adminFollowing our introductory article last week, the writer was inundated with feedback. Many requested the writer to give a general explanation of infrastructure, what it is and what it does. Thus this becomes our focus this week.
Infrastructure by definition is the public stock of economic and social facilities. It can be viewed in functional terms, in utilities, in economic eyes or on social basis. Functional terms are basically the different uses each facility serves like rail transport, air transport, cellular communication, solar energy, or hydro energy.
Economic infrastructure according to some economists refers to those facilities that provide services without which productive, distributive, and consumptive activities of the economic system cannot take place.
Examples include roads, bridges, airports, and rail networks. Associated with this part is the special sector of utilities which include water, power and energy production and distribution networks.
Politicians and psychologists talk prominently about social infrastructure, such as schools, health care facilities and prisons.
Infrastructure scholars, however, do not agree on the above definitions, and in contrast they divide infrastructure into three categories: Transportation, utilities, and social infrastructure.
However, the categorisation goes, when the ordinary person sees new infrastructure being developed or old being worked on, they smell optimism, they see social impact, they sense economic value, and they sense jobs and empowerment. They see a better country, a better quality of life that is truly visionary.
The importance of infrastructure to any economy can be viewed in the eyes of infrastructure based economic development.
This development approach, also called infrastructure-driven development is defined as economic growth pinned on the development of infrastructure projects.
It has its foundations in key policy characteristics inherited from the Rooseveltian progressivist tradition and Neo-Keynesian economics in the United States, France’s Gaullist and Neo-Colbertist centralised economic planning, Scandinavian social democracy as well as Singaporean and Chinese state capitalism.
Thus this is a West-East phenomenon and it is embraced by every economic theory, whether command or liberalised.
Should Zimbabwe decide to embark on the highly recommended infrastructure-based economic development or infrastructure-driven development, then it must systematically channel a large part of its resources into long term physical assets like modern highways between cities and boarders, power and energy development and distribution, and social infrastructure. Such investments will result not only in short term benefits like employment and higher aggregate disposable income, but also in long term economic efficiency like growth stimulation, technological innovation and social equity.
This view was mathematically proven by Aschauer’s 1990 model, which he developed from data spanning a massive 35 years. The conclusion proved beyond doubt that indeed increased investment in infrastructure can grow an economy.
The model is a production function of:
Y= F(K,G,N,Z)=ZK^{alpha}G^{beta}N^{1-alpha-beta}, where:
Y = Level of total output
K = Private fixed capital
G = Level of government productive services
N = Population or labour force
Z = Index of technological progress
alpha-beta are constants determined by available technology.
Investment in public infrastructure is divided into two, economic overhead capital (EOC) and social overhead capital (SOC). EOC is the substratum of Zimbabwe’s economic activities and SOC, which is made up of social services like education, public health and national security is responsible for the enhancement of human capital.
However, there is a strong overlap between the two and the divisions may not be that clear cut in real life. For example Zimbabwe’s ailing public health delivery system is taking a toll on the economic part of the country as labour is struggling to access proper medical health and return to factories.
There is great need to balance between EOC and SOC but how can our policy makers balance economic benefit against social need given constrained financial resources? Honourable Patrick Chinamasa and Honourable Gumbo are you there?
Public infrastructure generates social benefits or spill overs that exceed what an individual would be willing to pay for its services rather than go without it; and also that the benefits of these facilities are not limited to a group or groups of individuals, rather they are open to all society.
This disparity or mismatch is the main reason why there is a limited motivation by the private sector to provide these facilities.
Moreover, the fact that public infrastructure facilities require huge capital outlay, which is sometimes beyond the capacity of private sources does not make the situation any better.
This situation squarely puts the burden of public infrastructure investment and development on Government’s doorstep. Minister Chinamasa and Minister Gumbo is that sweet music to your ears?
The widening gap between function and finance the world over, coupled with the desire to balance EOC and SOC has exposed the inadequacies inherent in central treasuries to fund capital expenditure.
Zimbabwe is no exception. To that end, governments are left with no choice but to formulate policy frameworks that enable them to access private finance for public infrastructure.
Until 2018 the country’s economic affairs will be determined by Zim-Asset, the official economic blueprint.
In all fairness, Zim-Asset’s Infrastructure and Utilities cluster has modest goals. Although politicians and economists across the political divide continue to argue on whether Zim-Asset is a good blueprint or not, one thing for certain is that its implementation remains stalled due to funding issues.
Infrastructure projects are the most affected given the large amounts of capital outlay required.
Examples of projects that are yet to see the light of the day include the ever talked about Zambezi Water Project, Kunzvi Dam in Goromonzi, the extension of the Kariba South Power Station and dualisation of the Beitbridge-Harare highway.
According to the Infrastructure Development Bank of Zimbabwe (IDBZ) the country needs about $33 billion to upgrade and maintain the existing infrastructure in the next 10 years.
That’s an average of $3,3 billion per year, $11,3 billion would go towards electricity, $1,8 billion to water, close to $10 billion of the money will go towards transport while information communication technology (ICT) requires $6,5 billion.
The bank further provides that to realise this goal, the country need to dedicate $1,65 billion per annum to infrastructure, with the balance coming from other sources like the private sector and multi-lateral organisations. The table below, sourced from the African Development Bank Report (2011) projects infrastructure maintenance expenditure.
Given a liquidity constrained national treasury and a national debt overhang estimated at over US$10,7 billion, representing 113,5 percent of the country’s GDP of which 67 percent is arrears, the chances for the central Government to successfully pool infrastructure funding through traditional forms is a daunting task.
Besides affecting the country’s credit rating and challenges associated with debt servicing, it is evident that due to debt overhang, Zimbabwe has lost out on a number of funding opportunities from international creditors. This has forced a number of projects to be suspended or cancelled.
In conclusion, although there is no doubt about the effect of infrastructure on a country’s economic development prospects, Zimbabwe’s challenge is to mobilise resources for the development of infrastructure. This is our topic for next week.
- Phin Tafa is an infrastructure development consultant, and his focus lies more in public infrastructure. He is the CEO of the African Centre For Real Estate and Land Economics (ACRELE). Feedback, [email protected], 0772265072, Skype: phin.tafa
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