by Quentin Wodon
The first post in this series asked whether infrastructure matters for poverty reduction and other development outcomes. It does. This second post asks whether the infrastructure needs of households are being met. They are not. Part of the analysis relies on my new book with Antonio Estache on infrastructure and poverty in Africa.
Challenges in Low Income Countries
Infrastructure does matter for growth and poverty reduction, but there is probably a difference in that relationship between low and middle or high income countries. In low income countries, there is no guarantee that investments in infrastructure will benefit the poor in a straightforward way, unless the investments are designed from the start to do so.
Consider it this way. The priorities of private investors and households in poverty are likely to differ in low income countries. In the African context especially, the number of the poor is rather large, with many living in rural areas and having no access to basic infrastructure services. Only the better off tend to have access to those services, and even at the margin, new investments in infrastructure may not necessarily benefit the poor, simply because they live too far away from the electricity grid or the piped water network. Incentives for private utilities to reach the poor are limited.
What about the links between infrastructure and employment? There is no doubt that lack of infrastructure is an obstacle for firms to operate. In enterprise surveys, close to half of firms declare that lack of electricity is a constraint for them, and one fourth cites lack of telecom and transportation services. This compares to 40 percent of firms citing corruption as a major obstacle to doing business. These rates are high, suggesting that lack of infrastructure is indeed a major constraint to investments and growth. But at the same time, in low income countries only a small minority of workers is engaged in the formal sector where these firms operate. Even if the firms would do better, this still may not have a direct immediate impact on the poor, apart from trickle down effects.
Another challenge relates to the cost and quality of service provision – such as the generation, transmission, and distribution of electricity. In part because the networks are small in many countries, operating costs tend to be higher in Africa than in other regions of the world. In some cases high costs result from over-engineering of projects. As for quality, in part due to capacity constraints, service is often provided only intermittently. These and other challenges make it difficult to serve the poor, especially in Africa.
Gains in Coverage?
Organizations such as NGOs and service clubs are not engaged in large infrastructure projects. But they can play an important role in meeting household demand for basic infrastructure – including for off-grid electricity, water, and sanitation. In the case of Rotary for example, the Water and Sanitation Rotarian Action Group (WASRAG) is actively involved in providing access to water and sanitation in local communities. The question of whether household demand for basic services is being met is thus important not only for governments and utilities, but also for nonprofit organizations.
Progress in meeting household demand has unfortunately been very slow, especially in Africa. In telecoms there has been dramatic progress thanks to the mobile cell phone revolution. But in other sectors, with the exception of gains in rural electrification in some countries, coverage rates have not improved much (see this paper). For piped water, coverage rates have remained below 20 percent on average across countries with no clear gain over time. For electricity, there has been an increase in coverage rates from a fourth of households to about a third thanks as just mentioned to gains in rural areas. For flush toilets as for piped water, access has also remained flat with only about one in ten household being served. Even when gains in coverage are being achieved, these tend to benefit mostly better off households.
Cost, Affordability, and Supply
In urban and peri-urban areas small-scale providers are filling some of the gaps left by national or regional utilities, but they often have high costs and substantial margins, and are thus expensive for households. In Niger, a study suggests that the cost of water per liter from street vendors could be up to five times higher than the cost from the piped network.
Is the lack of coverage of infrastructure in the population a demand or supply issue? Lack of affordability of modern infrastructure services is an issue for the poor, and it may reduce the demand for those services. Yet the main constraint is lack of supply, not lack of demand (see this paper). The fact is that it is often more expensive for households to meet infrastructure needs through small scale providers or alternative sources than through the networks. For electricity and lighting, the cost of batteries, candles, or kerosene lamps is often higher, at least per unit of efficient energy, than the cost of an electricity bill.
The problem is not that households do not want to connect to networks. It is that even though households would benefit from a connection to existing networks, the opportunity to do so is often not available. This may be because households live too far from the networks. But it may also be because connection costs requested by utilities are often high, especially for the poor and when the costs have to be paid in a single installment.
This quick diagnostic suggests that a lot of work remains to be done to provide basic infrastructure services to the poor in Africa and many other developing countries. In the third post of this series, the record of the reforms and policies of the past two decades will be discussed, together with their implications for projects by organizations such as Rotary.