Transcript Infrastructure policy challenges post-2008

Infrastructure policy
post-2008:
Good for shared growth?
Antonio Estache
ECARES
Universite Libre de Bruxelles
November 2010
1
Overview
• Main infrastructure policy changes since 2008 and
what they mean from a fiscal viewpoint
• What it means for the demand for and supply of
infrastructure
• The real scope for strong private sector role in the
sector to minimize the fiscal financing requirements
• The other roles of government in the sector
• The future ...
2
Major infrastructure policy changes
in infrastructure since the crisis…
• Infrastructure central to efforts to restore growth
– Key anchor of post-crisis keynesian revival
– Roughly 20-30% average of stimulus packages
• Committed average fiscal additional allocation to
infrastructure for in 2008-2009: 0.4% of GDP/year
– ~20% increase for infrastructure spending in OECD
– But <10% for Developing Countries
– =>some international consistency but also variance in the relative
importance of the instrument across countries
• => But…overall…strong
fiscal commitments to the
sector
• Good news for infrastructure operators
• Good news for infrastructure workers
• Less good news for tomorrow’s taxpayers…
3
What do stronger fiscal commitments
mean for infrastructure?
• Main short run impact
– Jobs? (more hope than impact)
• and hence on growth…but slow
• Moreover, some international leakages of
jobs and business
– Acceleration of some already planned
high profile projects
• No huge volume of new ideas except in ICT for the
new information society maybe
4
What new fiscal commitment means for long
run demand and supply of infrastructure?
• Changes in demand?
– Not really
• Investment needs in World: 3-5% of GDP
• Investment needs in LDCs: 6-8% of GDP
• Associated O&M expenditures: add 50-150%
depending on regions
– Some changes in the composition: greening demand
• Changes in supply?
– Mostly catching up and acceleration of planned projects
– Efforts to pick up labor intensive technologies in LDCs
– Greening of supply to match greening of demand
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Keep in mind the basic context
• The cold investment needs assessments hide the brutal
social cost of infrastructure financing gaps
• Households access?
– Access to Electricity? about 1.5 billion people live without it--about
22% of world population
– Access to safe drinking water? about 925 million people without it;
• almost 3 times as many lacked access to improved sanitation facilities
– Access to transport? 1 billion can’t easily access all-weather roads
– Access to phone? average mobile penetration is 57% in LDCs
– Overall:
• much bigger problem in rural and peri-urban than in urban zones
• progress is slow …catching up population growth is a challenge!
• Business access?
– Infrastructure is among the top demands of investors in surveys
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So what are the basic infrastructure
financing issues?
• Excessive supply unit costs…and not due to jobs:
– Fix procurement and regulation!!
• Fiscal subsidy requirement won’t drop… even if
cost recovery will slowly improve…
– Full cost recovery in SA and SSA would demand 25-35%
of average income of the poor…unfeasible
• Is the tax handle capacity of the sector
underestimated and hence underused outside of
Europe?
• Good demand management and revenue policy….but is it
equitable?
• => easy to underestimate long term fiscal cost of
short term fiscal expansions…
– but they are hard to avoid anyway
7
How realistic is the continuous talk of a
strong private sector financing role?
• Private sector financing is a must BUT:
– For developing countries: private 20% of needs at best
– For developed countries: subsidies are totally
underestimated by politicians
– Still very much in telecoms and some energy
– Still favoring some regions (the richest)
– ...and when underegulated, underinvests and
overcharges
• In poor countries,
– ODA around 10% of needs at most but risk of decline
– …residual public sector financing still around 70% at
least
– Need to consider international grants as complements
to loans for the poorest countries
8
Impact of the crisis on private financing of
infrastructure in developing countries?
(story driven by a few countries…)
Investment commitments to PPI projects reaching closure in
developing countries, by quarter, 1995–2010
New projects
2009 US$ billions*
120
400
350
100
300
80
250
60
200
150
40
100
20
50
0
0
1995
Q1
2000
Q2
2005
Q3
Q4
2010
Number of projects
Note: Includes only investment commitments at financial or contractual closure. Does not include additional
* Adjusted by US CPI.
investment in subsequent quarters.
Source: World Bank and PPIAF, PPI Project and Impact of the crisis on PPI databases.
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…keep in mind that governments are not
just about macro fiscal concerns…
• The return of Planning:
– UK, Australia, New Zeland take the lead
• The long awaited arrival of Regulation
– Crisis has reinforced the case for sound regulation….in
finance but also in infrastructure service delivery!
– Continues to be the weak spot of the sector
– Evidence? Return on composite infrastructure funds
>x2 average stock, and x3 bonds returns!
• Cream skimming which increases pressure on public
sector financing requirements
• High rents, hardly shared with users and taxpayers
– …and really very few bankruptcies in sector…
• But great financial engineering to get financing going
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Other challenges to keep on the
government radar screens
• Improve accountability:
– Increasing evidence of corruption
• Both a procurement and a regulation problem
• Coordinate environmental & infrastructure policies
– Again, efficiency vs. equity issues
• Dealing with supranational infrastructure projects
institutional demands (including regulation)
• Transport is relatively easy, but cross-border logistics reform
still has a long way to go
• Regional power pool in Africa continue to be challenging
• Similar issue on water bodies management
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Concluding comments (1)
• Infrastructure is needed for growth: no way out!
• But needs financing at a time fiscal constraints are
becoming binding… real challenge
• Will be fiscally costly because there is less scope
for PPP than many argue:
– Moreover, access to private financing damaged
by
• weakness of government institutions
• damaging reversal of commitments (as in some
European countries)
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Concluding comments (2)
•
4 questions for a real shared growth oriented
infrastructure policy for politicians to answer (e.g.
in the context of the promised G20 diagnostic announced earlier in
Nov. 2010)
1. how much will gvts REALLY continue to support
infrastructure as part of global recovery efforts?
2. how much will their concern for debt and stabilization
cut ODA and hence support to infrastructure in DCs?
3. How much will the emerging new financial regulation
further limit the scope for creative but risky private
project financing in infrastructure?
4. Will they finally take planning, procurement and
regulation reform needs in the sector seriously?
– Essential to cut costs and associated fiscal support
requirements and do so in a way that it fairer to taxpayers and
poor infrastructure users
13
So…
• For now, good reasons to be worried with the
honest political answers to these questions
– Less money to infrastructure needed for growth
in many developed or developing countries
– Less money to ODA needed for infrastructure in
DCs
– Less scope for financial innovation in
infrastructure
– …and little obvious commitment to do much
more than talk a lot about how much the rules of
the games matter…
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But…
• Maybe it’s because talk is cheap and action
in infrastructure is politically and fiscally
costly
– …for now a lot more talk than action in
infrastructure except in a few countries (China,
India, Brazil,…)
• But all this could change…if the G20
delivers a serious diagnostic of the growth,
fiscal and social costs of mistaken
infrastructure policy choices
– …and uses it to take the necessary decisions!!!
15
Thank you
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