Bridging the infrastructure deficit

Work to be done: In spite of China’s frenetic development, the country is still lagging behind. Its railway network is shorter than that of the US
in the 1880s. Around 85 cities in China of more
than five million inhabitants still do not have a metro system.
And as any recent visitor to Beijing or Shanghai will testify, the roads appear to be permanently clogged.

Asit K. Biswas and Cecilia Tortajada

THE BUSINESS TIMES | September 11, 2013 

Singapore will be hosting the World Engineering Summit, beginning today until Friday. This will be a very timely summit since the global infrastructure deficit, that is the gap between what is needed and what is available, is not only very high, but this gap, like the universe, is steadily expanding.

Last year, as a part of the Singapore International Water Week (SIWW), we invited 16 of the world’s movers and shakers from the academia, governments, private sector, and international and non-governmental organisations to identify and formulate informed, future-oriented and implementable policy recommendations and potential solutions to reduce the water infrastructure deficits in Asia. It was jointly sponsored by SIWW, the Third World Centre for Water Management and the Lee Kuan Yew School of Public Policy. It resulted in a special type of problem-solving and pragmatic dialogue which is seldom achieved in such global meetings.

Paving the Asian century
The world is expected to have around 9.3 billion people by 2050. During the next four decades urbanisation will increase, dietary patterns will change, requirements of all types of resources will accelerate, agricultural productivity will struggle to keep up with the food needs, and people’s expectations for continually better standards and quality of life will increase.

All these have to be met with the uncertainties imposed by complex issues like fluctuations in economic growth rates, magnitude and extent of climate change, social and political upheavals in different parts of the world, and increasing scientific and technological innovations. Challenges ahead are truly formidable, but also so are the opportunities.

There is no question that to meet all these challenges, the world, and especially Asia, will not only need more infrastructure but also better planning and management of such structures. If the necessary infrastructural requirements cannot be met, the so-called Asian century will become a mirage.

Planning, design and construction of infrastructure have always had important political dimensions because of the associated economic, social and environmental costs. There are people who benefit from them and thus are likely to support their development. Equally, there are people who may have to pay the cost and thus oppose their construction. How to reconcile the demand of the beneficiaries and those who pay the cost has been a perennial problem.

The day when whimsical, signature infrastructure could be built by politicians, like airports which do not have any flights or bridges that go nowhere, is probably coming to an end. During the past 50 years, numerous white elephants have been constructed in many parts of the world. They have cost billions of dollars to the taxpayers and are unlikely to deliver even a fraction of the expected benefits.

In addition, the current build-neglect-rebuild philosophy that is prevalent in numerous countries has to be jettisoned. Value of improperly maintained infrastructure to the society declines progressively.

Not surprisingly, with such a checkered record, current plans to construct any important infrastructure projects, no matter where they are being considered, often encounter both fierce support and opposition. Policy makers will have to find innovative ways of engaging stakeholders and rally majority of the public to support badly needed but well planned projects. This will require more open communication and regular dialogues across all engineering disciplines, social sciences, politicians, bureaucrats and society. Sadly, even after centuries of building infrastructure, we still do not know how to engage different sectors of the society properly.

Let us review the infrastructure deficits, both globally and in some major regions in Asia. First, there is no reliable estimate available of global infrastructure deficit. In 2007, Booz Allen Hamilton estimated that the investment needed to “modernise obsolete systems and meet expanding demands” globally, between 2005 and 2030, was around US$41 trillion. Out of this, nearly 39 per cent would be for Asia and Oceania and the lion’s share of this expenditure (55 per cent) would be for the water and wastewater sector, and “only” 21 per cent (US$9 trillion) for the power sector.

Our view is that the US$41 trillion is a gross underestimate. For example, it will be impossible to meet Africa’s infrastructure needs up to 2030 with only US$1.1 trillion, or 2.6 per cent of the global needs. To meet the global infrastructure deficit to 2030, we are likely to need around double of the above estimate.
Take the world’s biggest economy: the United States. The American Society of Civil Engineers has been issuing a simple school report card system of A to F on its infrastructure. The grades since 1998 have been consistently poor, with an average of “D” because of delayed maintenance and chronic under-investment on most categories. The latest 2013 report also gave the country’s infrastructure status as “D”. The situation is not much better in France or UK.

It is even worse in much of Asia where population growth, urbanization and economic growth rates are some of the highest in the world. According to the UN, Asia’s urban population will increase by 650 million by 2030. The main growth will be primarily in China, India and Indonesia.

In terms of infrastructure, in 2009, the World Bank reported that India had only 6,000 km of four-lane highways in the entire country. In contrast, only during the preceding 10 years, China had built 35,000 km of four- to six-lane highways. Similarly, China adds each month nearly the total electricity generating capacity of Bangladesh, a country with more than 155 million people (around 11 per cent of China).

In spite of China’s frenetic infrastructural developments, the country is still lagging behind. For example, its railway network is shorter than that of the United States in the 1880s. Around 85 cities in China of more than five million inhabitants still do not have a metro system. As any recent visitor to Beijing or Shanghai will testify, the roads appear to be permanently clogged.

The perils of poor planning
The infrastructure deficit in countries like India or Indonesia is much worse than in China. Last April, the Indian Finance Minister, P Chidambaram, noted that India will have one trillion dollar infrastructure deficit over the next five years. The country had a fiscal deficit of 5.2 per cent during the last fiscal year, and has a high public debt, poor infrastructure, rupee in a free fall in recent weeks, poor policy frameworks and political paralysis at the centre. All these factors will make it impossible to meet the projected fiscal deficit target of 4.8 per cent this year, and still provide funding for new infrastructure projects.

S&P now has BBB- sovereign rating for the country with a negative outlook. If this rating is downgraded, it will be reduced to the junk status. This will increase the cost of borrowing by both public and private sectors.

Poor infrastructure hinders inflows of foreign direct investments, part of which could finance infrastructure deficits, and thus improve supply chains. In India and in majority of the Asian countries there has been years of under-investment in infrastructure. Also, much of what has been invested has not been done properly because of poor planning and execution, absence of a maintenance culture and endemic corruption.

In India, this is exacerbated by poor policy frameworks and policy coordination at both the central and provincial levels, and political paralysis in the centre where key bills on environment and forest clearances have been stalled. Wrongheaded ideology, inadequate pricing structures for energy, resources and water and continual bureaucratic wrangling between departments have ensured that the private sector is becoming more and more cautious to invest funds in the infrastructural sector.

Unless Asian countries like India, Indonesia, Malaysia and Thailand improve their policy environment, private sector will continue to be cautious to invest large sums of money when the uncertainties are many and returns are somewhat iffy, and only over the long term.

In Asia, only to meet the infrastructural needs of 650 million people who are expected to move to the urban areas by 2030, HSBC recently estimated that US$11.5 trillion will have to be invested. This is almost equivalent to 80 per cent of the current annual GDP of this region.

In contrast, Singapore, according to a survey of 221 cities of the world, carried out in 2012, has the world’s best infrastructure in terms of traffic congestion, availability of flights from the local airports, quality of public transportation, and quality of water and wastewater treatment services. Immediately behind Singapore were the German cities of Frankfurt and Munich.

Dhaka was ranked 205, the worst city in Asia in infrastructural terms. However, even in Singapore, current traffic congestions in rush hours indicate that its infrastructure is having difficulty to cope with the increasing demand.

According to an old Chinese proverb: “If you want to be rich, you must first build roads.” In the 21st century, the proverb could be changed to “if a country wants to be rich, it must first build infrastructure”. The Engineering Summit will do well to consider implementable solutions for the global infrastructure deficit.

Asit K. Biswas is the Distinguished Visiting Professor, Lee Kuan Yew School of Public Policy, and Co-founder, Third World Centre for Water Management. Cecilia Tortajada is the Co-founder and President of the Third World Centre for Water Management. Their book, ‘Water Infrastructure; Global Experiences’, Routledge, London and New York, will be published in March 2014.

Article published in The Business Times, September 11, 2013