Infrastructure and Poverty: Part 1 – Does Infrastructure Matter for Poverty Reduction?

by Quentin Wodon

World Toilet Day will be celebrated in a few days on November 19. Some 2.5 billion people do not have access to proper sanitation, including toilets and latrines. Lack of sanitation has dramatic consequences for health. Several million people, many of them children, die from diarrheal diseases every year. Many of these deaths are attributed to unsafe water, poor sanitation including lack of toilets, and poor hygiene. Access to basic infrastructure services – not only for sanitation, but also electricity, piped water, and transport – remains low in many countries.

Women in Uganda carry water (photo: C. Tsimpo)
Women in Uganda carry water (photo: C. Tsimpo)

This 3-part post series discusses the relationship between infrastructure and poverty. The focus is on Africa (the region discussed in my book with Antonio Estache published this week), but the lessons apply more broadly. I will ask three questions: (1) Does infrastructure matter and is funding sufficient? (2) Are household infrastructure needs being met?; and (3) Have reforms succeeded, and what does it mean for us?

Infrastructure Matters

Infrastructure has long been recognized as essential for growth, and growth in turn is empirically proven to be the best way to reduce poverty in the long run (reducing inequality also helps, but has a much lower impact, especially in very poor countries where there is not much to redistribute). Estimates suggest that the elasticity of GDP to infrastructure is in the 0.4 to 1.5 range. This is large – better infrastructure has a major impact on growth.

Infrastructure also matters for other development outcomes at the individual and household level. As mentioned above, many child deaths could be adverted with access to improved water sources and better sanitation. Infrastructure also helps households shift time from domestic chores to productive work.

This has gender implications. In the developing world women work on average longer hours than men. They are involved, as men are, in farm and labor market work, but in addition they have the responsibility to fetch firewood and water. This responsibility can be time consuming. As a villager from Uganda explains: “They are few public taps available here and there is a lot of congestion, making it hard to access water without waiting for a period of one to two hours”.

In work I am doing with Clarence Tsimpo on Uganda, regression analysis with the latest household survey suggests that in areas where the electricity grid or the piped water network is available, a connection to the grid or piped water network for those households not yet connected could enable women to decrease their domestic working time, and correspondingly increase their market working time by about two hours per week.

The additional earnings that could be generated through this shift could reduce the share of the population in poverty by about one percentage point for each of the two basic infrastructure services. While this would not by itself eradicate poverty in the country, it would help beneficiary households, and especially rural women, fairly substantially.

Infrastructure as a New Priority

Throughout much of the last two decades, funding allocated to infrastructure by governments fell in proportion of available budgets. It has also been said that transport was one of the forgotten MDGs (Millennium Development Goals). Today, the situation has changed and the crucial role of infrastructure is widely recognized. Yet funding remains a challenge.

According to the World Bank, private infrastructure investment in emerging markets and developing economies dropped from US$186 billion in 2012 to $150 billion last year. At its annual meetings last month, the World Bank announced the launch of a new global infrastructure facility. While developing countries invest US$1 trillion per year on infrastructure, this would need to be doubled to maintain current growth rates and meet future demand for infrastructure from firms, households, and regions.

The private sector will play a key role in future infrastructure investments, but governments will need to invest more as well. For this, they will need to rely on both their own tax revenues and the availability of foreign aid. For low income countries, concessional financing (grants or very low interest loans) will remain crucial.

When increasing funding for infrastructure, governments and donors will need to be careful to assess fiscal and institutional capacity – not all countries have the same absorptive and implementation capacity. The worst that could happen would be to have large investments in sub-optimal infrastructure projects. The risk of an increase in debt to unsustainable levels must also be managed. But many countries do have the capacity to absorb more funding for infrastructure.

This is the big picture about the relationship between infrastructure and poverty in Africa and many other parts of the world. The next post in this series will discuss whether household needs are being met, and if not, why not.

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