21/05/2001
Press Release
DEV/2328

IMPORTANCE OF INFRASTRUCTURE TO DEVELOPMENT, POVERTY REDUCTION

STRESSED AT THEMATIC SESSION OF BRUSSELS CONFERENCE


(Received from a UN Information Officer.)

BRUSSELS, 21 May -- Building infrastructure –- roads, bridges, communications -- was a means for wider development ends, such as poverty reduction, although that link was often still poorly understood, the Third United Nations Conference on Least Developed Countries was told this morning.

As the Conference held an interactive thematic session on“Infrastructure Development”, Kimio Fujita, Special Assistant to the Minister of Foreign Affairs, Japan, and c-Chair, described his own country’s development following the Second World War, when it was one of the world’s poorest countries, and said its experience in assisting others build infrastructure today was based on its own experience as a recipient of aid. The key was the belief that the development of infrastructure was the basis for economic growth, which, in turn, created the conditions for poverty reduction -- and that idea had been maintained as Japan expanded its development assistance beyond East Asia.

The session focused on the contributions that infrastructure could make to growth and poverty reduction and, in particular, the ways in which total financial flows for building infrastructure in least developed countries (LDCs) could be increased.

Masihur Rahman, Permanent Secretary, Ministry of Finance, of Bangladesh, said it was important to find new methods of financing for such things as transport. In the search for investment, fiscal implications, including a government’s contingent liabilities, needed to be specified, which could be redeemed in the long term. Although his Government was facilitating private investment in public infrastructures, he asked, “How do we get enough investment, though, to ensure adequate level of services to the population?” Before making big plans, basic needs must be satisfied, he stressed.

Nemat Shafik, Vice-President, Infrastructure and Private Sector Development, World Bank Group, presented an issue paper prepared by the Bank in collaboration with the African Development Bank and the Asian Development Bank, which identified directions for concrete policy. She said the question was how the new paradigm -- which included increased financial flows to the infrastructure sector, improvement of the development impact of infrastructures, and development of new approaches to infrastructure services provision -- could be made to work for the poor.


Speakers in the interactive dialogue stressed the link between infrastructure development and poverty alleviation, saying that both domestic savings and a combination of official development assistance (ODA) and foreign direct investment (FDI) were needed in the LDCs. They favoured the development of technology-intensive services, along with more traditional infrastructure sectors, and addressed the risks involved in infrastructure investments. Of key importance to the LDCs, however, were international programmes for infrastructure-building, as poor countries alone could not cope with the tasks before them.

Statements were also made by: Rubens Ricupero, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD); Jean Pierre Verbiest, Manager, Strategy Planning and Policy Coordination Division, Asian Development Bank; Samuel Nnama, Manager, Operations Support Division, African Development Bank; and Hamadoun Touré, Director of the Telecommunication Development Bureau, International Telecommunication Union.

The Conference will meet at 3 p.m. to hold an interactive thematic session on “Transport and Development”.


Thematic Session


Issues Paper


An issues paper for the session, circulated by the World Bank (not available as an official document), contained chapters on: infrastructure as an agent for economic development; the infrastructure sector in the 1990s; and the infrastructure agenda for the next decade, which includes increasing finance in infrastructure, improving its development impact, and developing new approaches to infrastructure service provision. An annex describes “General directions for setting policy and channeling funds”.

With figures and tables, the 24-page paper supplied information on, among others, the inequality of access to electricity services within countries, the comparative extent of private sector participation across countries and sectors, official development assistance (ODA) and private capital flows to infrastructure in developing countries and least developed countries (LDCs), and ODA and private capital flows in LDCs by sector.

The paper began by stating that “the development of infrastructure networks is intimately connected with the process of economic growth”. Among many other areas, it examines the impact of transport infrastructure on facilitating economic integration, the importance of the Internet in facilitating trade, and the connection between infrastructure and poverty reduction.


Statements


MASIHUR RAHMAN, Permanent Secretary, Ministry of Finance, of Bangladesh, said that in 1994 the World Bank had defined the infrastructure as a framework that included, but was not limited to, bridges, telephone services, electricity, transportation, water supply and so on. Such a definition recognized activities requiring substantial investment that were important for development. The issue paper to be introduced today showed that private and foreign investment had been directed, to a large extent, towards certain aspects of the infrastructure, such as telephone services, rather than others.

Along with the general infrastructure, he continued, developing the rural infrastructure was important to the LDCs, including the construction of roads and providing access to markets. Development assistance for infrastructure in the LDCs had been inadequate. A substantial amount of capital was needed, which could be spread out over a long period of time. Most of foreign investors asked for government guarantees and for long-term contracts, in order to distribute the risks. In most cases, governments of the importing countries had to take the greater risk.

It was important to find new methods of financing for such infrastructure elements as transport, he said. In search of investment, the fiscal implications, including the magnitude of a government’s contingent liabilities, needed to be specified, which could be redeemed in the long term. In early 1980s, his Government had carried out a railroad restructuring programme. Initially, both the Government and the donors made their decisions based on financial interests, without taking into account the implications of railroad closures on the population. Later, however, in order to maintain service, some of the lines were leased out to private companies. In the long term, both public and private sides profited. His Government was facilitating private investment in public infrastructures, but, he asked, “How do we get enough investment, though, to ensure adequate level of services to the population?” Before making big plans, basic needs must be satisfied.

Kimio Fujita, Special Assistant to the Minister of Foreign Affairs of Japan, also a co-Chair, said that following the Second World War his country was one of the poorest countries in the world. In 1952, with admittance to the World Bank, it began constructing its infrastructure. Today, his country’s strategy as a donor of development assistance was based on its experience as a recipient. Official development assistance loans were provided to East Asian nations for building infrastructure, and technology was transferred through technical assistance. Private investment followed to construct industrial capacity. That idea -- that the development of infrastructure was the basis for economic growth, which, in turn, created the conditions for poverty reduction -- had been maintained, as Japan expanded its ODA beyond East Asia.

Private capital flows had been concentrated in some upper middle-income countries and to specific sectors, namely, telecommunications and energy, he said. Consequently, ODA remained the dominant source of infrastructure finance for LDCs over the last decade; more than $35 billion in ODA, versus less than $5 billion in capital flows. Since 1997, the decline of both ODA and private capital flows to the infrastructure sectors in LDCs was dramatic, falling from around $4.5 billion in the mid-1990s to $2.5 billion at the close of the decade. The benefits that private capital could bring had been amply illustrated by the experience in the last decade, even in the poorest countries, but in order to secure and expand the inflow of private capital, greater market reform would be necessary.

Infrastructure served as a means for wider development ends, he said. Yet, the link between infrastructure development and wider development outcomes was still poorly understood. Infrastructure development projects had to meet the true needs of the local residents, especially the poor, and they would be more successful with the participation of local residents. An example of that was the Jamuna Multipurpose Bridge Project in Bangladesh. That $950 million project was co-financed by Japan, the World Bank and the Asian Development Bank. The project linked the rest of the country to the north-west, boosting the region’s economy, and was also noteworthy for the effective collaboration between the Government of Bangladesh and non-governmental organizations in the resettlement of about

100,000 people. Similarly, in 13 African countries, as well as in many of the Asian States, the water supply projects carried out by Japan and the respective host nations had achieved various social development impacts. Infrastructure development was the sector that the preference of the beneficiaries should be most respected and where the demand-driven approach should always be taken.

Panellists

Presenting the issue paper of the World Bank, NEMAT SHAFIK, Vice-President, Infrastructure and Private Sector Development, World Bank Group, said that the infrastructure formed a foundation on which economies were built. To build such a foundation, it was important to make clear the link between infrastructure and poverty reduction. Many examples in poor countries demonstrated that investment in infrastructure led to a use in gross domestic product (GDP). Growing infrastructures also increased employment and facilitated access to markets. The tragedy, however, remained that many poor countries still had no access to developed infrastructures, and had to pay more for the services that they did get.

A paradigm shift was needed in providing infrastructure services, she continued. While some governments had succeeded in attracting investments into telecommunications and power, least successful were attempts to attract private investment in transport and water. Also, capital flows were volatile and investments had been unevenly distributed among the countries. Official flows towards infrastructure had fallen by almost half in the last 10 years. About one third of the World Bank’s activities were devoted to infrastructure, but that was clearly not enough to meet the huge needs of the LDCs.

In terms of infrastructure services by sector, telecommunications had

been the most successful, she said. Electricity was a different story; almost

2 billion people in the world still had no access to electricity. Water supply services and road infrastructures had actually been deteriorating, largely due to a lack of maintenance. Looking forward, the needs were going to grow even further. In Africa and Asia, the urban populations were expected to double. The question was how the new paradigm -- which included increased financial flows to the infrastructure sector, improvement of the development impact of infrastructures, and development of new approaches to infrastructure services provision -- could be made to work for the poor.

The decline in external finance must be reversed, and the gross waste of infrastructure resources eliminated, she said. At the same time, the old paradigm of direct public provision must be avoided. Fostering public-private co-financing could prove useful. Turning to examples of regional cooperation, she said that it was estimated that by exchanging electricity with its neighbours, South Africa could save $80 million each year in operating costs and $700 million in investment costs over the next 20 years. She also referred to the Greater Mekong Sub-Regional Programme, which was supported by the Asian Development Bank, which aimed to integrate regional roads, railways and information and communication technology (ICT) networks, in the context of a wider reform process. Regarding new approaches, she said that beneficiaries’ views had often been overlooked in infrastructure project design. It was essential for infrastructure service providers to look “beyond the meter” and try to work proactively with end-users.

Jean Pierre Verbiest, Manager, Strategy Planning and Policy Coordination Division, Asian Development Bank, said his Bank was currently supporting three subregional initiatives. The first was the Greater Mekong Subregion (GMS), which was the case study of his presentation. The second was the South Asia Subregional Economic Cooperation Programme, where the Bank was helping to identify and set priorities. The third was the Central Asian Regional Economic Cooperation initiative, which promoted subregional economic cooperation among the Central Asian countries, which were now in transition towards a market economy.

He said the GMS Programme promoted closer cooperation among the six countries that shared the Mekong River -- Cambodia, Lao People’s Democratic Republic, Myanmar, Thailand, Viet Nam and the Yunnan Province of China. The Programme began by focusing on basic infrastructure, such as transportation and energy, but had since been broadened and deepened to include social sectors, such as human resource development, tourism, the environment, investment and trade and transborder issues to resolve policy regulatory and other non-physical barriers to cross-border traffic.

He said the Programme was developed to be results-oriented and, as a result, the various projects had several aims in that respect. The first was to facilitate subregional trade and investment, and private sector participation in subregional infrastructure development in energy, transportation, tourism and agriculture. The second was to facilitate the resolution of transborder issues and the fulfilment of common resource needs. The GMS Programme also had a peace dividend, for it contributed to stability and better relationships.

He said that there had been some success in developing subregional infrastructure in three areas. Major transportation infrastructure projects now linked the different countries in the subregion and were facilitating the greater movement of goods and services. In the energy sector, the 210 megawatt Theun Hinboun Hydropower project in the Lao People’s Democratic Republic contributed significantly to its economy by earning substantial foreign exchange from selling excess power to Thailand. Also, subregional cooperation in telecommunication had created a reliable high-quality, low-cost telecommunications service that linked the six countries.

SAMUEL NNAMA, Manager, Operations Support Division, African Development Bank, said that the objective of the Bank was to contribute to more sustained development and poverty alleviation through appropriate lending and investment policies. The major impediments to growth in Africa included the lack of openness to trade, conflict, governance issues, human capital development problems and poor infrastructure. The lack of infrastructure was a major obstacle to economic development. Africa could be significantly strengthened as a result of improved regional integration and cooperation.

Roads should receive special treatment, he continued, as the failure to expand and improve the transportation infrastructure resulted in poor access to neighbouring countries. Development of transport required a large amount of capital investment, which was beyond the economic capacity of most African countries and was generally financed through foreign aid. African countries accorded high priority to the Trans-African Highway project, being implemented since 1971. The road network would link areas of production to areas of consumption. The system consisted of nine groups of road links servicing different subregions of the continent.

Promoting inter-African and international trade, the roads had a beneficial effect on the economies of LDCs, particularly the landlocked ones. The roads generated tremendous transit traffic, which was required to bolster tourism and service industries, thereby creating primary and secondary employment. The project also stimulated agricultural production by reducing waste and promoted the development of light and medium-scale industrial production along the routes of the highway network.

Turning to the financing of the project, he said that most LDCs and regional member countries could not bear the full cost of building the roads. The project was supported by African Development Bank, the Organization of African Unity (OAU) and other partners who shared the cost of road-building. Donors should also help with the road construction. It was important to finance a study of the missing links of the network, and that could be done through a donor conference, which could be organized next year. He also asked for donors’ and development partners’ support in establishing of a trans-African highway bureau to develop and implement the work programmes for the project.

RUBENS RICUPERO, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), stressed the importance of competition in infrastructure. Problems such as corruption had been identified, but while he agreed, he said it was often forgotten that competitive environments did arise automatically. In Brazil, for example, the ports had been privatized, but they had still had a tendency to be dominated by cartels.

He said there were similar problems in neighbouring countries, where airports were affected, as well. Regulatory agencies had to be strong and should seek good examples of regulation in that area. If there was no competitive environment, countries could end up worse off than they were before. While globalization had eliminated the importance of time and space, people made a conceptual error when they equated the reduction of time, because of telecommunication, to the reduction in distance. Very little had been reduced in terms of distance and very little had occurred in the maritime sector vis-à-vis radical changes.

Hamadoun Touré, Director of the Telecommunication Development Bureau, International Telecommunication Union (ITU), said the role of his organization in fighting LDC marginalization was unquestionable. At its last conference, held in Malta in 1998, the ITU’s Bureau came up with road map to guide it in achieving its key objectives and to adapt to changes in the environment. That road map was called the “Valleta Action Plan”. Of utmost importance was the fact that the Conference introduced a special programme for LDCs. That programme called for increased and more focused assistance for LDCs in the areas of: sector reform and restructuring; introduction of new technologies; rural telecommunication development; and financing, tariffs and partnerships.

He said that, judging from the adoption and implementation of the Valletta Plan, 10 LDCs had now attained better tele-density than some non-LDCs in the low-income bracket. There had been striking growth in mobile use, Internet users, satellite antennas and personal computers. The environment was rapidly changing. There was a convergence of technologies and an emergence of smart technologies. Those technologies could provide a global information infrastructure that could help LDCs leapfrog into the information age, without having to spend a lot of money digging trenches and wiring the cities and rural areas. The ITU, as the lead agency, was ready and geared to assist all its constituencies to emerge from the jaws of telecommunications poverty.

Interactive Dialogue

A speaker informed the participants about the outcome of a high-level international dialogue on infrastructure development, which had taken place in Bonn in March. The participating governments, international organizations and non-governmental organizations had made some recommendations on the subject, stressing the need for a stronger regulatory framework and the public/private partnership. It was important, however, not to replace the public monopoly with private ones. Local capital markets needed to be developed, along with mechanisms for foreign investment.

Subsidies for such basic services as water provision were also mentioned in the debate. Market liberalization and the opening of borders had not improved the situation in many LDCs, which meant that investors were “not exactly rushing” to participate in the development of those services, a speaker said. What could underdeveloped countries do to secure funding for their infrastructures, if it was precisely the lack of those infrastructures that prevented investors from investing in the first place? one speaker asked.

The use of advanced technologies received support from the floor, for the rapid development of telecommunications and Internet services, for example, could have a beneficial effect on the economy, which, in turn, could result in increased investments. Fair competition in granting licenses was also stressed, along with the need for a regulatory framework for infrastructure development. The were also requests for information and assistance with particular projects of interest to underdeveloped countries, including irrigation, road building and water use, for the lack of resources prevented many LDCs from implementing much-needed measures.

Policy implementation should be based on feasibility studies, a speaker said. Genuine international support was needed for infrastructure development projects, and human rights should be taken into account. Smaller communities and businesses should have their say in policy formulation and participation in infrastructure development. If people considered such infrastructure elements as schools and hospitals as their own, those structures would not be the first to be destroyed at the time of conflict.

Higher GDP growth could be achieved through domestic savings, and ODA in combination with foreign direct investment (FDI), a speaker said. The risks and costs of doing business in the LDCs needed to be evaluated, and their markets needed to be enlarged. Nothing could be achieved, however, if international financial institutions, including the World Bank and the African Development Bank, continued to insist on the same conditions and requirements. If a country came to

them asking for help in building a bridge, those banks should not insist that it needed to build a school first.

Another speaker said that infrastructures were the first to suffer in armed conflicts, and direct assistance was needed to reconstruct them. What countries needed what not charity, but a meaningful partnership, for many opportunities were emerging in the LDCs when they were in transition from conflict to development. The world’s poorest countries could benefit from special programmes, designed to attract investments and advance the cause of development. Also raised in the discussion were the issues of human rights, including the rights of women, training, environmental protection, and legal measures against corruption.

In his concluding remarks, Mr. RAHMAN said that among the issues raised today were the urgent need for the expansion of infrastructure services in the LDCs, governance, financing, use of technology, reconstruction in the context of conflict, and policy improvement. Most of the speakers emphasized the need for additional resources for infrastructure development. Local and small-business investments in infrastructure were encouraged, as well as adequate financing and additional ODA and private investments.

Mr. FUJITA said that both the donors and recipients had reconfirmed the central role of infrastructure development as the basis for economic growth and poverty reduction. Speakers shared the concern over the sharp decline of ODA and the need to regenerate external financing. The importance of competition was also stressed, and particular projects were presented as examples of regional and national efforts.

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