The State and Reform of Public Infrastructure Policy
Infrastructure is a key ingredient for economic growth and development. Along with its related services, it impacts significantly economic activity and quality of life. Most infrastructure from different sectors plays a major role in the achievement of the Millennium Development Goals (MDGs) given that improvements in connectivity and mobility enable access to economic and basic services, such as education and health care.
This chapter focuses on analysing the required transformations states must make to increase the efficiency and effectiveness of public investment in transport and telecommunications infrastructure. It begins by identifying the role of the state in the provision and operation of transport infrastructure and the need to establish an integrated and sustainable policy of logistics and mobility at the national and sub-national level (section 5.2). The chapter then examines broadband Internet access and its potential social and economic effects, particularly public policies for its development, and it presents information on the use of broadband and on broadband requirements (section 5.3). Finally, the chapter recommends several public policy measures aimed at providing mass access to information and communication technologies (ICTs) and increasing coherence and co-ordination among the different actors involved in transport and telecommunications infrastructure (section 5.4). Latin America’s economic development is seriously hampered by the lag in necessary infrastructure. Despite increased private-sector participation in the last two decades the region is still behind Asia and other emerging economies. This does not only affect its economic growth but also compromises the possibility to reduce inequality, which is so deep-rooted in the region. To face firms’ and households’ new demand for infrastructure between 2006 and 2020, Latin America will have to invest around 5.0% of regional GDP, assuming an average annual real growth of 3.9%. To close the gaps with South-East Asia, the requirement climbs to 9.0% of the region’s GDP. The effort needed is considerable, given that infrastructure investment in 2007-08 was only 2% of GDP.1
The challenge for the region is to supply infrastructure that strengthens the economy and fosters equality in a sustainable manner. Increasing the availability and quality of infrastructure reduces logistics costs and increases productivity and competitiveness of the economies. For instance, by closing the infrastructure gap with other middle income countries, Latin American economies can boost GDP growth by two percentage points per year.2 Furthermore, improved access to transport infrastructure contributes to reducing inequality and social exclusion. Access to roads, railways and waterways facilitates the connection between agricultural centres and the main internal urban markets. Similarly, provision of electronic services in education, health care and government management increases the efficiency of these services, overcoming geographical and financial barriers that restrict coverage of poor and marginalised segments of the population. The substantial drop in public investment during the 1990s affected the provision of these infrastructure services. After the debt and fiscal crises suffered by most states in the region in the 1980s, the 1990s saw a reduction in capital investment as part of fiscal consolidation programmes. Simultaneously, fiscal consolidation limited the levels of debt that States were able to assume, which together with low levels of taxation seriously limited financing capabilities. ECLAC figures show that while in 1980-85 public investment hovered around 4% of GDP, in 2007-08 it was only 2%.
This decrease in public investment was not compensated by a proportional increase in private investment. Although there was an increase in private-sector involvement through diverse schemes, this was not enough to compensate for the decline in public investment compared to economic growth in the 2000s. Notwithstanding the associated benefits, private investment was less than the contraction of public investment in most sectors, except in telecommunications and, to a lesser extent, energy. In addition, in some cases public policies were not adequately designed to involve the private sector, resulting in insufficient supply and sometimes causing delays and cost overruns. This complicated the achievement of pre-established goals.
Infrastructure shortfalls differ considerably across sectors and states. Gaps in the region tend to be concentrated in transport and energy, but even in telecommunications, where the aggregate gap is smaller, there are important challenges in specific segments such as broadband Internet access. In transport infrastructure, the whole region presents significant deficits, which could affect economic growth by hindering development and preventing access to the benefits of economies of scale and specialisation at the national and sub-national level.3 In telecommunications, some countries (such as Brazil, Costa Rica, Jamaica, Panama and Uruguay) have reasonable levels of infrastructure considering their income levels, but have serious problems in terms of equality of access.4
To increase the efficiency of the public sector a series of mechanisms to change sectoral public policies and improve co-ordination with the private sector must be defined. The design and implementation of transport infrastructure policies should turn towards an integral, multimodal approach, with the infrastructure provided defined according to the needs of mobility and logistics, regardless of the mode of transport. In transport concessions, it is essential to correct the flaws resulting from dynamic inconsistencies (a situation in which agents’ preferences change over time), which are magnified by the fiscal accounting system for concessions and the inadequate management of the risks resulting from the concessions themselves, among other factors. Broadband development requires a complementary goods and services technology system and co-ordination mechanisms to direct the long-term investments by the many private-sector actors who are involved in providing and using the service.
The analyses of transport and broadband Internet infrastructure policies indicate the need for greater policy co-ordination and coherence. Thus, it is important to define a clear framework to articulate policies. This would allow more efficient and effective use of resources and an increase in the quality of public spending. It would also allow for better co-ordination with the private sector under publicprivate participation schemes. In telecommunications it is necessary to speed up the adaptation of the regulatory framework for it to be consistent with an environment of technological convergence.