Infrastructure investment has helped to encourage economic growth in East and South Asia. However, increasing demand has highlighted shortfalls in the quantity and quality of infrastructure. This threatens to limit growth, particularly in India. Meanwhile, hopes that the private sector would finance infrastructure have not been met.

A paper from the Institute of Development Studies, UK, and Overseas Development Institute, UK, reviews the challenges for infrastructure policy and investment in East and South Asia. Infrastructure quality in South Asia is particularly low, with the exception of mobile phones. Only six percent of people in Afghanistan have electricity. Only 39 percent of Bangladeshi households have access to all-season roads. No Indian city with a population of over a million has a 24-hour water supply.

The fear of political interference discourages potential investors in infrastructure. Existing subsidies for infrastructure services are not pro-poor, as the size of the subsidy is generally proportional to the use of the service, rather than focused on increasing access to those without services. Where water and energy costs are politically controversial, it is not possible for service providers to apply pricing based on cost recovery.

With the exception of telecommunications, there has been limited reform in the sectors where infrastructure is important. The private sector only generates ten percent of India’s electricity, far lower than anticipated in the early 1990s. In Bangladesh, inefficiency and bureaucracy in Chittagong reduce income from exports by up to one billion US dollars each year. In many parts of the region, governance – which affects the quality of public investment as well as the incentives for private investment – is getting worse.

The author notes that:

• Infrastructure investment in rural roads and improved water and sanitation services has the greatest direct impact on poor people.
• The infrastructure financing needed for water and sanitation – which has direct and well-established benefits for health and well-being – is relatively low compared to the costs of power and telecommunications.
• There is scope for greater cooperation with dams on major rivers that cross national borders, such as the Ganges, Brahmaputra, Mekong and Indus.
• While there has been progress in East Asia in regional planning of roads, rail, gas pipelines and telecommunications systems, cooperation in the electricity sector remains limited.

Governments have a vital regulatory role and a responsibility to improve the environment for private investment, by protecting property rights and pricing, and subsidy policies that enable investors to make profits. The author recommends that governments:

• significantly increase the proportion of Gross Domestic Product allocated to infrastructure
• recognise that private investment is not a global solution: even in areas where it is likely to be attracted, governments may be required to provide guarantees to ensure investor confidence
• acknowledge that effective public sector operations depend on the recovery of service costs
• control corruption of monopoly service providers
• ensure that decisions reflect the interests of poor people
• emulate China’s success in attracting private financing for major roads, freeing public resources for the development of rural or subsidiary roads.

Source(s):
‘Infrastructure Challenges in East and South Asia’, Institute of Development Studies and Overseas Development Institute, Asia 2015 Conference, by Stephen Jones, 2006 (PDF) Full document.

Funded by: UK Department for International Development

id21 Research Highlight: 24 November 2006

Further Information:
Stephen Jones
Economic Policy Programme
Oxford Policy Management
6 St Aldates Courtyard
38 St Aldates
Oxford, OX1 1BN
UK

Tel: +44 (0)1865 207300
Fax: +44 (0)1865 250580
Contact the contributor: stephen.jones@opml.co.uk

Oxford Policy Management

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