Infrastructure Investment
Urban Growth and Infrastructure Development
Rational
By 2050, the share of the population living in urban areas will reach 68%, representing a 13 point increase from the last reported figure in 2018. In this perspective, cities will need to adapt their infrastructure and tailor urban development policies to integrate this trend. While all cities will face different growth rates, all aren’t equally equipped to adjust to it.
Infrastructure remains a critical component of urban geographies providing water and sanitation, transportation and energy to urban dwellers. However, these assets have a prohibitive cost for most lower-middle income and low-income countries. Currently, the global infrastructure gap is expected to reach$15 trillion by 2040 with most of the spending required by low-income economies. Despite the relative urgency, the nature and the complexity of these projects have prevented urban infrastructure development in countries that would need it the most. The main reason ascribed is the perception of risk in these geographies and that these projects are highly contingent on the economic and regulatory in which they are implemented.
To improve our understanding of this gap specific to lower-middle income and low-income countries, this analysis will use infrastructure projects and country to compare development trends across regions and income groups. Through this process it will attempt to respond to the following questions:
Which countries will face issues in urban development?
What has been the past focus on infrastructure development?
What is the degree of government participation in these projects?
Methodology
To do this analysis, used four data sets.
The Notre Dame Global Adaptation Initiative (ND-GAIN) Index summarizes a country’s vulnerability to climate change in combination with its readiness to improve resilience.
The World Bank Group’s World Development Indicators that show historical urbanization trends and urban infrastructure access data.
The World bank Group’s Infrastructure Finance, PPPs & Guarantees data base for infrastructure project data.
Urban Growth and Readiness
Analyzing the regional distribution of historical urban population growth rates through the 2002-2020, we can see that the MENA and Sub-Saharan Africa have generally demonstrated rates above 3% growth and are over-represented in the categories above .3. However, when adjusting for readiness, we see that Sub-Saharan Africa is the only group over-represented in showing a high vulnerability to climate change while facing strong population growth in 2020. While some in MENA region remain midst this category, African cities in this matter will be uniquely challenged to adapt their cities to rapid urbanization while adjusting their development to climate change (Figure 1).
Global Infrastructure Development
| Region | Project Count |
|---|---|
| East Asia and Pacific | 2209 |
| Europe and Central Asia | 775 |
| Latin America and the Caribbean | 1608 |
| Middle East and North Africa | 189 |
| South Asia | 1351 |
| Sub-Saharan Africa | 489 |
Despite the need to accommodate current and expected growth of the urban population in African countries, most of the utility projects have been focused on regions outside of these localities. Looking at the Table 2 we can see that from 2002 to 2020 most of the projects are focused in East Asia and Pacific and Latin America with 1608 and 2209 respectively. In terms of sector, energy sector projects count for 59% of projects that were to reach financial close during the same period, which illustrates the efforts to provide power generation and the development of national grids in developing countries. In second position is transportation accounting for 30% of the projects developed. Across income groups, each country shows the same share towards energy projects, however they differ in shares sizes with more projects in Sewage and Solid Waste treatment in upper middle-income countries while transportation and ICT remain the second and third most counted infrastructure projects.
In terms of performance at the global level, 98% of infrastructure projects are currently active with the remainder either cancelled, concluded or distressed. Africa, however, has a slightly lower share with 92% of active projects, with a larger share to cancelled, concluded, or distressed projects. This could be associated with the risk environment and the level of informality that constrain governments and developer to aim for shorter term investments. This is also supported in Figure 3 where a larger portion of observations doesn’t reach or remain solvent during the operational stage.
Government Participation in Infrastructure Development
Given their prerogatives towards public service delivery it would seem important to find insights about the dimensions of government involvement within infrastructure projects. However, a lot of data on this variable is not available for the Sub-Saharan Region which makes its hard to affirm a inductive reasoning from the following observations.
In the current state the data, Figure 4 shows us an inverse trend of government involvement progressing through income group. Here we see that the share of capital subsidies in the number of projects in low-income countries is relatively high and increases for lower middle-income countries before decreasing in the upper middle come group. For the revenue subsidies, this trend is inverted. The sample shows that lower income country governments tend to favor capital subsidies when participating in infrastructure projects. This could be through a joint effect of not being able to attract private capital as it can be seen in figure 5 and being risk adverse or unable to provide revenue subsidies to projects by raising taxes.
Lastly, urban areas are characterized by overlapping jurisdictions between municipal and national levels of government. Observing the volume of contracting at each level allows to measure the level of financial and legal autonomy and capability relative to one another. In the case of figure 6 we can see the distribution of projects by level of government contracting within each income bracket. The number of projects being contracted at the national level decreased while those at the municipal level increase as the country income bracket increases. This shows the level of autonomy, agency and capacity increases relative to the national level government structure to take the lead on infrastructure project development. To test the results, China was also taken out of the data to see if it wasn’t skewed toward its specific development in the same period. It showed that this trend wasn’t specific to China in that income group.
To summarize, despite a high priority for the Sub-Saharan region most of the projects involving the participation of the World Bank group have been focused on energy projects Asia and Latin America. Though we do observe trends on government participation based on country income level it is difficult to establish sounds correlations because of the quality of the data. If low income countries follow the same path as the upper middle income group, we would expect a higher volume of water & sewage utility projects, transportation and waste management, to improve the quality of the capacity of current infrastructure. In terms of government and private sector involvement, different scenarios could apply. If private capital can be raised, governments can reduce public funding. If the government can increase taxes or fees, this could contingently reduce the impact on public finances while preserving the viability of utility projects. However, this will depend on municipalities and national governments collaborating to improving the urban economic and regulatory context to facilitate these transitions.