Riyadi Suparno, Tokyo – The World Bank, a strong advocate of private sector investment in infrastructure, is now calling on governments around the world to increase their investment in infrastructure, noting that private sector investment in the sector can never be enough and has often brought about an unintended consequence: the victimizing of the poor.
Speaking at the opening of the Annual Bank Conference on Development Economics (ABCDE), World Bank President Paul Wolfowitz noted that attempts to differentiate between "public" and "private" approaches to infrastructure provision were misplaced.
"We have moved away from a paradigm which once expected the private sector to play the dominant role in infrastructure. The private sector can – and does – play an important role in increasing investment and strengthening service delivery.
"But it is apparent that the capacity or willingness of the private sector to respond to all the infrastructure needs is limited," Wolfowitz said.
According to the World Bank, private sector investment in the infrastructure sector in developing countries continued to decline from a peak of US$128 billion in 1997 to a mere $58 billion in 2003.
Antonio Estache, senior economic adviser to the infrastructure vice presidency of The World Bank, said that not only was private sector investment in infrastructure declining, but public sector investment in the sector was also falling.
This was happening because many governments of developing countries had deliberately reduced their investments in the sector as a result of zealous privatization drives.
He noted that private sector investment only accounted for about 20 percent of all investment needs in developing countries, and, therefore, public investment was badly needed to make up the shortfall.
Much of the private sector investment has been concentrated on the more lucrative sectors, especially telecommunications, while sectors important to the poor, particularly water and sanitation, were very much neglected.
Even when the private sector did become involved, the governments of developing countries often failed to provide the necessary regulatory frameworks that would ensure access and affordability for the poor. And again, the poor were victimized by not having access to services or, even when they did have access, by being forced to spend too much of their incomes to buy the services.
Therefore, Wolfowitz warned that the public sector approach to infrastructure must focus not only on economic growth, but also on what he termed "smart" growth, i.e. "growth that is economically sound, environmentally friendly, socially acceptable, locally desirable and, most important, growth that makes a difference in people's lives."
Wolfowitz also called on the governments of developing countries to get tough on corruption as corruption once again penalized the poor more than any other bracket in society.
"Ordinary people will not fully benefit from new infrastructure such as roads if – as in the case of certain projects in Asia – the improved access is accompanied by 'informal' levies or charges that raise transport costs back to previous levels," he said.
To that end, Wolfowitz noted that the World Bank would continue to support infrastructure development in developing countries.
In the global order of infrastructure, the bank sees itself as a "two percent solution" as the bank currently contributes about 2 percent of the some $400 billion invested annually on developing countries' infrastructure.
Public investment in infrastructure is becoming more important now, not only because of declining private investment but also because of the increasing needs for infrastructure in developing countries as a result of population growth, as well as the increasing movement of people from rural to urban areas.
Today, of the 6.3 billion people in the world, 1.6 billion do not have access to energy services, and 2.6 billion people lack access to water and sanitation services.
In the next 25 years, another 2 billion people will be born – 97 percent of them in developing countries. Not only that, more than half of these people will live in urban areas, creating more challenges in meeting their basic infrastructure needs. They will need access to water and sanitation services, energy, transport and telecommunication services.
"We know, however, that this is not an impossible task. Sustainable development can go hand-in-hand with responsible infrastructure development, which takes into account social and environmental considerations from the outset," Wolfowitz said.