Unit 4 Macro: Infrastructure Gaps and Development

Infrastructure includes physical capital such as transport networks, energy, power and water supplies and telecommunications networks. Poor infrastructure hampers growth because it causes higher supply costs and delays for businesses. It reduces the mobility of labour and affects the ability of exporters to get their products to international markets.

A good example to use is India whose future growth is threatened by structural weaknesses in her infrastructure. Huge investment is needed in better roads, rail, bridges, and power and energy networks. Infrastructure is lacking too in agriculture.

Here are three examples of infrastructure deficiencies:

1. India: India’s irrigation system is deficient and not properly managed and this has made it very difficult to sustain food grain production when rainfall is less than expected – as was the case in 2012. This has led to a surge in food prices which hits the poorest communities hardest. For a few days in the summer of 2012, much of northern India was plunged into darkness for two consecutive days. About 700 million people were left without power, a situation that affected transport, communication, healthcare, industries and farming. India needs an estimated $400bn investment in the power sector if it is to meet its development goals.

2. Brazil: Host for the 2014 World Cup and the 2016 Olympics. Brazil’s growth is constrained by infrastructure weaknesses: In 2011, only 14% of her roads were paved. The World Economic Forum ranks Brazil’s quality of infrastructure 104th out of 142 countries surveyed, behind China (69th), India (86th) and Russia (100th).

3. Sub-Saharan Africa: The combined power generation capacity of the 48 countries of Sub-Saharan Africa is 68 gig watts – no more than Spain’s. Excluding South Africa, this figure falls to 28 GW, equivalent to the capacity of Argentina (except Argentina has a population of 40 million and Africa has 770 million.) A recent report from the Infrastructure Consortium of Africa (ICA), found that poor road, rail and harbour infrastructure adds 30-40% to the costs of goods traded among African countries. This chronic shortage of energy - with firms and people facing acute shortages of power – is a major barrier to growth and development.

Many countries will need to increase their spending on infrastructure in the years ahead to adapt to and deal with the consequences of climate change.

There has been much interest in recent years concerning the investment in infrastructure that businesses from emerging countries such as Brazil and China are making in the continent of Africa. China’s foreign direct investment in Africa has jumped from under $100 million in 2003 to more than $12 billion in 2011.

India's Energy Deficit