Marianne Fay and Mike Toman, World BankBusan South Korea, 4 June 2010

Infrastructure a key for growth, poverty reduction, environmental sustainability◦ Other complementary factors also matter

Infrastructure investment far from sufficient◦ Public investment costly, not always efficient◦ Private investment can help, but only so much

Progress requires◦ Increasing fiscal space, improving governance◦ Improving private sector investment climate◦ Fully integrating environmental considerations◦ Improved measurement of rsults and needs

2

Growth – investment in more and better infra has added ~2% to global growth rate, more in East and South Asia

Poverty reduction – investment also has reduced income inequality globally, regionally

Environmental sustainability -◦ Water scarcity and pollution, air pollution from

fossil energy use remain threats in many places◦ Infrastructure is associated with roughly half of

global greenhouse gas emissions

3

MDG Challenge

1) Eradicate poverty & hunger Natural resource degradation

2) Universal primary education Water/sanitation; energy access

3) Gender equality/empowerment Land use; indoor air pollution

4) Reduce child mortality Water/sanitation

5) Improve maternal health Water quality; energy/pollution

6) Combat major diseases Air & water quality//climate change

7) Environmental sustainability NR degradation; BD, CC; governance

8) Global public good partnerships Biodiversity, int’l waters, CC

4

Alldeveloping

(%)

Africa(%)

W/o telephone 31 75

W/o electricity 24 74

W/o sanitation 40 69

W/o improved water 24 42

5

05

101520253035

Electricity connection delay

(days

Mainline telephone

connection delay (days)

Water connection delay

(days)

Value lost to power outages

(%sales)

OECD

Households suffer…

And so do businesses

Source: ICAs (Noumba-Um) courtesy P.

-

500

1,000

1,500

2,000

2,500

High-income Middle-income Low-income

KW p

er c

apita

Electricy generation capacity (KW) per capita in high, middle, and low income countries, 2005

0 2 4 6 8

Density of fixed-line telephones (subscribers per 1,000 people)

Electrical generation capacity (MW per 1 million people)

Density of paved road network (km/1,000 arable km2)

Sanitation (% of households with access)

Water (% of households with access)

Increased Access to Infrastructure:annual average growth (percent)

6Source: Yepes, Pierce and Foster (2009)

7

0

2

4

6

8

10

12

14

Lower-income countries

Lower & middle-income countries

Upper middle-income countries

Perc

ent o

f GD

P

Needs Actuals

Source: Yepes (2008)

8

Percentage GDPAfricancountrygrouping

Needs Spending “Efficiencygap” Funding gap

Middleincome (10) 6 2 (2)

Resourcerich (12) 5 3 (4)

Lowincome (22) 10 3 (9)

Fragilestates (36) 6 5 (25)

AllAfrica (15) 7 3 (5)

Source: Foster and Briceño-Garmendia 2010

Poor project selection◦ Crowding out private investment◦ Political pressures for individual gain

Weak project supervision◦ Symptom of larger governance problems

Inadequate provision for maintenance◦ Benefits decline with deterioration; often rehab

cheaper than new construction

9

Reforms can be quite difficult!Lack of data hampers assessment of needs and outcomes

10

-

20

40

60

80

100

120

140

160

180

1990 1995 2000 2005

2008

US$

bill

ions

Investment commitments to PPI projects reaching closure in developing countries, 1990–2008

1.2% of developing countries

GDP

050100150200250300350400

Proj

ects

Source World Bank and PPIAF

Spending is up but numbers are down

Inefficient or uncertain economic regulation Inefficient or uncertain trade, tax, foreign

exchange policies Market scale uncertainties◦ Uncertain magnitude of potential demand◦ Difficulties in consolidating sources of demand

Investment climate problems raise hurdle rates, induce “flight to quality”◦ Almost half of PPI has gone to a few MICs◦ Focus on lower-risk telecom sector

11

Many issues under Green Economy:◦ Meeting basic energy and water needs,

while reducing local pollutants◦ Low-carbon growth◦ New economic opportunities (green supply

chains, green innovation,…) Green Economy is Not:◦ Automatic win-win for environment &

growth◦ Straight path to lucrative new markets◦ Sure thing for economic recovery

12

Design sensible environmental standards into infrastructure, and enforce them

But, broader changes in environmental policies including users also are necessary◦ Environmental price signals bolster demand for

environmental goods and services ◦ Stimulate green innovation◦ Regulatory standards have complementary role to

address information and coordination problems

13

Reduction of environmentally harmful, economically wasteful subsidies◦ Energy, water,…

Economic regulation of utilities that promotes economic efficiency with environmental co-benefits

Reduced barriers to green technology diffusion in finance, trade, knowledge and other policies

14

Can start with most available labor-intensive, low-cost opportunities, e.g.◦ Solar water heaters◦ Green building retrofits◦ Off-grid power for more remote areas◦ Installation of more efficient water using devices◦ Traffic control for congestion reduction

Opportunities also in needs assessment, project supervision, and performance audit

These job effects likely to exceed results of capital-intensive “stimulus” investment components

15

Options include environmental taxes and fees, reduced subsidies, tariff reductions to reduce green technology barriers

Additional fiscal space can be used for:◦ Green job training◦ Targeted pro-poor subsidies for basic water and

energy access ◦ Pilot programs for green technology diffusion◦ Improved monitoring and data collection◦ Lifeline utility pricing and direct social safety nets

– lower resistance to subsidy reform

16

Coordinated expansion of applied R&D, production capacity, and human capital

Generally has worked only for certain countries in certain circumstances – need:◦ High levels of policy and social coordination◦ “Patient” and risk-tolerant financial capital◦ Ability to adjust industrial structure without

unacceptable trade distortions Jury is still out on how successful green

industrial policy might be◦ Uncertain development of environmental markets◦ Uncertain comparative advantages

17

Spending more – roughly $500-900 billion/ year for developing countries, or 4-7% GDP?

Spend better – how to close the $17 billion efficiency gap in Africa- about one-third of the total funding gap ?

Spend cleaner – make faster headway on continuing local environmental problems, and ramp up climate change mitigation and adaptation to ~$200 billion/yr, in 20 years?

18

Action Plan for More Infrastructure Investment – to Identify:

Ways to increase fiscal space for public investment in developing countries◦ Improved revenue collection◦ Lower subsidy outlays

Ways to expand private and other investment to complement public sector◦ Improved investment climate◦ Non-distorting risk-sharing mechanisms◦ Potential investment by national wealth funds,

without impinging on national sovereignty19

Action Plan for Better Infrastructure –Building Capacity to Strengthen:

Needs assessment, priority setting and project implementation

Operations and maintenance Broader sector governance, including efficiency of economic regulation

Performance measurement and other data collection

20

Opportunity for increased South-South cooperation

Action Plan for Cleaner Infrastructure –more cost-effectively integrating

environment into decisions: Improved information on environmental

benefits and costs, and how to weigh them Stronger environmental regulatory system –

improved efficiency and enforcement Subsidy reforms to reduce environmental

impacts and improve targeting to needs Lower barriers to access green technologies

21

International Cooperation to Greatly Improve Infrastructure Data

Badly needed for more analytically sound, evidence-based pre- and post-assessments

Crucial for getting “buy-in” from taxpayers and infrastructure service users who ultimately are responsible for the financing

Work by WB, IMF and others provides a solid base for moving forward

22

Questions and comments very much appreciated.

Thank you!mfay@worldbank.org

mtoman@worldbank.org

24

25Source: Calderon & Serven 2010

26

Source: Calderon & Serven 2010

27

Sources: World Development Indicators 2009;WB East Asia Environment Unit, Staff estimates

Population in areas of relative water scarcity (p/km2)

PM10 ambient concentration by region in 2006 (μg/m3)

0

10

20

30

40

50

60

70

80

90

20 μg/m3 (WHO guideline)

28

Source: IPCC 2007a, figure 2.1; : World Development Indicators 2009

Average CO2 emissions relative to electricity production by region in 2006 (tons per MWh)

Infrastructure accounts for half of global CO2e

0

0.5

1

1.5

2

2.5

OECD LAC SSA ECA SAS EAP MNA

29

Environmental Healthand Pollution Management

24% of disease burden and 23% of all deaths in developing countries from environmental risk factors

Half of malnutrition caused by poor sanitation from lack of access to safe water

Indoor air pollution responsible for 1.5 million premature deaths from respiratory illness; 2.7% of global burden of disease

Sustainable Natural Resource Management

Deterioration seen in water, air, forests, grasslands, marine resources, agro-ecosystems

Overfishing: 75% of global fish stocks fully or over-exploited

Damages to protected areas, wetlands, other ecosystem buffers

Climate Change

30

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990 1995 2000 2005

Telecoms Energy Transport Water and sewerage

Source: PPIAF and World Bank. Data show investment commitments to PPI projects reaching closure in developing countries.

31

India, 17%

Brazil, 12%

Russia, 11%

Mexico, 5%China, 5%

All other developing countries,

51%

Investment commitments to infrastructure projects with private participation, 2006–2008

Deflated by US CPI, Source:

World Bank and PPIAF

Type of Activity

Short-Term Employment Stimulus

Long-Term Growth

GHG Cuts Other Env. Co-Benefits

Fast, labor-intensive (energy efficiency retrofits)

Relativelylarge

Relatively small

Potentially very significant

Depends on context

Capital-intensive investments (renewable energy)

Limited to small

Depend on cost-effective-ness of investment

Generallyrelatively large

Medium-to-large

Environmental services (recycling, restoration)

Small Small Relatively low (except for LFG impacts)

323232

32

Country Total (USD)

Green (%)

Renew. Elec.

Building Effic.

Grid Rail Water/Waste

China 586 221 (38)

70 99 51

Japan 486 12 (3) 12S. Korea

38 31 (80)

6 7 14

EU 534 56(10)

4 15 9 6 1

USA 972 112 (11)

33 31 12 10 16

Note 1: “Green” expenditures are as identified by the countries themselves. Excluded are roughly $US 20 billion directed at CCS. Note 2: Figures for EU reflect aggregation across individual countries as well as expenditures by the EU itself.

33

Feed-in tariffs shift higher energy costs from suppliers to all users

Investment cost subsidies can yield “green elephants”

Large infrastructure subsidies facilitate financial unsustainability, corrode public budget

34

35

FY09 portfolio for natural resources, environment = $13bn

Moving toward 50% clean energy investment

Strategic Framework for Development and Climate Change

Major expansion of environmental assessment tools

36

Efficiency gains

Taxpayer

DomesticInternational/ Donor

DomesticUsers

• Nationalbudget (fiscal resources)

• International assistance (ODA)

• Public PrivatePartnerships

Financing Funding