Bridges to Growth, Not Roads to Nowhere: Scaling Up Infrastructure Investment in Low-Income Countries
IMF Blog, December 3, 2010
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Bibliographic details
- Authors: Hugh Bredenkamp, Roger Nord
- Published: December 3, 2010
Overview and context
- For low-income countries, the absence of reliable infrastructure—roads, railways, ports, but also power supply—has become an increasingly binding constraint on growth.
- Investment in infrastructure can raise productivity, boost growth, and help reduce poverty, but getting investment decisions right is complex.
- Many low-income countries showed a lot of resilience during the global economic crisis. A global recovery is now underway, but it remains fragile and uneven.
- Dynamic emerging market economies are more robust and are new development partners with relevant experience in scaling up investment.
Key statistic on financing needs
- The World Bank has estimated that, in sub-Saharan Africa alone, the total financing need is around $93 billion per year.
- One third of this is still unfunded.
Major messages from the IMF-sponsored conference on scaling up infrastructure investment
- Stronger framework for public sector investment decisions
- Countries need to develop a coherent strategy for scaling up infrastructure that maximizes the growth potential.
- Countries need to follow through on their investment strategies through a strong institutional framework that:
- keeps implementation in line with the strategy,
- ensures that projects are properly appraised and good projects selected,
- sees that adequate resources are budgeted so that investment projects can be completed and maintained.
- Good governance and strong public financial management systems are critical.
- Countries need to be savvy about how they finance the scaling up:
- ensure that the fiscal revenue base is strong and growing—through tax reform and good revenue administration—so that the public sector can more easily afford the debts it takes on,
- ensure that all borrowing indeed finances investment, and hence growth, not consumption,
- adopt a good debt management strategy to ensure that the overall amount and type of debt that the country assumes is within its capacity to repay.
- Support for capacity building
- Multilateral institutions and donors can help with financing, but their contribution to capacity building is equally important.
- From the IMF’s perspective, capacity-building support includes:
- helping countries design budgets consistent with infrastructure plans,
- building capacity to manage their debt,
- developing better tools to assess the likely growth returns from investment.
- New development partners have practical experience to share. Example given:
- The Chinese have had a lot of success in planning coherent investment, constantly reassessing infrastructure gaps and reorienting resources, and ensuring that infrastructure projects are linked up (for example, if they build a port, they also build roads and railways that lead to the port).
- A bigger role for the private sector
- Governments should define strategy and identify gaps, but in some areas it is sensible to rely mostly on private sector investment.
- Energy and telecoms are examples where a mixture of public and private sector investment can work.
- Tapping private sector equity financing allows investment to be scaled up beyond what the government might be able to afford.
- It is crucial that governments create an enabling environment—good tax system, good governance, and a sound legal framework—to give confidence that the environment will allow a proper return on private investments.
Implication and next steps highlighted
- The conference set the stage for ongoing dialogue about how low-income countries can increase the volume and quality of investment in a sustainable way.
Bridges to Growth, Not Roads to Nowhere: Scaling Up Infrastructure Investment in Low-Income Countries — Hugh Bredenkamp, Roger Nord, December 3, 2010