by Quentin Wodon
Infrastructure matters for poverty and development (first post in this series), but the needs of the poor are not being met (second post). In this third post, the discussion shifts to what can be done to improve infrastructure services for the poor, considering first reforms and subsidies, and next projects including those by service organizations.
Reforms and Subsidies
PPIs (private participation in infrastructure) and IRAs (independent regulatory agencies) have been among the most important reforms implemented in the past two decades. The empirical evidence reviewed in my book with Antonio Estache suggests that these reforms have improved investment and service quality (as well as reduced corruption in the case of IRAs), but there are differences in these impacts between sectors and the effects have been relatively modest. In addition, while these reforms have helped some households, they probably have helped mostly households among better off groups since the poor simply have no access to basic infrastructure countries in low income countries.
Another area of concern is that of subsidies. Many countries have (often large) consumption subsidies for basic infrastructure services such as electricity and piped water. These subsidies prevent cost recovery by the utilities and this reduces the incentives for them to expand the networks. But in addition, while the subsidies are justified in theory by the aim to make services affordable to the poor, they are in practice very poorly targeted to the poor. In most countries the average subsidy received by a poor person is only a third (or less) of the average subsidy received by a person randomly chosen in the population as a whole.
Most existing subsidies are consumption subsidies implemented through the inverted block tariff (IBTs) structures. With IBTs the unit cost per kWh or cubic meter of water is lower for the first few blocks of consumption for all those connected to the network, and often below cost recovery levels. In low income countries, these subsidies are poorly targeted to the poor simply because most of the poor are not connected to the networks.
The targeting performance of those subsidies could be improved by reducing the lower bands of the IBTs so that only those who consume very low amounts of water or electricity benefit from the largest subsidies. Another option is to shift to Volume Differentiated Tariffs, whereby only those consuming in a tariff band receive the subsidy for that bans (under IBTs, all clients receive the subsidies in the lower bands for the part of their consumption in those bands). Both approaches tend to have a limited positive impact on targeting performance, but they help in reducing the cost of the subsidies.
Another alternative is to shift from consumption to connection subsidies. Instead of subsidizing the consumption of those already connected to the water network or the electricity grid, the idea is to subsidize the connection of new and typically poorer households to the network. Still another alternative is to target subsidies to those in need more purposefully (this can be done among others through geographic targeting or proxy means- testing). In those cases, targeting performance to the poor can under some conditions be improved significantly. These are all high priorities that governments and utilities should implement, as argued for example here.
What about the role of the nonprofit community, including NGOs and service clubs? Precisely because so many among the poor do not have access to basic infrastructure services, the role of nonprofit organizations is important to fill part of the gap in coverage of basic infrastructure services. It is important however for nonprofits, including service clubs, to operate in a highly professional and sustainable manner.
Providing access to electricity, water, sanitation, or other basic infrastructure services in poor areas is hard. Many projects are implemented in an unsustainable way, so that they ultimately fail. Research I am doing with Clarence Tsimpo on Uganda suggests that many small water projects fail in large part because of lack of infrastructure functionality (facilities stop to work properly, even shortly after being installed) or lack of local responsibility (poor local leadership or lack of proper community arrangements hinder maintenance, thereby yielding a slower but often irreversible damage in the infrastructure).
Sometimes, expensive technologies are put in place that communities have simply no way to keep up because of the high cost of parts for repairs. Training for proper maintenance may not be provided at all, or provided in a haphazard way, to beneficiary communities. These and other factors lead to the failure of many projects despite the best of intentions. So what are NGOs and especially service clubs to do? They need to get professional advice. In the Rotary family, the good news is that advice may be available from Rotarian Action Groups (RAGs). In the case of water and sanitation WASRAG is ready to help.
My Rotary club was recently considering a promising water harvesting and sanitation project in India. We got detailed specifications ready and they looked good. But we asked for a professional review by a district Rotarian expert in the field. He raised concerns and suggested we contact WASRAG for advice. We did, and in the end we decided to subsume our own small individual project and funds into a much larger project run by WASRAG. This gave us piece of mind that the project would benefit from the professional expertise it needed.
In Rotary, on average (there are of course exceptions), larger projects are likely to be better designed than small ones. They also tend to be better managed because the stakes are higher. This means that they probably have (again on average) more impact, and are more likely to be sustainable. Larger projects also require less administrative work than multiple smaller ones. Not all Rotary service projects need to be large projects where many clubs and districts pool resources together with professional advise from RAGs. But in some cases, when the expertise of RAGs is available, it is a good idea to work with them and pool resources.