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A Critique of the World Bank’s Progress Report on Infrastructure
In July 2003, the World Bank launched an Infrastructure Action Plan in order to massively increase its lending for the infrastructure sectors, and to middle–income countries more generally. In August 2005, the Bank prepared a progress report on the implementation of this plan.1 The Development Committee will discuss this report at the World Bank’s Annual Meeting on September 25.
According to the progress report, the World Bank’s infrastructure lending has increased by approximately $1 billion per year since FY 2003, and has reached $7.4 billion (or 33% of total lending) in FY 2005. The Bank expects this growth to continue in the next 2–3 years, so that infrastructure lending will reach about $10 billion (or 40% of all Bank lending).2
Investing in infrastructure is a key element of poverty reduction. There is however a wide spectrum of infrastructure options – rural access roads and international airports, large dams and decentralized rainwater harvesting programs. Infrastructure development can focus on bricks and mortar, and can plug the holes of waste and mismanagement in the existing systems.
As the UN’s Millennium Project has stressed, infrastructure development needs to directly address the needs of the poor, check the influence of corruption and vested interests, support the initiatives of poor communities, and protect the environment in order to attain the Millennium Development Goals. The World Bank’s infrastructure strategy does not take on the vested interests that distort infrastructure development. It fails to protect the interests of the poor, and does not mainstream the environment.
In September 2004, the World Bank’s senior water advisor (and newly appointed Brazil country director) John Briscoe gave a presentation at an international conference in Marrakech. Superimposed on a picture of Arnold Schwarzenegger as The Terminator, the ardent promoter of the Bank’s new high–risk strategy made the following concluding remarks: “The takeaway message on the World Bank and infrastructure – We’re back!”3 While the Terminator approach to infrastructure development is resisted by many Bank staff, it enjoys strong support from senior management and important Executive Directors. The Terminator approach to infrastructure will repeat the errors of the past, and will not help achieve the Millennium Development Goals.
According to Transparency International, construction and public works are perceived to have the highest level of bribery of any sector, higher even than the arms industry and the oil and gas sector.4 Unlike many other World Bank reports on infrastructure, the new progress report acknowledges the problem of corruption. It states that “lack of transparency and corruption are prevalent in infrastructure sectors across regions”, and stipulates that corruption “needs to be tackled throughout the infrastructure project chain: project identification, contract award, financing, procurement, and service delivery”.5
Unfortunately, the World Bank does often not adequately tackle corruption in practice. The Bank is not insisting on public participation and accountability in the assessment of infrastructure options. It has so far never required that the key documents of private infrastructure projects – host government agreements and power purchase agreements – be made public. In important cases (including the Bujagali and Nam Theun 2 dams), the Bank has not insisted on full international competitive bidding. And in the case of its Lesotho Highlands Water Project, the Bank will not sanction companies that bribed the CEO of the project authority if they were not directly financed by the Bank.
There are huge disparities in infrastructure access between the rich and the poor, and between urban and rural areas. The rural poor have the greatest unmet infrastructure needs. As the progress report points out, only 6% of Afghanistan’s population and only 26% of rural Nicaraguans (compared with a national average of 58%) have access to electricity.6 The figures are similar in rural Africa.
The World Bank’s water and power sector strategies have a strong focus on large–scale, high–risk power projects, and in particular hydropower projects.7 Another focus, particularly in Africa, is on regional power pools. Such projects will exclude the millions of rural poor who do not have access to an electric grid.
A power sector strategy that focuses on reducing poverty needs to prioritize rural electrification. This usually requires promoting innovative, renewable, off–grid sources of power. The latest World Energy Assessment of the International Energy Agency states:
“Investments in centralized, capital–intensive conventional energy enterprises such as coal–fired power–generation and large dams largely benefit high– and middle–income urban communities, commercial establishments, and industries through electricity distributed through power grids. Poor, dispersed rural communities that are often far from the grid rarely benefit from such investments. … A growing number of studies find that renewable and other decentralized small–scale energy technologies are important options for poverty alleviation.”8
In 2003, the World Bank’s evaluation department prepared a review of the Bank’s experience with private sector development in the electric power sector (PSDE). According to this review, “the little evidence available indicates that the poor are often the last to benefit from increased access”.9 As a consequence, the report recommended:
“In its future PSDE interventions, the WBG should give greater emphasis to the mainstreaming of the poverty reduction and environmental objectives … that are at the core of the WBG’s overall energy strategy.”10
The new progress report does not focus on directly reducing poverty through appropriate infrastructure choices. In spite of its importance for poverty reduction, the report does not even mention rural electrification.
Even in countries with a low level of infrastructure, the provision of infrastructure services is often very inefficient. The progress report mentions that almost 60% of piped water is lost in Tanzania, and power losses of more than 25% are common across South Asia (and other regions). The value of power losses equals 1.5% of GDP in Pakistan, and almost 3% in Azerbaijan.11 Plugging the holes in the delivery of water and power often makes more economic sense than investing in new dams, water delivery and power plants.
Many international bodies – including the UN’s Water Supply and Sanitation Collaborative Council, the Water and Sanitation Task Force of the UN’s Millennium Project, and the International Water Management Institute – stress that fighting waste and increasing the efficiency of existing systems is more promising and economic than a focus on new hardware investments. The World Bank’s progress report hardly mentions such soft approaches. The report still states:
“[S]upplementing expenditure on maintenance of public assets is often a high return expenditure that is typically neglected, resulting in premature demands for high cost new investments or expensive rehabilitation. The Bank intends to develop guidelines on appropriate levels of expenditure on maintenance for different infrastructure assets.”12
While this reference to maintenance is positive, it does not reflect the institution’s current priority in the water and power sectors. A recent World Bank media backgrounder asserts that “the main benefits of investing in improving the management of water resources occur only after the minimum platform and basic water security have been achieved”. It recommends that “most early investment should be in new infrastructure, rather than improving the management of existing resources”.13 The World Bank currently is considering financing the large, highly controversial Kalabagh Hydropower Project in Pakistan, even though (as the report notes) a large part of the power generated in this country does not reach the consumers. The Bank’s focus on bricks and mortar is out of sync with current expert thinking.
Balanced assessment of options
Corruption and the vested interests of politicians, bureaucrats, equipment suppliers, private investors and financial institutions – in short, the political economy of infrastructure – skew infrastructure development towards large–scale, centralized, capital–intensive projects. Efficiency improvements and decentralized options that support the efforts of the poor are being neglected. As the World Commission on Dams has shown, this bias can only be overcome through a comprehensive, balanced, accountable and participatory assessment of all needs and available options.
The progress report does not stress the need for a balanced assessment of all options, and neither does current Bank practice. The lack of transparency and public participation in infrastructure planning, the Bank management’s pressure on staff to prepare projects quickly, and the focus on private investment all favor the prevalent bias in infrastructure development. They mitigate against a thorough assessment of all needs and options.
The progress report neglects the critical environmental implications of infrastructure development. It refers only fleetingly to “ensuring that the Bank’s standards for environmental, social and technical aspects are met”, and to “providing systematic attention to environmental and social costs and benefits of projects”.14
A report that was recently published jointly by the World Resources Institute, the World Bank, UNDP and UNEP stresses that the environment is a critical element of the livelihood of the poor, and must constitute a fundamental part of strategies to reduce poverty.15 The World Bank’s infrastructure strategy does not reflect this. Environmental concerns are not mainstreamed, and are only addressed once projects have been identified. As the report of the World Commission on Dams found, this mitigating approach usually fails.
The general weakness of the World Bank’s mitigating approach is compounded by the fact that the Bank’s social and environmental safeguard policies have important gaps. The World Bank does for example not have any standard on environmental flows for dam projects. Affected people do not have guarantees that their standards of living will be restored. People who are not displaced but lose access to commons such as water and forests (for example, communities living downstream of dams) have no clear rights to be compensated for their losses. These gaps are creating serious problems in World Bank Group hydropower projects such as Allain Duhangan in India and Nam Theun 2 in Laos.
Uncritical support for privatization
The privatization efforts of the 1990s were riddled with corruption in many countries. Several private investors in the water and energy sectors have defrauded Southern governments, and have not fulfilled their obligations to invest in expanding service delivery.16
The progress report does not acknowledge these experiences. It recognizes that “the appetite for direct investment by large international private operators in water utilities has declined”, but advocates for continued World Bank support for the private management of public utilities.17 It does not call for the strengthened accountability and public control of private operators that would help avoid the experiences of the past.
Fiscal space for investing in infrastructure
The progress report reveals an interesting conflict between the International Monetary Fund and the World Bank. The governments of Brazil and other Southern countries have stressed for years that infrastructure investments increase a country’s wealth, and should not be treated as public expenditures in structural adjustment programs. As the report states, the IMF does not agree with this view: “While acknowledging the sizeable infrastructure needs in these countries, the IMF concluded that higher levels of public investments in infrastructure would have to be largely accommodated within existing fiscal deficit limits” – for example “through expenditure re–prioritization and, where appropriate, additional revenue mobilization”.18
The World Bank takes a different view than the IMF. Shrouded in technocratic jargon, the report states: “Evidence of a strong potential contribution of specific public infrastructure investments to growth could justify increasing the deficit target to create fiscal space for investments leading to higher growth rates and more sustainable public debt dynamics over the medium term, in situations where the higher deficit remained financeable.”19
Infrastructure investment can indeed contribute to a country’s wealth, and should not be choked by short–sighted austerity programs. At the same time, past experience shows that many ill–conceived infrastructure projects greatly contributed to unsustainable debt burdens. If the bias that favors large–scale, high–risk projects is not overcome, the World Bank’s infrastructure strategy might once again create an unsustainable debt burden.
The World Bank’s current infrastructure strategy does not take on the vested interests that distort infrastructure development. It does not ensure the transparency and accountability that is needed to tackle the rampant corruption in the sector. In spite of the findings and recommendations of earlier Bank reports, it does not target the needs of the poor directly. The strategy does not ensure a balanced assessment of all options. It consequently neglects the efficiency improvements that often make more economic sense than investments in bricks and mortar, but are politically less attractive. The strategy fails to mainstream environmental concerns in infrastructure planning. Its focus on brick–and–mortar investments is out of touch with current expert thinking, and will not effectively reduce poverty.
Infrastructure development is too important for poverty reduction for it to be left to vested interests. The Terminator approach to infrastructure will repeat the errors of the past, and will not help achieve the Millennium Development Goals.
- Infrastructure Vice–Presidency, World Bank, Infrastructure and the World Bank: A Progress Report, August 12, 2005
- ibid., pp. 9, 13
- John Briscoe, Water Challenges in the Developing World: A Perspective from the World Bank, Marrakech, September 20, 2004, p. 164. The presentation is available from International Rivers.
- Transparency International, 2002 Bribe Payers Index
- Progress Report, p. 3
- ibid., pp. 7, 9
- ibid., p. 14
- International Energy Agency, World Energy Assessment Overview, 2004, p. 37
- World Bank, OED, OEG, OEU, Power for Development, A Review of the World Bank Group’s Experience with Private Participation in the Electricity Sector, 2003, p. 39
- ibid., p. 57
- Progress report, pp. 3, 9
- ibid., p. 20
- World Bank, Water Security, Growth and Development, May 21, 2005
- Progress Report, p. 23
- World Resources 2005, The Wealth of the Poor: Managing Ecosystems to Fight Poverty, 2005
- For an elaboration of this critique, see International Rivers, Private Gain – Public Risk? November 20, 2002
- Progress Report, pp. 20f.
- ibid., p. 19
- ibid., p. 19