-- Infrastructure resources -- Infrastructure Expert on Infrastructure: Katherine Sierra

At a Glance

·         Infrastructure is a key factor in responding to the current global economic downturn, and in the drive to increase economic growth, reduce poverty, and achieve the Millennium Development Goals (MDGs).

·         Developing countries need more infrastructure that is environmentally sound, socially acceptable, and financially sustainable. The global financial and economic crisis is expected to have a severe impact on infrastructure services in developing countries, as governments face shrinking resources and private financing flows decline.

·         The World Bank Group (WBG) launched the Infrastructure Recovery and Assets (INFRA) platform in April 2009 to focus attention and resources of the WBG and its development partners on the critical needs of infrastructure during the downturn, while helping lay the groundwork for future growth and poverty reduction. INFRA scales up infrastructure lending targets set out in the Sustainable Infrastructure Action Plan, approved in early summer 2008 as the roadmap for action to effectively address the challenges of globalization, social inclusion, and environmental sustainability.

·         WBG financing for infrastructure-related programs and projects rose to US$20 billion dollars during FY 2009, exceeding the US$15 billion committed under the INFRA platform.

WBG Infrastructure Business. The WBG supports infrastructure services across a wide array of sectors: energy, transport, water supply and sanitation, urban management, water resources, environmental infrastructure, information and communications technology, oil, gas, and mining. 

This support is based on the fact that infrastructure development contributes directly and indirectly to poverty reduction. For example:

·         Access to electricity in Tanzania increased non-farm income by 61 percent.

·         Rural road rehabilitation in Ghana reduced costs for transporting goods and passengers by about one-third on average.

·         Changes in access to quality roads increased consumption growth in rural Ethiopia by 16 percent and reduced poverty by 7 percent (Dercon et al., 2007).

·         More than 500,000 women die each year due to childbirth complications; most of these deaths could be prevented through timely access to essential childbirth-related care, for which road access is crucial.

·         A report on infrastructure in Africa in particular recognizes the strong and significant connection between the stock of infrastructure and growth. It notes that infrastructure not only contributes to economic growth but is an important input to human development and a key ingredient for achieving all the MDGs. 

·         Safe and convenient water supplies save time and arrest the spread of a range of serious diseases—including diarrhea, a leading cause of infant mortality and malnutrition.  Electricity powers health and education services, and boosts the productivity of small businesses.  Road networks provide links to global and local markets.  Information and communications technologies democratize access to information and reduce transport costs by allowing people to conduct transactions remotely.[1]

Despite its recognized importance for economic growth and poverty reduction, infrastructure development has been characterized by:

An Access Gap: An estimated 884 million people in developing countries are without safe water; 1.6 billion are without electricity; 2.5 billion are without sanitary facilities; and nearly 1 billion are without access to an all-weather road. Access rates are lowest in International Development Association (IDA) countries and in rural areas, and the gap is most pronounced in Sub-Saharan Africa and Asia. For example, there is almost no city in South Asia that supplies water “24x7” to its residents.

A Finance Gap:  The total demand for infrastructure investment and maintenance from developing countries is estimated at more than US$900 billion per annum.  Developing countries today invest, on average, 3-4 percent of their GDP on infrastructure annually.  They should spend an estimated 7-9 percent of their GDP for both new investment and the maintenance of existing infrastructure in order to sustain broader economic growth and poverty reduction efforts.

Of the investments, public funding currently accounts for approximately 70-75 percent and private financing account for about 15-20 percent.  Official Development Assistance finances less than 10percent of investments in infrastructure.  Private sector investment commitments for infrastructure projects in developing countries rose from a low of US$66 billion in 2003 to a peak of US$162 billion in 2007, and then declined to US$150 billion in 2008.  Between July 2008 and March 2009, as the financial and economic crisis intensified, private activity in infrastructure projects continued to take place, but the rate of project closure fell 15 percent by investment compared to a similar period in the previous year.  

Achievements Since 2003.  The WBG responded to demands from clients by scaling up assistance for infrastructure under the Infrastructure Action Plan (IAP) of 2003.  Achievements under the three-year plan (FY04-FY07) include the following:

·         Bank lending for infrastructure grew by 88 percent during the period, reaching US$10.3 billion in FY07. Assistance for infrastructure in Africa almost doubled, rising from US$1.4 billion to more than US$2.5 billion during the same period.

·         More operations involved cooperation between the International Bank for Reconstruction and Development (IBRD)/IDA and IFC and MIGA.  New instruments, such as sector-wide approaches (SWAPs) and Output-Based Aid (OBA) were developed.

·         Multi-country operations received a significant boost.

·         The Bank and IFC combined their resources to expand assistance to sub-national governments without requiring sovereign guarantees.

·         The quality of the infrastructure portfolio has remained sound, including compliance with safeguards.

In the summer of 2008, the Board of Directors endorsed the successor to the IAP, the WBG Sustainable Infrastructure Action Plan (SIAP), which repositions the infrastructure business:

(i)      to sustain growth in financial assistance in response to continuing strong demand;

(ii)     to strengthen the integration of economic, social, and environmental aspects of infrastructure development; and

(iii)    to more fully leverage its own resources with those of the private sector, donors and national governments. 

Emerging Strategic Challenge for Sustainable Infrastructure Development.  Since the development of SIAP, the world has faced a financial and economic crisis that is expected to have severe consequences on support for infrastructure services.

Experience from previous crises has shown that infrastructure investments often bear the brunt of shrinking public expenditure at the national and sub-national levels. Private investment also declines dramatically during crises, and cannot meet the financing gap of the public sector’s much larger portion of infrastructure financing.

Reduced funding for infrastructure, while expedient to governments in the short run, can be particularly detrimental in the longer term as infrastructure services are key drivers of sustained economic growth and poverty alleviation. The “Lost Decade” of development after the East Asian crisis showed how countries can suffer both from a decline in infrastructure assets and services, particularly to the poor, and from a weaker foundation for sustainable growth.

In response, the WBG has developed the Infrastructure Recovery and Assets (INFRA) Platform  to: (a) assist partner country governments respond to the negative effects of the global crisis on their infrastructure services and investment programs; (b) provide them with customized policy options to minimize the impact of the crisis, while limiting market distortions; and (c) provide technical and financial support for continued private sector activity and for public investment projects in infrastructure.

INFRA objectives are being achieved by:

• Stabilizing existing infrastructure assets by providing funding to those infrastructure projects that are facing temporary liquidity problems; ensuring continued preparation of investment projects with updated project designs; restructuring ongoing projects to ensure sufficient counterpart funding; supporting government efforts to cover the costs of maintenance and protect countries’ existing infrastructure assets; providing safety nets to protect the poor’s continued access to services; and advising governments and utilities to efficiently manage currency, interest rates, and commodity risks.
  
  
• Ensuring delivery of projects that remain government priority by providing additional financing for infrastructure investments, sub-national lending, and technical assistance; and advancing the low-carbon agenda through climate finance instruments.  Essential infrastructure spending that should be protected against revenue shortfalls will be identified and capacity for improved budget management will be provided given its increased importance in a more constrained fiscal environment. 
  
  
• Supporting Public Private Partnerships (PPPs) in infrastructure by bridging the current gap of government commitments to private or PPP infrastructure projects in emerging markets.  This will help stabilize viable infrastructure projects with private participation that are facing temporary liquidity problems in light of changed market realities and enable the continuation of some new private project development.
  
  
• Supporting new infrastructure project development and implementation by providing financing and advice to those governments that intend to launch growth and job enhancing infrastructure programs and projects and by supporting investment planning and management by creditworthy sub-sovereign municipalities and utilities[2].

The INFRA Platform is being implemented through the following components:

·         Increased diagnostic and advisory support. Infrastructure diagnostics are being carried out in 18 countries to identify infrastructure financing most at risk and projects that should receive priority focus. The diagnostics provide a detailed assessment of infrastructure spending and a methodology for the preliminary assessment of the impact of the crisis.

·         Scaled-up financing through parallel financing initiatives from donors to ensure complementarities of means and responses for countries and projects affected by the crisis. The preferred method of cooperation will be parallel financing to ensure a speedy response and multi-donor instruments for investment financing to allow financing gaps to be bridged by different donors more easily.

·         Targeted financing for project preparation, diagnostics, and cross-learning on crisis response approaches. A multi-donor trust fund is envisaged to provide incremental financing for project preparation, diagnostics, and cross-learning on crisis response approaches.

·         Monitoring and coordination.  Monitoring and coordination will be undertaken to report on diagnostics, projects in the pipeline, and to support collaboration among donors on crisis response in infrastructure.

Acceleration of the Clean Technology Agenda.  INFRA will have a particular focus on green investments and will support governments that want to use infrastructure investments to advance the “green agenda”.  This will be done by leveraging financing for the pipeline of investments from new facilities, such as the Carbon Partnership Facility, Clean Technology Fund, green bonds, the Energy for the Poor Initiative, the initiative on Scaling-up Renewable Energy in Low Income Countries, and from similar programs managed by other donors.

As a response to the global economic crisis, the Bank has reviewed its commitment to scale up financing where it is critically needed in infrastructure, especially in financing to the public sector. As part of INFRA, the Bank estimates a three-year commitment of US$15 billion/year for infrastructure, for a total of US$45 billion.

For more information, see the web site: www.worldbank.org/sustainabledevelopment.

Media Contacts:

Roger Morier, (202) 473-5675, rmorier@worldbank.org

Robert Bisset, (202) 458-5191, rbisset@worldbank.org

Karolina Ordon, (202) 458-597, kordon@worldbank.org

Updated September 2009