World Bank Group Sustainable Infrastructure Action Plan Fiscal Years 2009-2011
There is no longer a debate about whether infrastructure has a role to play in poverty reduction. It is crucial. Katherine Sierra Vice President Sustainable Development Network The World Bank Because infrastructure services have a direct impact on quality of life, investing in infrastructure is one of the foundations on which economic and social life is built. Edith Quintrell Director of Operations Multilateral Investment Guarantee Agency The World Bank Group According to recent data, around 900 million people do not have access to safe water, 1.6 billion people are without electricity, 2.5 billion live without adequate sanitation, over 1 billion are without access to telephone services, and roughly 1 billion of the world s rural poor do not have adequate access to all-weather roads. With an estimated demand of over US$900 billion per annum for infrastructure investment and maintenance from developing countries, the World Bank Group will partner with the public and private sectors to help address these needs. Rashad Kaldany Vice President Middle East/North Africa and Global Infrastructure Cluster International Finance Corporation
Sustainable Infrastructure Action Plan The Sustainable Infrastructure Action Plan (SIAP) outlines the World Bank Group s (WBG) infrastructure funding guidelines for Fiscal Years (FY) 2009-2011. SIAP supports a renewed commitment to client countries to improve the reach and quality of infrastructure service delivery in a sustainable manner through increased financing and leverage. SIAP follows up on the World Bank s Infrastructure Action Plan (IAP), FY2004-2007, to revitalize the institution s engagement in infrastructure. During the implementation of SIAP, the WBG plans to scale up its finance and advisory services for infrastructure between US$59 and US$72 billion and leverage an additional US$109 to US$149 billion in public and private financing for infrastructure. The SIAP was prepared as an umbrella framework that brings together the lessons of WBG infrastructure experiences from the past two decades and the more recent achievements during the IAP. The umbrella framework of SIAP provides direction to the many individual sector efforts to increase the depth and range of the infrastructure portfolio of the different institutions of the WBG through multiple product lines. It is widely recognized that cost-effective, reliable, and affordable infrastructure services are critical for sustainable development, and a necessary condition for reaching economic, social, and environmental goals. In most of the developing world there is still an important unfinished core infrastructure access agenda: strengthening sectoral policies and institutions to improve the efficiency, affordability, quality, and reach of basic services. 1 The cost of not having adequate sanitation in Vietnam, Indonesia, and the Philippines, alone, is estimated at approximately US$9 billion a year, or about 2 percent of their combined gross domestic product (GDP). The cost of logistics is less than 10 percent of GDP in industrialized countries, but can cost developing countries as much as 30 percent of GDP. Results from a recent World Bank survey in Europe and Central Asia suggest that the total benefit for the economy from eliminating existing electricity outages ranges from 0.5 to 6 percent of GDP. If all interruptions in water service were to end, the economy could receive gains ranging from about 0.5 to 2 percent of GDP. 2.5 billion live without adequate sanitation.
Roughly 1 billion live without adequate access to all-weather roads. 1. 2. 3. 4. Four Pillars of the Sustainable Infrastructure Action Plan Progress must be made to support developing countries as they meet the enormous lags in the access agenda of core infrastructure sectors (Transport, Water, Energy, and Information and Communication Technologies (ICT)). Advances in this core access agenda requires focused attention on key cross-cutting issues: climate change, the role of the private sector, regional disparities in infrastructure service delivery, rapidly growing demand for infrastructure in urbanizing economies, affordability, and the need to support and build upon technological advances; Embedding sustainability in infrastructure services must go beyond do-no-harm objectives. In addition to the traditional economic and financial viability of infrastructure services, the design of infrastructure programs needs to support environmental sustainability and social inclusion: the triple bottom line; It is paramount to ensure support for a strong governance framework for infrastructure services: efficient and effective use of public and private resources, strong results monitoring systems to measure the access and sustainability outcomes of infrastructure spending, and effective anti-corruption action programs; The WBG can leverage its financing by mobilizing additional private financing and harmonized aid resources for infrastructure, using its convening power to support developing countries. 2 3 Safe, Clean and Affordable Transport for Development Roughly one billion of the world s rural poor do not have adequate access to allweather roads. Each year, more than 1.2 million people are killed and up to 50 million injured on world roads. In developing countries, 40-60 percent of people live more than 8 kilometers from health care facilities. Many poor urban dwellers spend up to five hours daily commuting to make a living. Transport is crucial for economic development. Increased mobility and access improves quality of life and helps reduce poverty. An estimated 75 percent of maternal deaths could be prevented with timely access to childbirth-related care, facilitated by transport. Access to roads in rural areas can more than triple girls enrollment in education. Lowering transport costs along a modernized international corridor can unlock growth potential, create jobs, and bring wealth to local communities. In striving to achieve its development objectives, the WBG is mobilizing the transport sector to the fullest possible extent. The new transport business strategy aligns WBG instruments along key strategic directions that will pave the way to truly sustainable development; one where transport plays a crucial role.
1.6 billion live without access to electricity. Infrastructure Action Plan Since the 1960s, the WBG has provided substantial assistance to developing countries for basic infrastructure services such as energy, transport, water, and telecommunications. During the 1990s, there were widespread expectations that the private sector would play a much larger role in financing infrastructure in the developing world. Private financing flows, however, were concentrated in relatively few countries and sectors, peaking in 1997 and declining through the early part of the current decade. Bilateral Official Development Assistance (ODA) declined during the same time period and, in parallel, World Bank lending for infrastructure dropped from US$10.6 billion in 1993 to US$5.4 billion in 2003. Growing awareness of the impact of an infrastructure deficit and its effect on developing countries poverty reduction and economic growth prospects prompted calls for the World Bank to re-engage and scale up its assistance. Upon request from the Board of Executive Directors, Bank Management launched the IAP in 2003. The objective was to revitalize World Bank s engagement in this critical area. Lighting Africa 4 5 The energy sector in sub-saharan Africa faces especially large challenges: over 500 million people do not have access to electricity grids and depend on costly fuel-based lighting. African households and small businesses spend more than US$17 billion annually for lighting with kerosene lamps and candles. Yet, despite these huge expenditures, consumers receive very little value in return while they are exposed to considerable health and fire hazards. Lighting Africa, a joint World Bank International Finance Corporation (IFC) initiative, seeks to leverage expenditures on fuel-based lighting to accelerate the market of modern alternatives that offer users considerably more value for money. Efficient lighting technologies make it possible to offer energy services that are clean, efficient, safe and reliable at a cost that is comparable to typical expenditures on kerosene. The initiative aims at leveraging such technologies for off-grid applications by mitigating market barriers and engaging the global lighting industry, African businesses and entrepreneurs, governments and civil society. In close consultation with hundreds of stakeholders, Lighting Africa is developing interventions aimed at addressing specific market barriers. Activities include developing critical market data to inform new product design and project approaches, a comprehensive quality assurance program, consultations on policy and regulatory reform, and consumer outreach campaigns.
A Changing World During the IAP period, the WBG s re-engagement in infrastructure was accompanied by dramatic changes in the external environment. The changes, which led to new global trends, coupled with the large infrastructure service delivery gaps, caused the WBG to update its role in infrastructure for the coming years. Eight trends in particular continue to affect the way infrastructure services are planned, financed, and operated: a) Climate change; b) Globalization of trade and services; c) Growing regional disparities in the context of rapid urbanization and decentralization; d) Changing global financial conditions, including increases in private investment in infrastructure in emerging markets; Twenty Years of Infrastructure: Key Lessons Learned e) An increasingly complex global aid architecture; f) Rising energy prices; WBG work over the past 20 years has yielded valuable lessons on how to engage in infrastructure development. The 2006 review of WBG work in infrastructure yielded g) Potential breakthroughs in technologies for delivering infrastructure services in a more sustainable manner; and the following key lessons: h) Food prices crisis. 6 1. Growth cannot come at the cost of access: Balance infrastructure investments that promote economic growth with those that target enhanced access for the poor. 7 2. Tailor Public-Private Partnerships (PPPs) to local conditions: The choice between public and private provision should be driven by local conditions, not by ideology; what matters most are results. 3. Projects need to safeguard people and nature: Assess social and environmental impacts carefully, and integrate such assessments into project design. 4. A strong governance framework is paramount: Fight corruption at all levels in the projects we finance, in the sectors we engage in, and in the countries we support. 5. Communicate with stakeholders: It is critical to engage with critics and supporters alike. Communications are most effective when integrated as part of the project cycle. 6. Don t forget the basics: Remember the basics of project preparation and appraisal: technical design, economic and financial analyses, and implementation arrangements.
Climate Change Climate change has the potential to reverse hard-earned development gains and impede progress toward achieving the Millennium Development Goals (MDGs). An effective response to climate change must combine both mitigation and adaptation. While climate change is an added cost and risk to development, a successful global climate policy can bring new economic opportunities to developing countries. The WBG has substantial experience helping developing countries take advantage of synergies between global climate and local development benefits, access finance, and adopt better technology. The WBG has helped pioneer the carbon market through the Prototype Carbon Fund, developed a robust Carbon Finance business, and has been the implementing agency of the Global Environment Facility for 15 years. Meeting the Urbanization Challenge Expected Outcomes In 1950 only 30 percent of the world s population lived in cities. This year, for the first time in history, a majority of the world s population lives in urban centers. By 2030, this figure is expected to reach 65 percent. Cities will need to absorb another 2 billion people over the coming twenty years, and 90 percent of this urban expansion will take place in the developing world. This demographic challenge will give rise to unprecedented demands for investments in infrastructure in thousands of cities and towns across the developing world. Where service coverage is already limited or of poor quality, new demands for service area expansion could further undermine access of existing households and businesses to essential city infrastructure services. The risk of not anticipating and responding to the likely impacts of this demographic challenge will be severe. Responding to the need to better support its clients in dealing with climate change, As the World Bank updates its Urban Strategy in 2009, instruments such as the Urban while also ensuring increased energy access for the poor, the WBG formulated the Infrastructure Funds (UIFs) will figure prominently into an approach aimed at scaling up Clean Energy Investment Framework (CEIF) in 2006/2007. Within three years, the WBG the Bank s support to national governments and cities in meeting their infrastructure significantly expanded its activities and achieved results in all three focus areas of the service needs. UIFs are flexible financing instruments that address a range of urban CEIF: energy access, supporting developing countries efforts to reduce emissions, and infrastructure service needs across a broad number of cities and towns. Unlike specific adaptation to climate change. Building on these three pillars, the WBG is preparing a investment projects, they have been used to provide financing for urban roads, water paper: Development and Climate Change: A Strategic Framework for the World Bank and sanitation services, and for integrated upgrading projects across a broad range Group. Two climate investment funds were approved by the Board in July: the Clean of cities and towns. To date, total volume of Bank financing commitments to UIFs 8 Technology Fund and the Strategic Climate Fund. since their inception reached about US$11 billion in constant 2006 dollars. UIFs will 9 be essential instruments in the Bank s efforts to respond to the growing demand for infrastructure services in medium and small-size cities and towns where the pace of urbanization is accelerating the fastest. Nearly 900 million people do not have access to safe water. Source: UNFPA State of the World Population 2007
Water and Sanitation: Meeting the Millennium Development Goals Over 1 billion live without access to telephone services. ICT and Poverty Alleviation Mobile telephony has a direct positive impact on economic welfare by generating jobs, increasing GDP, improving productivity, and generating tax revenue. In 2005, Vodafone reported that, in a typical developing country, an increase of 10 mobile phones per 100 people can boost growth of GDP per capita by 0.6 percent. Challenges for water management are huge. Projections indicate that, due to the impacts of global warming on hydrological systems and accelerating urbanization, the population under severe water stress might increase to 4 billion by 2050. With limited institutional capacity and low stocks of water related infrastructure, developing countries are particularly vulnerable to the effects of climate change, urbanization, land use changes, and shifts in global trading patterns, particularly for agricultural products. The 2008 Joint Monitoring Program (JMP) report shows that sub-saharan Africa is the region furthest behind meeting the Water Supply and Sanitation (WSS) MDGs and has the lowest levels of access to both water supply and sanitation at 58 percent and 31 percent, respectively. The fishing industry in Kerala, South India, highlights the dramatic impact advances in mobile phone coverage can have for the poor. The absence of refrigerated transport between markets meant that there were large geographical disparities in market prices for fish according to local conditions of supply and demand. Fish were often 10 discarded in some markets while there was an active trade in neighboring towns. Mobile phone services, introduced in 1997, expanded progressively along the coast, 11 allowing fishermen to find out prices in different markets and negotiate sales before landing their fish. The effects have been dramatic. 30 40 percent of fishermen began selling fish outside their home markets. Within weeks, this significantly reduced the dispersion in fish prices between markets; eliminating wastage and increasing fishermen s incomes by almost 9 percent in some towns. Recognizing the significant impact ICT has on poverty alleviation, the WBG has remained actively involved in nearly 80 countries, promoting policy and regulatory reforms in the sector. Approximately US$500 million of International Development Agency (IDA) funds were provided for ICT related activities in 47 IDA countries in the ten years to 2007. IFC financing in the sector totaled almost US$1.8 billion since 2003, including projects such as the implementation of the Eastern African Submarine Cable System (EASSy); a submarine fiber-optic communications cable which will stretch from South Africa to Sudan with connections to all of the countries along its route. EASSy is complemented by US$424 million in World Bank funding, under the Regional Communications Infrastructure Program (RCIP) to connect 13 adjoining countries by terrestrial backbone networks. EASSy and RCIP will bring reliable and cost-effective broadband services to 25 countries in Africa. The Multilateral Investment Guarantee Agency (MIGA) also provided over US$550 million in guarantees in the same period to support investments in the sector. Source: 2008 Joint Monitoring Program Report Enhancing access to and the quality of water and sanitation services will remain a central focus of WBG assistance. Assistance for the water sector is guided by the Water Resource Management strategy and the WSS Business Plan. In FY2008 alone, WBG financing in the water sector totaled more than US$2.5 billion. The WBG will continue to step up efforts to support the achievement of the MDGs in WSS by supporting decentralized community-managed approaches; building autonomous water boards for local operators; and by improving operator performance. Investment in utilities will continue to be a key area for for IFC expansion with particular emphasis on increasing private investment in the water sector. MIGA also expects continued growth in its business in water and other wastewater sectors. As part of the implementation of SIAP, the Bank will scale up partnerships on a broader range of water related concerns including water resources, agriculture water management, hydropower development, trans-boundary water management and climate change. In addition, the WBG will continue to deepen its engagement on disaster risk management.
Spatial Dynamics Public-Private Partnerships Policymakers in most countries are concerned with rising spatial divides between leading and lagging regions, between rural and urban areas, and within large cities. Infrastructure investments are often used to bridge these divides by influencing the geography of productive assets. By identifying where infrastructure is likely to produce the highest economic benefits, diagnostics with a spatial twist can help clarify policy debates on infrastructure location. In Uganda, for example, World Bank-supported spatial analysis of industrial location has alerted policymakers to the importance of linkages and density of economic activity, and the difficulty of attracting businesses to remote locations. In Malawi, ongoing economic studies reveal that producers face isolation from markets, resulting in lost economies of scale and specialization. The World Bank s World Development Report 2009 takes a spatial approach to development policy. Thinking geographically can help stimulate growth by prioritizing across transport corridors that physically connect the country to regional and international markets. While our understanding of the dynamic impacts of infrastructure investments in bridging spatial gaps is still evolving, a spatial development perspective will increasingly inform the World Bank s advisory and operational work to improve the contribution of infrastructure to growth and poverty reduction. An important lesson of the WBG s infrastructure experience during the past two decades has been that neither the public nor the private sector alone can meet the access, quality, financing, and policy gaps for infrastructure. While the public sector will continue to play a crucial role in delivering infrastructure services, mobilizing additional private and harmonized aid resources will be essential in addressing the growing infrastructure finance needs in developing countries. In the last several years, there has been an increase in private sector financing flows into infrastructure, which reached around US$115 billion in 2006. Of growing importance is the increased southsouth financing for infrastructure investments, with China and India as the most significant contributors to financing in Africa. Working within this environment, the World Bank, IFC and MIGA will leverage WBG financing by mobilizing additional private financing and harmonized aid resources for infrastructure. Support can be offered by the World Bank, IFC, and/or MIGA, but in the most successful examples of leveraging private finance, such as the Nam Theun II Hydropower project in the People s Republic of Laos, a combination of WBG instruments was deployed. In Cote d Ivoire, for example, IFC invested US$ 32 million in the Azito project and mobilized an additional $30 million through syndications; the second Independent Power Producer in the country and the first infrastructure project in sub-saharan Africa to attract commercial bank financing. The Azito project has been crucial for Cote d Ivoire and the region; providing reliable electricity with the country s lowest energy tariff. In structuring the project, IFC worked with the World Bank and the government of Cote d Ivoire to improve the cash flows of the sector with transparent reporting procedures and developing a priority of reporting order. 12 13 By 2030 65% of the world s population will live in urban centers. In FY2008, MIGA provided more than US$150 million in political risk insurance in support of Costa Rica s first successful toll road concession, the Autopistas del Sol project, named Deal of the Year for the Latin America region by Euromoney magazine. MIGA s involvement in the project was a condition precedent for the lender. Source: PPIAF-World Bank PPI Database
SIAP Implementation 14 During SIAP, the WBG plans to scale up its finance and advisory services form infrastructure between US$59 and US$72 billion. The WBG will increase focus on leverage, mobilizing both private and public financing for infrastructure service delivery. With the creation of project structuring and technical assistance facilities and mobilization of additional trust funds, the WBG estimates the magnitude of leverage during SIAP between US$109 billion and US $149 billion. } } } } } } The WBG will enhance its agility in responding to client and stakeholder demands at several levels, including: 1. Increase WBG collaborative efforts, such as World Bank-IFC sub-national transactions and World Bank-MIGA-IFC collaboration on large and complex infrastructure projects, particularly energy sector projects in Africa; joint advisory services and upstream Analytical and Advisory Activities; and engagement in common WBG product lines; 2. Reduce the non-financial costs of doing business in high priority sectors; 3. Improve results monitoring and evaluation of infrastructure interventions; 4. Increase the utilization of WBG financial expertise and access to multiple financial resources for transactions packaging for high priority objectives, such as the mitigation of sovereign and natural catastrophic risks; and This is an ambitious plan for the World Bank Group but it is needed at this time in order to work with the international community to reach the Millennium Development Goals. We will harmonize efforts within the World Bank Group, just as we will harmonize efforts with other development partners and the private sector, to ensure that necessary infrastructure investments are built taking into account social and environment considerations and take place expeditiously for the benefit of the poor. Jamal Saghir Director Energy, Transport, Water The World Bank 5. Maximize the benefits from the Sustainable Development Vice-presidency integration at the World Bank, including through training and recruitment.
2008 The International Bank for Reconstruction and Development/The World Bank All rights reserved This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank 1818 H Street N.W. Washington, D.C. 20433 USA For more information on the Sustainable Infrastructure Action Plan, please visit www.worldbank.org/siap.