Infrastructure Challenges

Insufficient, outdated, poor quality and unreliable infrastructure assets and services constrains growth worldwide, particularly in developing countries. Poor infrastructure performance is often a result of:

  • Insufficient spending
  • Poor planning, insufficient coordination and weak analysis
  • Corruption and the pursuit of political gain
  • Poor maintenance

Insufficient spending

At the most fundamental level, there is too little public and private investment in infrastructure assets, their maintenance and the delivery of their associated services. Various studies have identified and tried to quantify the funding gap. Even though trying to quantify the gap for purposes of planning or comparison can be complicated (or even misguided), these studies give a sense of the magnitude of the problem:

However, the funding gap can be a symptom of other problems. In the World Bank's Africa study, the authors found that 35 percent of the funding gap can be attributed to inefficiency in existing spending due to poor governance, poor planning of investments, under-investment in maintenance, under-charging for services, and operational inefficiencies. So the solution is not only about spending more but spending better.

Poor planning, insufficient coordination, and weak analysis 

Good planning, coordination, and analysis of potential projects go a long way to ensuring that the right projects are selected, supported, and ultimately that they deliver value for money and high quality services.

The analysis underpinning project selection is often flawed, so projects that appeared to be cost-benefit justified turn out not to be so in practice. For example:

  • benefits are often over-estimated, resulting in projects that are larger or more complex than is justified by demand for services, while costs are often under-estimated--the United Kingdom Government’s Green Book on project assessment acknowledges this as a systematic problem and highlights the need to correct for optimism bias in project analysis;
  • a global series of studies of large transport projects by Flyvbjerg found that costs are systematically under-estimated, and benefits often over-estimated: one study of 258 transport projects found that actual costs were on average 28 percent higher than planned costs—and 65 percent higher on average for projects outside Europe and North America; and another study of 25 rail projects found traffic was heavily over-estimated, at over twice actual traffic, on average.

Corruption and the pursuit of political gain

Politics or personal gain interfering with the project selection process; increasing costs, or diverting funds to less beneficial projects. An IMF analysis of corruption in public investment in infrastructure found corruption tends to create a bias towards capital spending projects, and increase their size and complexity—reducing the productivity of that investment.

Poor maintenance

Infrastructure assets are often under-maintained, increasing lifetime costs, and decreasing service quality. The World Bank’s Africa infrastructure diagnostic study estimates that preventative maintenance for the roads sector in Africa could save $2.6 billion a year in capital expenditures rehabilitation. In South Africa, a review of road maintenance by the South African National Roads Agency indicates that delaying road maintenance for three years leads to increased costs of six times the original costs of preventative maintenance. If road maintenance is delayed for five years, costs rise to 18 times the preventive cost.

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    • 2016
    • PPIAF, World Bank Group (WBG)

    The State of PPPs

    Infrastructure Public-Private Partnerships in Emerging Markets & Developing Economies 1991-2015

    Governments have long acknowledged the key role infrastructure plays in economic growth and poverty reduction. As countries face growing demand for infrastructure, Public-Private Partnerships (PPPs) continue to play a crucial role in improving efficiencies in delivering public services, one of the key elements to narrowing the infrastructure gap. This becomes even more important as history shows that shifting the development, maintenance, and operational risk on to the private sector often results in higher quality and overall better results than government provisioning. This report uses data from the PPI Database to analyze broad trends of PPP investment in infrastructure from 1991 to 2015. Specifically, it examines factors behind...

    • 2010
    • Vivien Foster, Cecilia Briceno-Garmendia
    • World Bank Group (WBG)

    Africa's Infrastructure

    A Time for Transformation

    This study is part of the Africa Infrastructure Country Diagnostic (AICD), a project designed to expand the world's knowledge of physical infrastructure in Africa. The AICD will provide a baseline against which future improvements in infrastructure services can be measured, making it possible to monitor the results achieved from donor support. It should also provide a more solid empirical foundation for prioritizing investments and designing policy reforms in the infrastructure sectors in Africa. The project has produced a series of original reports on public expenditure, spending needs, and sector performance in each of the main infrastructure sectors, including energy, information and communication technologies, irrigation, transport,...

    • 2007
    • Organisation for Economic Co-operation and Development (OECD)

    Infrastructure to 2030

    Mapping Policy for Electricity, Water and Transport (Vol.2)

    Infrastructure systems play a vital role in economic and social development. Increasingly interdependent, they are a means towards ensuring the delivery of goods and services that promote economic prosperity and growth and contribute to quality of life. Demand for infrastructure is set to continue to expand significantly in the decades ahead, driven by major factors of change such as global economic growth, technological progress, climate change, urbanisation and growing congestion. However, challenges abound: many parts of infrastructure systems in OECD countries are ageing rapidly, public finances are becoming increasingly tight and infrastructure financing is becoming more complex. The looming "infrastructure gap" needs to be closed....

    • 2002
    • Bent Flyvbjerg, Mette Skamris Holm, and Søren Buhl
    • Journal of the American Planning Association

    Underestimating Costs in Public Works Projects

    Error or Lie?

    This article presents results from the first statistically significant study of cost escalation in transportation infrastructure projects. Based on a sample of 258 transportation infrastructure projects worth US$90 billion and representing different project types, geographical regions, and historical periods, it is found with overwhelming statistical significance that the cost estimates used to decide whether such projects should be built are highly and systematically misleading. Underestimation cannot be explained by error and is best explained by strategic misrepresentation, that is, lying. The policy implications are clear: legislators, administrators, investors, media representatives, and members of the public who value honest...

    • 2005
    • Bent Flyvbjerg, Mette K. Skamris Holm, and Søren L. Buhl
    • Journal of the American Planning Association

    How (In)accurate Are Demand Forecasts in Public Works Projects?

    The Case of Transportation

    This article presents results from the first statistically significant study of traffic forecasts in transportation infrastructure projects. The sample used is the largest of its kind, covering 210 projects in 14 nations worth US$59billion. The study shows with very high statistical significance that forecasters generally do a poor job of estimating the demand for transportation infrastructure projects. For 9 out of 10 rail projects, passenger forecasts are overestimated; the average overestimation is 106%. For half of all road projects,the difference between actual and forecasted traffic is more than ±20%. The result is substantial financial risks, which are typically ignored or downplayed by planners and decision makers to the detriment...

    • 2005
    • Bent Flyvbjerg
    • World Bank Group (WBG)

    Policy and Planning for Large Infrastructure Projects

    Problems, Causes, and Cures

    This paper focuses on problems and their causes and cures in policy and planning for large infrastructure projects. First, it identifies as the main problem in major infrastructure development pervasive misinformation about the costs, benefits, and risks involved. A consequence of misinformation is massive cost overruns, benefit shortfalls, and waste. Second, the paper explores the causes of misinformation and finds that political-economic explanations best account for the available evidence: planners and promoters deliberately misrepresent costs, benefits, and risks in order to increase the likelihood that it is their projects, and not the competition's, that gain approval and funding. This results in the "survival of the unfittest,"...

    • 1998
    • Vito Tanzi, Hamid Davoodi
    • International Monetary Fund (IMF)

    Roads to Nowhere

    How Corruption in Public Investment Hurts

    Ribbon-cutting ceremonies marking the opening of investment projects—such as roads, dams, irrigation canals, power plants, ports, airports, schools, and hospitals—are every politician’s dream. These occasions present splendid photo opportunities, while the very act of cutting the ribbon seems to identify the shear-wielding politician as a contributor to the future growth of the economy. In some countries, however, corrupt politicians appear to choose investment projects not on the basis of their intrinsic economic worth, but on the opportunity for bribes and kickbacks these projects present.This paper contends that such corruption increases the number of capital projects undertaken and tends to enlarge their size and complexity. The...

    • 2009
    • Jonathan Halpern; Charles Kenny; Eric Dickson; David Erhardt; Chloe Oliver;

    Deterring Corruption and Improving Governance in the Water Supply & Sanitation Sector

    Governments typically provide the water and sanitation sector with substantial amounts of public money. Monopoly power, public funds, and discretionary decisions, coupled with poor accountability, breed corruption. The best hope for reducing corruption in the water and sanitation sector is to incentivize water sector officials and managers to be responsive to citizens' demands.

    • 2009
    • American Society of Civil Engineers

    2009 Report Card for America’s Infrastructure

    The 2009 Report Card for America’s Infrastructure finds not much has changed since the last edition four years ago. Years of delayed maintenance and lack of modernization have left Americans with an outdated and failing infrastructure that cannot meet our needs. Infrastructure has a direct impact on our personal and economic health, and the infrastructure crisis is endangering our nation’s future prosperity. For the safety and security of our families, we can no longer afford to ignore the congested roads, aging dams, broken water mains, and deficient bridges we face every day. As a society, we must become better stewards of the environment through the use of sustainable infrastructure practices. The quality of life for this and future...

    • 2006
    • Deloitte

    Closing the Infrastructure Gap

    The Role of Public-Private Partnerships

    Published by Deloitte Research, this study provides a short and easily digestible overview of the advantages and disadvantages of PPPs. Citizens around the globe confront the world’s glaring infrastructure deficit daily. Evidence of the large and growing gap between infrastructure needs and the resources that governments have historically invested in meeting those needs is everywhere: congested roads; bridges in need of repair; poorly maintained transit systems and recreational facilities; and deteriorated hospitals, schools, and waste treatment facilities all in urgent need of rehabilitation and repair. These problems in turn impose huge costs on society, from lower productivity to reduced competitiveness to an increased number of...

    • 2007
    • Timothy C. Irwin
    • World Bank Group (WBG)

    Government Guarantees

    Allocating and valuing risk in privately financed infrastructure projects

    Many governments want private firms to finance new infrastructure. The firms, in turn, often want the government to bear some of the risks. They might ask the government to compensate them if demand falls short of forecasts or to promise to repay their debts if they become insolvent. At the very least, they probably want the government to allow them to charge a certain price or else compensate them accordingly. This book aims to help governments respond to such requests. As well as seeking to make precise the oft-invoked principle that risks should be allocated to those best placed to manage them, it explains how governments can value the guarantees they are thinking of granting and how they can modify aspects of public-sector...

    • 2011
    • Mariana Abrantes de Sousa
    • PPP Lusofonia

    Managing PPPs for Budget Sustainability

    Considering that Portugal is currently suffering one of the most severe financial crisis in its history, this paper examines to what extent PPPs have contributed to Portugal’s external debt problems and evaluates how Portugal’s PPP contracts can be managed in order to contribute to the necessary solution.  Although the interests of the various PPP Stakeholders are acknowledged, the focus is on the Government as the public partner, from a sovereign risk and taxpayer perspective. The paper shows how countries like Portugal with large PPP programmes but fragmented PPP institutions and   inadequate budget practices can be exposed to greater fiscal risks, leading to the accumulation of excessive PPP liabilities which later contribute to...

    • 2010
    • House of Lords
    • UK Government

    Private Finance Projects and Off-Balance Sheet Debt

    Volume I - HL Paper 63-I

    Expectations of public services have risen steadily over many years and Governments have struggled to satisfy them within the constraints of annual public spending limits. Growing public payrolls tend to pre-empt resources for maintenance and renewal of infrastructure. Governments have understandably looked for new ways to fund investment and reduce the risks of implementation. One is Private Finance Projects (PFPs), financed by privately-raised debt and equity and paid for by public authorities over many years.  

    • 2010
    • House of Lords
    • UK Government

    Government Response to Private Finance Projects and Off-Balance Sheet Debt

    UK House of Lords response to private finance projects and off-balance sheet debt.

    • 2009
    • Prashant Gupta, Rajat Gupta, Thomas Netzer
    • McKinsey & Company

    Building India: Accelerating Infrastructure Projects

    McKinsey & Company has conduced proprietary reserach in the areas of infrastructure financing, infrastructure implementation, logistics strategy and power strategy. This report is part of a four-part series, Building India, a comprehensive perspective on infrastructure developmetn in the country. It provides a perspective on the potential GDP loss due to inefficiencies in infrastructure implementation and the challenges that drive these inefficiencies, and proposes a set of measures that the various stakeholders can take.

    • 2009
    • National Audit Office
    • UK Government

    Performance of PFI Construction

    One of the core areas of debate around the use of the Private Finance Initiative (PFI) concerns the performance of PFI construction projects, and in particular whether they deliver to the expected time, price and quality.The National Audit Office has, ever since the inception of the PFI, been at the forefront of objective, independent analysis of the circumstances in which PFI projects offer value for money to taxpayers. In addition to reports focused on individual contracts, and those focused on the performance of private finance in specific sectors, we have, from time to time, reported on issues of cross-cutting interest. One of our cross-cutting reports in 2003 examined the evidence surrounding the delivery of Private Finance...

    • 2014
    • European PPP Expertise Centre (EPEC), European Investment Bank (EIB)

    Risk Distribution and Balance Sheet Treatment. Practical Guide.

    Second Edition

    This practical guide is intended to give advice on the impact that the risk distribution between government and the PPP or concession partner (the “partner”) in a specific project has on government deficit and debt. It contains a checklist of issues (the “Checklist”) designed to help procuring authorities determine the possible statistical treatment of a PPP or concession project. Risk distribution and balance sheet treatment are important aspects in PPPs. Understanding the underlying issues and their consequences is often of great concern to procuring authorities. In 2010, EPEC issued a report on the Eurostat Treatment of Public-Private Partnerships to set the context of these issues. The report clarified the meaning and purposes of...

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