Last year, as part of the G20 Seoul Development Consensus, the G20 recognised the important role infrastructure plays in poverty alleviation and economic growth. A High Level Panel was set up to look at infrastructure funding and how best to mobilise and scale up financing for this important underfunded sector. Next month this panel will report back to the G20 with recommendations. However it is important when this happens that they appreciate that some infrastructure is more effective at alleviating poverty than others. To be most effective at tackling poverty reduction the High Level Panel should be aware of how best infrastructure can help alleviate poverty and the ways to ensure infrastructure benefits for the poorest. ONE recently sent a submission to them explaining the ways their recommendations and the G20 can ensure this.
“Over the next ten years, Africa will need $480 billion for infrastructure development” President Jacob Zuma of South Africa
"The [infrastructure] gap right now is something like $45 billion a year and that gap is dragging down economic growth in Africa by as much as 3% of GDP," Mthuli Ncube, African Development Bank Chief Economist
ONE welcomes the work of the Panel and the opportunity to contribute to it. As a development campaigning organisation we have focused this submission on the impact infrastructure can have on poverty reduction.
This Panel has a unique opportunity to influence G20 leaders to prioritise infrastructure development. The many challenges faced by people who live ‘off-grid’, without access to roads, electricity, health facilities or clean water, have been ignored for too long. Access to well developed and maintained infrastructure services reduces costs for small businesses, including farming, improves access to and the quality of health and education facilities, assists access to local and international markets, and creates jobs. The expertise on this Panel can go a long way to ending these blockages and bringing urgently needed new sources of finance and implementation to assist poor people around the world.
As part of the G20 Multiyear Action Plan on development, we look forward to recommendations from the Panel contributing to the wider G20 aim of promoting poverty reduction and economic development. The work of the Panel should address how investment in pro-poor infrastructure can contribute to these goals.
In Sub-Saharan Africa (SSA) lack of infrastructure is not an inconvenience, it is a daily hardship stunting economic growth and poverty reduction. 70% of the population has no access to electricity, 95% of agriculture is without irrigation and the majority of the rural population is not served by roads to market. Recent estimates by the African Development Bank (AfDB) put the annual infrastructure deficit in SSA alone at over $45 billion .
Access to reliable, affordable and appropriate infrastructure is essential for economic development and poverty reduction. Poor people too often pay heavily in time and money to access essential services such as healthcare and education – tying achievement of the Millennium Development Goals closely to access of essential infrastructure. In addition infrastructure is a major driver of economic growth. A lack of access to transport, energy, sanitation and irrigation infrastructure decreases economic activity, reducing output by as much as 40%.
There have been infrastructure success stories in Africa. Telecoms have boomed largely without state support and companies have made considerable profits. In addition there has been progress on infrastructure projects in major cities, coastal urban hubs and natural resource extraction sites.
However, neither the state nor the market has provided sufficiently for the essential infrastructure needs of the population. At the national level weak infrastructure has too often limited job-led economic growth. ‘Pro-poor infrastructure’ means investments in projects which address such constraints, including access to services, developing small businesses and creating employment opportunities.
The Panel should develop transparent minimum pro-poor infrastructure investment criteria
Infrastructure in SSA is generally concentrated around major cities, coastal urban hubs and resource extraction sites – geographically and economically excluding large sectors of the population. In this way infrastructure often supports large businesses and elites whilst excluding poor people and increasing inequality.
Private funding will continue to be a key source for infrastructure projects, however the multilateral development banks like the AfDB and World Bank, donor mechanisms such as the Commonwealth Development Corporation (CDC) and Millennium Challenge Corporation (MCC), and national government budgets will continue to play a major role. For both public and private providers the Panel should promote the use of strong, pro-poor sustainable investment principles and standards to ensure funding from these sources delivers for poverty reduction. Failure to use such criteria risks reducing project quality, delaying completion, undermining community ownership, increasing environmental damage and reducing the potential for poverty reduction.
The OECD Poverty Reduction Task Team on Infrastructure for Poverty Reduction determined four principles to promote pro-poor growth in partner countries through infrastructure:
i) Use partner country – led frameworks as the basis for co-ordinated donor support.
ii) Enhance infrastructure’s impact on poor people.
iii) Improve management of infrastructure investment, to achieve sustainable outcomes.
iv) Increase infrastructure financing and use all financial resources efficiently.
Such principles are then broken down into applicable investment criteria to help guide project design and can be found on the OECD website . Some of these have been adopted by the World Bank and AfDB (e.g. environmental impact assessments).
Other investors such as the CDC  and MCC  have similar pro-poor sustainable investment principles and typically use a combination of semi-quantitative criteria to determine minimum poverty reduction requirements. These groups rely on using their provision of large quantities of capital (or a better investment rating) to influence the infrastructure project plan to ensure increased pro-poor outcomes. However, such sustainable, environmental and pro-poor best practice standards should not be limited to ODA funds and its use in leveraging more finance. Using the OCED framework as a basis the Panel should recommend minimum criteria to ensure the long term poverty reducing impact of any infrastructure investment regardless of where the funding is coming from.
All projects identified/supported by the Panel should be subject to a poverty reduction assessment, and environmental impact assessment
Using a pro-poor criteria developed along the lines of the above section, the Panel can ensure that poverty and environmental impact assessments are carried out. These are essential to making practical recommendations of how individual projects can have the maximum developmental impact and ensure sustained economic gains. These can also address the social consequences referenced in point 2 of the OECD task team: ‘enhance infrastructure’s impact on poor people’. For example, when building road corridors it should be necessary to have a complementary AIDS awareness programme in place to ensure that improved transport networks don’t contribute to spreading HIV. Private and public sector should be expected to contribute to these assessments and to implementing their recommendations.
The Panel should support the Construction Sector Transparency Initiative, and transparency in national budgets and public procurement
In addition, to overcome the vested interests of current national infrastructure providers fearing competition from new investments, transparency should be encouraged so civil society can hold leaders to account for government projects. The Construction Sector Transparency Initiative (CoST) provides an example of how this can be done . The initiative recently completed a two-year pilot phase in seven countries and is now scaling up . It is based on the principles of sustainability, accountable governments, transparency for efficiency, investor confidence and that multi-stakeholder co-operation is important. The Panel should recommend CoST is adopted by national governments across Africa to ensure limited funds for infrastructure get maximum value for money and the poorest citizens are able to benefit. Transparency in national budgets can also help accountability and efficiency in public procurement and should be considered as a condition of large scale infrastructure support. A World Bank assessment of 2008 projects found that only 29% of water projects were either ‘very responsive’ or ‘somewhat responsive’ to the Bank’s governance and anticorruption strategy .
The Panel’s work should focus on energy, water and sanitation, and road infrastructure, particularly in Africa
Good transport, water and energy infrastructure is essential for poverty reduction as well as economic growth. However, such sectors are proportionally underfunded and less able to attract private investment, particularly in SSA which historically has received less than 17% of global ODA for infrastructure .
The lack of basic but essential infrastructure is most damaging in Africa’s neglected rural areas, where the majority of the continent’s people live. Here the burden falls most heavily on women, who must spend hours collecting wood for cooking in the absence of power. This lack of power also has a direct impact on education quality when children collect firewood rather than going to school, or are unable to complete homework outside of daylight hours. In 2009 only 31% of the total SSA population, and only 14.3% of the rural population, had access to electricity . The cost of powering generators, driven mainly by the variable price of diesel fuel, fall in the range US$0.30-0.70 per kilowatt-hour, about three times as high as the price of electricity from the public grid . For businesses frequent power outages mean big losses in forgone sales and damaged equipment—6% of turnover on average for formal enterprises, and as much as 16% of turnover for informal enterprises unable to provide their own backstop generation . In Africa there is an opportunity for smart investment in renewables to address this issue. Many rural parts of SSA have huge untapped renewable energy potential – for example only 7% of Africa’s hydropower potential has been exploited to date  – and could become pioneers in green sustainable growth. The G20 should consider the potential for a new partnership with Africa on clean energy technology development and investment and this should be a focus of the next COP meeting in Durban in late 2011.
Some women walk an average of 6km a day to water sources because they lack piped water or local wells . A lack of irrigation decreases crops yields and therefore the surpluses needed to generate income for subsistence farmers. Only 31% of Africans have access to basic sanitation facilities . The lack of such facilities increases the spread of diseases such as pneumonia and diarrhea; diseases which kill more children than TB, AIDS and malaria combined. In fact rotavirus induced diarrhea, which is treatable with vaccines, kills over 500,000 children a year. It also has a knock-on effect on education as girls will be more likely to drop out of school without appropriate sanitation facilities  and overall rates of absenteeism increases in schools without water . Every $1 spent on sanitation and water brings an $8 return by keeping people healthy and in work .
An absence of well-maintained rural road networks significantly isolates smallholder farmers from markets and increases reliance on profit eroding ‘middle men’. As much as 50% of rural farmers’ harvest is lost in parts of Africa due to a lack of post-harvest storage facilities and difficulty getting goods to market quickly . A World Bank study in Morocco found improved rural roads increased the use of fertilizers and more productive techniques, which in turn saw agricultural output increase by over 40 per cent . In Uganda for every local job created labouring to build rural feeder roads, another 1.6 jobs were created in the wider economy due to ‘multiplier’ effects  . The structural transformation from subsistence to market economy is dependent on transport development but in addition it is crucial to saving lives. A lack of roads makes it harder to access medicines for preventable diseases and to reach medical facilities. This has contributed to the MDG on maternal and infant mortality being the two most ‘off-track’ . Access to education is also impaired, meaning children often have to travel long distances on foot on unsafe routes.
In the last 10 years there has been very little improvement in these sectors, particularly in rural areas. This is characteristic of insufficient funding and there is a huge investment gap for these sectors. Unlike in ICT, Public Private Partnerships (PPP) in roads, water and energy are often problematic in SSA, which limits PPP’s ability to fill this gap. Low partnership success rates are historically due to less stable investment climates, lack of regional cooperation, the vested interests of existing infrastructure providers, low consumer density and a low ability to pay of potential consumers in rural areas.
For these reasons when looking at financing infrastructure investment the Panel should focus on these neglected but essential sectors, which can help alleviate extreme poverty and give people opportunities to improve their own lives.
The Panel should support investment in maintenance
Current investments in infrastructure are being undermined by their short term nature. The lack of maintenance not only leads to the erosion of the asset value, it also leads to higher transport costs which hold back economic growth. Current World Bank estimates of African infrastructure requirements are that almost 50% of the required infrastructure investment costs are for maintenance. However, few countries are able to meet recurrent maintenance costs through revenues. The Panel should therefore: focus on long-term funding sources for maintenance; recommend that all ODA infrastructure project is accompanied by long-term capacity development measures for the government agency charged with maintenance and related institutions (i.e. finance ministry, parliament, local authorities, etc); and measures aimed at strengthening the integrity system around infrastructure.
The Panel should explicitly ask for increased funds, raised and spent in a transparent way, for pro-poor infrastructure. ODA should contribute to this along with innovative financing mechanisms
Infrastructure as a proportion of ODA spending decreased from 35% to less than 15% from 1985 – 2005. Despite recent recognition that infrastructure is essential for poverty reduction this hasn’t changed significantly. SSA only receives around $4bn in ODA for infrastructure, which is still less than 10% of the total cost of current SSA infrastructure investment, whilst domestic funds continue to fund nearly 70% . Developing country governments typically have limited capacity to invest further. The Panel needs to be explicit in stating that financing for infrastructure needs to increase again. Support also needs to be provided so that better contracts can be negotiated between governments and companies to oblige the private sector to invest in rural areas as well as urban centres where it easier to make a profit. For example NEPAD’s Infrastructure Project Preparation Facility is designed to assist countries to prepare high quality and viable regional projects and programmes which feed into the goal of reducing Africa’s economic marginalisation. ODA will also be needed to fund projects and to help leverage more spending from the private sector, particularly with regards to neglected rural infrastructure (see section 2).
China’s expansion in Africa has also had implications for infrastructure financing. Leading experts predict that Chinese investment in infrastructure in Africa has increased from under $1bn in 2000 to over $6bn annually in recent years . This investment, which is a combination of FDI and government aid and loans, has typically been concentrated in Nigeria, Angola, Sudan and Ethiopia with small projects in other African states – although this portfolio is diversifying. However, much of this investment has not been transparently implemented and the pro-poor element is uncertain.
Many large investors, such as pension and hedge funds, do not support research and project planning to get infrastructure projects to a costed ‘investment ready’ stage. ODA can be used to fund such project design; in particular for projects that could have additional poverty benefits, or, to ensure the maximizing of such benefits. Pioneering schemes that carry out such project development deserve the Panel’s support. For example, InfraCo acts as a project developer, funding high risk early stage costs to make projects more attractive to investment and ensuring they have socially responsible outcomes . Initially ODA could also be used in innovative ways to compensate new investor’s higher perception risk associated with investing in new regions, despite Africa’s high return rates for major infrastructure projects.
Sovereign Wealth Funds (SWFs) provide a huge source of potential capital to invest in infrastructure in SSA. SWFs assets under management are currently valued at over $4.2Tr and by 2012 this could be $5.5Tr . Currently SWF investments in Africa are much lower than into other regions. By generating ‘investment ready’ projects and marketing these at SWF new finance could be leveraged and the Panel should investigate the potential for this.
To leverage more finance a unique combination of Public Private Partnerships will be needed to generate the levels of investment required. ODA can provide guarantees and multinational development banks like the AfDB can use their stronger investment ratings to attract other investors. National government can issue infrastructure bonds. For example Kenya recently launched an infrastructure bond – in part aimed at unlocking diaspora funds – aimed at raising 36 billion Kenyan shillings (about $390 million) for transport projects. The approaches of PPP investments will be country and project specific. The Panel is unlikely to be able to suggest one single model to promote but must find ways to encourage the trialling and adoption of multiple schemes, and reinforce the need for poverty, social and environmental impact assessments.
The Panel should support regional infrastructure approaches, including the AU/NEPAD Infrastructure action plan and the outcomes of the PIDA study
In addition to increasing ODA and leveraging private investment the Panel must also look at ways to address the current lack of coordinated regional infrastructure plans and/or lack of political ‘buy-in’. Having such plans and support decrease investor risk and increase the likelihood of project success, and so should increase investment.
Initiatives such as the African Union NEPAD 2010-2015 Infrastructure Action Plan, which has AfDB support and political buy-in, should be highlighted and supported by the Panel. This Africa led regional approach not only aligns with nationally led principles but the planning approach is part of a larger strategy looking at African infrastructure needs in transport, energy, transboundary water and ICT for the next 30 years called the Programme for Infrastructure Development in Africa (PIDA) . The PIDA strategy is due to be published later in the year by the AfDB and will set out the major regional African infrastructure needs and type of support needed for their development. The Panel should provide its full backing to the PIDA, its outcomes and its funding needs.
The regional approaches of the AU/NEPAD action plan should also be encouraged to promote poverty reduction, increased trade and economic growth. Historic lack of regional integration has stunted infrastructure development. Uncoordinated energy infrastructure development means only 2% of electricity in SSA is traded across borders. SSA on average has far higher transport costs than elsewhere. These transport costs are about twice the amount of other developing countries regions . Transport costs add on average 18.7% to the unit cost of exports and this is much higher for SSA’s land locked countries. One Stop Borders can cut trading travel times by up to 3 days and further decrease transport costs. Schemes like the Borderless Alliance in West Africa bring together the private sector with governments to reduce trade barriers . A lack of coordinated road and rail infrastructure designs causes problems for trade as roads and rail-tracks are designed for differing vehicle axel sizes. This means different trucks and trains must be used to transport goods, or inappropriate vehicles are used deteriorating the road quality, adding extra time and transport costs. In the Panel’s recommendations regional approaches to projects and investments should be encouraged.
The Panel should support the African Development Bank’s proposal for an Online Africa Infrastructure Marketplace
African infrastructure opportunities have no market exchange platform where capital providers (i.e. lenders, investors, donors and developers) can meet project sponsors, whether public or private. Projects lack a standard form of presentation. Information about “bankable” deals is generally difficult to obtain. Accordingly, putting together investment consortia is difficult in this highly fragmented market. Similarly, African government agencies and project sponsors face challenges in finding market partners. High information asymmetries and high transaction costs impede the growth of the market and limit the potential for cross-border capital flows from existing and potential new sources of funding such as SWFs. The AfDB’s proposal for an online Africa Infrastructure Marketplace (aka The Sokoni Initiative) should help overcome many of these challenges through a single platform for information on a large number of infrastructure initiatives. The platform would support public, private, and public-private partnership (PPP) projects; and would enable electronic connections between project sponsors, capital providers, and expert advisors worldwide. This will help overcome many of the asymmetries of project information and mobilise more resources for infrastructure development in Africa.
6. The seven pilot countries were Ethiopia, Malawi, Philippines, Tanzania, United Kingdom, Vietnam and Zambia.
10. Foster, Vivien, and Jevgenijs Steinbuks. 2008. “Paying the Price for Unreliable Power Supplies: In-House Generation of Electricity by Firms in Africa.” Policy Research Working Paper 4913, World Bank, Washington, DC.
11. Foster, Vivien, and Jevgenijs Steinbuks. 2008. “Paying the Price for Unreliable Power Supplies: In-House Generation of Electricity by Firms in Africa.” Policy Research Working Paper 4913, World Bank, Washington, DC.
13. UNFPA 2002, Water: A critical resource
15. Redhouse, D., 2004. ‘No water, no school’. In: Oasis, no. Spring/Summer 2004, p. 6-8. Available at: http://www.wateraid.org/international/about_us/oasis/springsummer_04/default,
17. UNDP, Human Development Report, 2006
18. Commission for Africa (2005), Our Common Interest, Report of the Commission for Africa, London
19. World Bank (1996) Morocco: Socioeconomic Impact of Rural Roads (Fourth Highway Project Loan 2254-MOR), Executive Summary http://siteresources.worldbank.org/INTGENDERTRANSPORT/Resources/morocco.htm
20. Taylor, G. (2000) ‘Labour-Based Technology: The Macro-Economic Dimension’, ASIST
21/ Global Monitoring Report 2011, Improving the Odds of Achieving the MDGs: Heterogeneity, Gaps, and Challenges
22. Foster 2010, Africa’s Infrastructure: A time for Transformation. World Bank
23. Table taken from: Africa’s Infrastructure - A Time For Transformation http://www.infrastructureafrica.org/aicd/system/files/AIATT_Consolidated_smaller.pdf
24. Foster & Briceno-Garmendia, 2009, Africa’s Infrastructure – A time for Transformation; & Brautigam, 2009, The Dragon’s Gift.
28. AfDB, 2010, Surmounting Africa's Trade Capacity Constraints http://www.afdb.org/fileadmin/uploads/afdb/Documents/Knowledge/Session%20II.2.2_1.%20Surmounting%20Africa's%20Trade%20Capacity%20Constraints.pdf