INVESTING IN INFRASTRUCTURE FOR PRO-POOR GROWTH AND POVERTY REDUCTION Ernest Aryeetey ISSER, UNIVERSITY OF GHANA.

INVESTING IN INFRASTRUCTURE FOR PRO-POOR GROWTH AND POVERTY REDUCTION

Ernest Aryeetey

ISSER, UNIVERSITY OF GHANA

OUTLINE

Introduction Overview of Infrastructure in Africa Changing Perspectives on Investment in

Infrastructure - Ownership Evidence of Infrastructure Investment Impact

on Poverty Reduction Making Infrastructure more beneficial for the

Poor

INTRODUCTION

There has been a lot of discussion of what constitutes infrastructure: e.g. economic and social infrastructure, hard and soft infrastructure, etc.

There is also a growing recognition of the role that different types of infrastructure play in reducing poverty.

Beyond social infrastructure, such as those for health and education, economic infrastructure is expected to underpin poverty reduction:

Introduction (Contd)

Energy, flood protection and drainage, irrigation, information and communications technologies (ICT), transport, water and sanitation.

Infrastructure enhances the productivity of the poor.

Enhances the employment-creation effects of economic growth.

Infrastructure can offer social protection.

SOME STATISTICS ON INFRASTRUCTURE PROVISION

In Burkina Faso, Uganda, and Zambia, walking is the principal means of transport for 87%of rural households. In most SSA countries it is over 80%

Less than half the people in Sub-Saharan Africa have access to safe drinking water.

Over two-thirds of the continent’s population lack adequate sanitation services.

Some Statistics….

Only about 5 percent of Africa’s rural residents have access to modern electricity, while over 95 percent are dependent on traditional fuels, mainly wood or cow dung for cooking, heating and lighting.

Telephone lines serve primarily urban areas in Africa; very few African villages have a single telephone. The average disparity of “teledensity” (number of lines per person) between urban and rural areas in Africa is estimated to be as high as 25:1

CHANGING PERSPECTIVES ON INFRASTRUCTURE OWNERSHIP/ MANAGEMENT Reforms in the 1980s led to the dominant public sector role

being muted with efforts to draw in private participation with controversial outcomes.

Transport: Proposals for improved efficiency included efforts to

develop BOT arrangements and the use of labour intensive methods for road construction, using local labour.

Reason: If encouraged, local firms partnering with foreign firms

would be better suited to finding technical solutions appropriate to local skills and resources, and to manage the work within local commercial, social and political constraints.

Changing Perspectives …… Water Supply and Sanitation:

Efforts to attract private participation in urban water has been most controversial;

Rural Water Supply and Sanitation (WSS) infrastructure is considered community or local government -owned.

Investment decisions are made on the basis of perceived needs.

Cost sharing has been extremely problematic in many parts of Africa, both urban and rural.

The result is that supply systems are still ineffective and inefficient, with little investment.

Changing Perspectives ……

Telecommunications: Historically, telecommunication services have been

provided by monopoly agencies or state owned enterprises.

Service has been dominated by the urban areas, with rural extensions consisting primarily of pay phones and public call offices at national post and telecommunications offices.

Currently, with new technologies, varying degrees of liberalization are occurring and have opened opportunities for innovative private sector participation to expand access to rural areas.

Changing Perspectives ……

Energy: For electricity, the national monopoly utilities,

financially crippled by below-cost universal tariffs, are unable to expand service to meet demand.

Low tariffs make it difficult to attract private investment.

The technology available puts the service beyond the reach of poor households

INFRASTRUCTURE INVESTMENT AS CHANNEL FOR POVERTY REDUCTION

Enable individuals, firms, governments – to respond to new types of demand in different places.

Creating employment to serve as social protection and as a counter-cyclical policy in times of recession.

Enhancing human capital by improving access to schools and health centers.

Improving environmental conditions, which link to improved livelihoods, better health and reduced vulnerability of the poor.

SOME PLANNED REGIONAL INFRASTRUCTURE PROJECTS

West Africa For energy, there is large scope for economic regional and cross

border investments among countries in West Africa.

In 2000 the heads of state of ECOWAS approved a master plan to complete the integration of national electricity grids and to establish a regional electricity market, the West African Power Pool (WAPP).

Phase 1 of the transmission projects were completed in 2002 (between Ivory Coast and Burkina Faso, and between Mali, Senegal and Mauritania)

Two others were due in 2006 (between Ivory Coast/Mali, and Nigeria/Benin). For 2008, there is Ghana to Togo/Benin

Planned Regional Projects …..

East Africa In October 2004, the African Development Fund approved

funding for a study to determine the optimum solution for the operation of a railway line between Isaka (Tanzania) and Kigali (Rwanda).

Covered regions are Shinyanga and Kagera in Tanzania, Burundi, and the east of the Democratic Republic of Congo.

The area is mainly rural, but has an abundant mineral wealth

The aim of the project is to open up new development opportunities to create employment, increase income and reduce poverty.

INVESTMENT IN INFRASTRUCTURE AND POVERTY REDUCTION: EVIDENCE

There are hardly any studies of the direct effect of infrastructure on poverty reduction in Africa.

There are, however, good examples from Asia where Yao (2003) has documented the poverty reducing effects of rural roads in India and the People’s Republic of China.

Table 1: Poverty Reducing Effects of Rural Road Investment

Poverty Reducing Effects Rural Road Investment

India

Elasticity* % Share

Peoples Republic of China

Elasticity* % Share

Direct effect throughincrease in agriculturalproductivity

-0.0119 17.92 -0.0450 28.46

Direct effect throughincrease in non-farmemployment

-0.0300 45.18 -.0417 26.38

Direct effect throughincrease in rural wages

-0.0204 30.72 -0.0399 25.24

Indirect follow-on effectthrough higher economicgrowth

-0.0041 6.18 -0.0315 19.92

Overall -0.0664 100.00 -0.1581 100.00

* The elasticity estimates measure the percentage changes of the rural poverty incidence with respect to road infrastructure investments, working through different channels.

Ghana: Indirect Evidence

Steady growth over 24 years propelled by steady capital expenditures has been assessed to be pro-poor (Aryeetey and McKay 2005);

Infrastructure investments (10% of total expenditures) have risen steadily in roads, health and education infrastructure and rural water

3530

39

6468

38

19

52

23

11

25

39

59

29

20

40

8 1017

24

46

1713

29

0

10

20

30

40

50

60

70

80

Public SectorEmployment

PrivateFormal

Employment

PrivateInformal

Employment

ExportFarming

Food CropFarming

Non-FarmSelf-

Empolyment

Non-Working

Ghana

Main Economic Activity

Inci

denc

e (in

per

cent

)

1991/92 1998/99 2005/06

Poverty Incidence by Main Economic ActivityPoverty Incidence by Main Economic Activity

60

44

26

48

57

41

65 63

88

67

52

27

48

5

4438

28

36

69

8488

40

18 20

1215

31

20

29

52

88

70

29

0

10

20

30

40

50

60

70

80

90

100

WesternCentral Gt.Accra

Eastern Volta Ashanti BrongAhafo

Northern UpperWest

UpperEast

Ghana

Administrative Regions

Inci

den

ce (

in p

erce

nta

ge)

1991/92 1998/99 2005/06

Poverty Incidence by Administrative Regions

CONCLUSION: MAKING INFRASTRUCTURE INVESTMENT WORK FOR THE POOR

Private participation is not necessarily the problem;

For water and energy, not being able to influence technology is what makes it difficult to sustain infrastructure;

Use new regulatory regimes to enforce standards that take into account the poverty of the poor. New research should help.

End

Thank You