. Wolfowitz contributed to the development of Indonesia as an Ambassador from United States and also that he contributed to the defense policy in the United States as a Deputy Defense Secretary, as you know. And Mr. Wolfowitz was elected last year as the President of the World Bank. Mr. Wolfowitz, please! Paul Wolfowitz: Thank you and I would also like to join Minister Tanigaki at the beginning in expressing my deep sympathy for the people of Indonesia going through yet another terrible tragedy and I know everyone here in this room wishes that everything possible be done to help the survivors and to help Indonesia recover from this very-very hard blow. I would like to begin by expressing my appreciation to the staff of the Ministry of Finance for co-sponsoring this Annual Bank Conference on Development Economics. Their enthusiasm and their able logistical support are evident in our setting today and lay the groundwork for what I hope will be a very productive event. The theme of this year’s conference is Rethinking Infrastructure for Development. I am especially pleased that we are co-hosting this conference in Tokyo since the Government of Japan, through its development assistance programs, has been a strong supporter of infrastructure projects in developing countries. We greatly appreciate being able to partner with the Japanese Government in this area. Indeed, I think this is the first time this conference has been held in Asia. It’s appropriate that it’d be held in Japan and it is appropriate that the subject here in Japan is infrastructure. At the Bank, we often like to say that one of our best investments, one of our most successful projects was our participation in the Bullet Train. We only wish that we’d taken an equity stake that would have been a wise move but it--more seriously I think as you go around this country you can see how much attention has been given, not just Infrastructure Development, but to the balance infrastructure and the environment and they’re lessons for all of us I think to learn from Japan’s experience. As we meet here, we know that the global supply of infrastructure is not able to answer today’s needs. We also know that the challenges of tomorrow are going to be even greater. Among the 6.3 billion people in the world today, there are 1.6 billion that don't have access to the most basic energy services. 500 million of those live in Sub-Saharan Africa. 2.4 billion people in the world today cook their daily meals using wood, dung or other biomass fuels. 2.6 billion people lack access to clean water and sanitation services. Tomorrow’s challenges will grow with our population. In the next 25 years another 2 billion people will be born, 97% of them in developing countries. They will need access to water, to energy and to sanitation services and they will need roads to drive on, airports to fly from and telephones with which to communicate. But the population is not just growing; it’s also becoming more urban. Here in East Asia for example in the year 2000, some 36% of people lived in urban areas. By 2025, that figure will grow to nearly 60%. With an extra 500 million people, half a billion people more than today living in cities. It’s estimated that sometime next year, for the first time ever, more people will live in urban areas of the world than in rural area. In the next thirty years the urban population of the developing world will double. That’s as a large a movement of people in the developing world cities as we have seen up to now in all of history. This unprecedented urban growth comes with enormous challenges of meeting basic infrastructure needs of people while preserving the environment that they live in. Asia’s experience, however, shows that that’s not an impossible task. Sustainable development can go hand-in-hand with responsible infrastructure development that takes into account social environmental considerations from the outset. Today, Africa represents a special challenge for the development community. The stock of infrastructure on that continent, supported economic growth reasonably well through the 1960s and 1970s. Since then however, high population growth combined with rapid urbanization has lead to a severe mismatch between the need for infrastructure and its supply. By most estimates, African countries need to invest about 9% of their GDP -- roughly 40 billion dollars per year in building new infrastructure and maintaining old facilities, if they want to meet the Millennium Development Goals. That’s more than twice what they have been spending over the past 40 years. For deeper understanding of the general infrastructure challenges of today and tomorrow, let’s take a look at just on sector -- energy. The International Energy Agency estimates that we need 320 billion dollars, that’s 320 billion dollars annually, in capital investment for energy in developing and transition economies for the next 25 years. That would offer access to basic energy services for those 1.6 billion people who don’t have it today, as well as meeting growing energy demands. Yet we are currently investing far below that amount. In electricity investment alone, only 50% of what is needed is actually being funded. The poor are dis-proportionally affected by this absence of modern energy services, in many cases poverty reduction strategies, especially in Africa, rarely or barely mention energy projects aimed specifically at the poor; and if there are such projects they are often large-scale works. Such large-scale infrastructure for energy generation and transmission is fundamental for Africa’s development but it has to be complemented by investments in grid extension to the poor and de-centralized solutions for rural remote schools, health centers and communities. And we cannot forget the 89% of the population in Africa who rely on biomass for energy. They need specific support for sustainable forest management and improve cooking stoves and fuels to reduce the air pollution inside their homes. The picture in the next 25 years becomes even more complex, if we want to keep our commitment to achieve sustainable development. The world is paying increasing attention to the pattern of global energy use and its link to climate change. We need energy to support economic growth and to fight poverty but we need to meet those energy needs in a way that leaves a smaller environmental footprint. That means promoting investments that encourage efficiency and are built around smart technological choices. The ultimate objective in development of course, isn’t simply to spur growth, the most important objective is to reduce poverty and bring real improvements in the lives of the billions of people in the countries where we work. Last year, on my first trip to Africa, I had the privilege of meeting a Rwandan businesswoman who, as she put it to me, came home to grow beautiful flowers on the ashes of genocide. She created a flower farm that employed about 200 people, mostly women from rural villages, who didn’t have a good income before. Now they successfully export high flower roses to Europe. And I didn’t know it when I wrote this speech but Béatrice Gakuba is here, so why don’t you stand up and get some recognition. (Clapping) Now, I am not entirely surprised that she is here because I am going to go on and say what I was going to say anyway, which is –this, when I asked her, "What’s your biggest challenge?" She said, "Electricity." She explained to me that the refrigeration that’s critical to keeping her roses fresh before they’re shipped frequently goes out because of power outages, and she loses some 5% of her crop because of unreliable electricity. If you are a businesswoman working on a thin margin, that 5% can be the difference between a business succeeding and a business going under, between those 200 jobs growing into 400 or 600 jobs and those 200 jobs disappearing. Businesses like Béatrice’s, in developing countries, need to have more access to energy and transportation infrastructure if they are going to expand and create jobs. Those jobs ultimately bring livelihoods to people who need them, who need them desperately. Infrastructure is also critical, to help us meet the Millennium Development Goals. When the poor don’t have water they have to walk as far as it takes to find it. Currently, Africans lose 40 billion, let me repeat, 40 billion productive hours each year just carrying water, think about that. That’s 40 billion hours that people in Botswana or Lesotho or Uganda or Ghana could earn spending an income or starting new businesses to create jobs. Very often probably that’s hours that young girls might otherwise spend going to school and getting an education. When 40 billion hours a year are lost just carrying water, opportunities and futures are lost along with it. Even the most basic sanitation systems can substantially reduce the number of people who fall victim to water borne diseases that rich nations have long ago forgotten. And with proper telecommunication structures, telephones cannot only link families, they can link businesses;. the Internet can deliver vital knowledge to schools and hospitals, companies can participate in global trade and information technology can enable people to liberate themselves from ignorance. We all know that infrastructure brings more than water, electricity, sanitation, telecommunications or transportation. Infrastructure brings opportunities, opportunities that transform lives and we also know that today’s infrastructure challenges can be met. A study by the World Bank, The Asian Development Bank and the Japan Bank for International Cooperation, show that many East Asian Economies achieved remarkable results in bringing infrastructure to support growth. But even in this region, growing inequalities and disparities in access are an increasing challenge. How we bring those successes to other countries while meeting these challenges is a good part of what I hope we’ll be discussing in the next two days. At the World Bank we are rethinking infrastructure. Let me explain what I mean by that. We are moving forward with a strategy built on two pillars. For the first pillar we are re-engaging on the lending side after substantial decline in the 1990s, ramping up our infrastructure investments by about a billion dollars a year. In the next year or two, we expect to lend around 9 to 10 billion dollars annually. That’s –will make it close to 40% of total Bank lending. We are paying special attention in all of that to Africa. Our Africa Action Plan specifically targets closing the infrastructure gap, developing an African Private Sector and supporting regional integration. Infrastructure lending in Sub-Saharan Africa has gone from a billion dollars to about 1.7 billion dollars per year and more is planned. These investments will focus on power, roads, urban infrastructure, water and sanitation, and particularly on regional integration projects through the new partnership for Africa’s Development, or need pad. All of the Bank’s infrastructure work will be guided by a special focus on the need for regional integration; this is a particularly pressing need in Africa where the natural geographic connections, are so often broken up by the multiplicity of national boundaries and where so many countries are landlocked. We've already had successes in Regional Infrastructure Projects in Africa, such as the South Africa Mozambique Pipeline and the West Africa Gas Pipeline. The vast infrastructure agenda calls for strong partnerships and collaboration. Donor coordination through the recently established African Infrastructure Consortium, will be critically important in order to harmonize approaches and maximize impact. Internally the Bank Group is also strengthening our coordination among the various arms of our big organization; the IBRD, that does public sector lending, the IFC, the International Finance Corporation that finances private sector investment and MIGA, the Investment Guarantee Agency and a stream of joint projects is being developed. For its part, the IFC plans to increase its annual infrastructure investments world wide to 950 million dollars by 2008 and almost 20% of that will take place in frontier countries and frontier sectors. MIGA, the Multilateral Investment Guarantee Agency, has outstanding exposure in infrastructure guarantees totaling more than 40% of its portfolio, and it too is focusing on encouraging investment in the more difficult frontier markets as well as at the sub sovereign level. While this increase in our lending activities is a clear step forward, it needs to be put in perspective. Total investment in developing countries from developing country governments themselves, from official development assistance and from the private sector, amounts to around one and a half trillion dollars annually; an enormous sum. That’s about one hundred times what the World Bank group lends each year. So as big as we are in the global order of things we are, what some one called, a one percent solution and it’s roughly the same story with infrastructure investment. Roughly 400 billion dollars is invested annually in the infrastructure developing countries and our share of that is about 2 percent. While we may be relatively small in terms of dollars, we are not small I think in terms of ideas; and we are not small in the world of policies and proposals on how to shape institutions, improve governance and build the right investment climate that can shape all of that investment. And that brings me to the second pillar. We must use the Bank groups’ knowledge and technical expertise to more effectively mobilize other investments and help create the right economic, financial and regulatory environment for infrastructure investment. Doing that, I think essentially depends on learning the right lessons from the experiences of the past; not only what worked but also what did not work. It includes working with countries to promote sensible economic policies, policies that reward investment, good governance practices, strong institutions and the rule of law. And we should also encourage the use of risk mitigation instruments, a long-term regulatory regime and other essential reforms. The challenges that I raised suggest, as I have, the need to take a hard look at past investment in infrastructure; if we want to have any hope of meeting the enormous needs that I have just outlined. Minister Tanigaki asked some pertinent questions about whether some of the projects in past were-- achieved their intended results. At the World Bank we have completed an analysis of our infrastructure work over last two decades. Let me share just a few of the conclusions from that study. First our approach to infrastructure must focus not just on economic growth or human growth, it must also focus on smart growth. That is growth that is economically sound, environmentally friendly, socially acceptable, locally desirable and most important, growth that makes a real difference in the lives of poor people. Smart investments allow infrastructure to support the push by the international community toward achieving the Millennium Development Goals. That means the investments must focus not just on economic growth but on improving human development outcomes and sustainable development. We continue to support cost recovery for infrastructure operations but we recognize that, that goal could make some services unaffordable to the very people who need the help the most. Full cost recovery may send the right price signals to the market but for some activities in the poorest countries, subsidies are unavoidable and indeed sometimes desirable. Where subsidies are used however we need to make sure that they truly expand services for the poor at affordable rates. Second, attempts to draw a line between public and private approaches to infrastructure are misplaced. We have moved away from a paradigm that once expected the private sector to play the dominant role in infrastructure provision. The private sector can and does play an important role in increasing investment and strengthening service delivery. But it’s apparent that the capacity or willingness of the private sector to respond to all the infrastructure needs is limited. Private sector investment in infrastructure developing countries peaked in 1997, at around 128 billion dollars. It’s dropped sharply since then, by about half to 58 billion dollars three years ago. In Africa, foreign private capital has contributed most, at most 10 to 15% of infrastructure investments on the continent since the mid 1990’s. That’s significant but far from what was expected and far from what’s needed. Experience points to a compelling need to consider responses of along the full spectrum of public private activity. The private, in some sectors and countries, the private sector will offer the best solution to deliver projects effectively. But in other contexts great involvement by the public sector will be necessary, in some cases as a direct provider of services and in others as an enabler. One key facet of this enabling role is to create an appropriate and long-term regulatory environment in which, whether public or private, providers can operate efficiently. And finally, we must get tough and stay tough about corruption; that requires vigilance, not only on Bank finance projects, where our fiduciary responsibility to our shareholders demands high accountability, but also in the broader country and global environments in which we operate. That requires attention to big ticket items such as bidding practices, and tender procedures for large projects and to local circumstances as well. Ordinary people will not fully benefit from new infrastructures such as roads, if is in the case of certain projects here in Asia, the improved access is accompanied by informal levies or charges that end up raising transport costs back to previous levels. We are also working with stakeholders through the in-extractive industries, transparency initiative to ensure that the growing revenues from oil, gas and mining are used to fight poverty and promote development. Other sectors, such as the construction industry might also benefit from similar initiatives in the future. To conclude these are just some of the lessons learned in our own study of infrastructure over the past two decades. There are undoubtedly many others and I hope over the coming days you will share them with us. Over the course of this conference, I encourage you to examine some of the pressing issues that confront us and help us to continue to rethink infrastructure. Our challenge at this conference is to rethink infrastructure with the goal of achieving successful and sustainable development and putting the transforming power of opportunity into the hands of the poor. It’s not an easy task as you all are well aware but I think it’s an exciting one. I wish you all the greatest success in your efforts and look for to reviewing the conclusions of this conference. Mr. Chairman, ladies and gentlemen, thank you very much. (Clapping) Kiyoto Ido: Thank you very much President Wolfowitz. Once again please give the applause once again. (Clapping) Thank you very much. Now the opening session is adjourned. We need some time to set up the stage for the session 1, so we would like to call once again before the start of the session 1. Thank you very much. |
RSS