Wednesday, September 23, 2020

Infrastructure development: A compelling recipe for economic development

Economic experts generally agree that infrastructure development plays an important role in a country’s economic growth. It is considered an effective tool to promote economic growth and competitiveness.

According to a Botswana Institute for Development Policy Analysis (BIDPA) March 2019 working paper titled: “The Growth of Infrastructure on economic Growth in Botswana” authored by associate researcher Mpho Raboloko, the World Bank in 1994 asserted that provision of infrastructure in their right quantity and quality determines the success or failure of a country in the areas of diversification of production, trade expansion and reduction of poverty among others.

It is further acknowledged that infrastructure development plays a key role in determining the growth and performance of a country’s economy. As such, many countries around the world have invested and continue to invest in infrastructure development. Infrastructure development is observed to be a priority for any economy. It is every country’s desire to attain the highest level of infrastructure development.

In the Botswana context, the author of the working paper explains that the government recognizes the importance of efficient provision of public infrastructure and utilities to support competitiveness and productivity.

According to Raboloko, Botswana has made significant strides in terms of infrastructure development in recent years. Notwithstanding this, the country is still faced with several infrastructure challenges some of which include a sizable investment on maintenance and upgrading of existing infrastructure such as roads.

Good infrastructure is acknowledged to be an important variable towards improving productivity and competitiveness which ultimately lead to increased economic growth, as public infrastructure and machinery and equipment, have a strong association with productivity and growth.

A 2004 study by Canning and Pedroni found that the net effect of infrastructure on long run economic growth on countries that had developed their infrastructure over time had better economic condition as compared to those who did not consider infrastructure development as a path of economic development.

They argued that infrastructure especially telecommunications, electricity growth and energy growth, paved roads, basic health and educational facility have direct impact on the country’s economic development and also improved the income level of the common people.

It has also been established that both infrastructure stock and quality are positively and significantly related to real GDP per capita growth.

In the working paper, Raboloko concluded that healthcare infrastructure in Botswana is important for the long term economic growth. “It is widely accepted that health is an important element of human capital formation, and that the improvement of health produces a positive effect on the generation of economic growth and productivity. Therefore, it should be in the interest of policy makers to prioritize the improvement of healthcare infrastructure in order to spur economic growth”, argues Raboloko in the working paper.

In yet another study titled “The Impact of Economic Infrastructure on Long Term Economic Growth in Botswana” undertaken by Strike Mbulawa, it is recognized that the impact of infrastructure development on growth has been studied in both developed and developing countries where it was found that the availability or absence of infrastructure influences the level of development for a country or region.

It is also accepted that the type of infrastructure influences the level of productivity of economic agents and economic growth. Infrastructure, from the household’s point of view is regarded as final consumption expenditure, while the firm’s point of view it is an intermediary expenditure.

Economic infrastructure according to Mbulawa has been defined as the infrastructure that promotes economic activity which includes roads, sea ports, airports, railroads, electricity, water supply and sanitation. Social infrastructure has been defined as that which promotes health, education and cultural standards.

It has also been established that total public infrastructure capital investments have a significant boost on economic growth. Another researcher using the Botswana data found “unidirectional causality between electricity consumption and economic growth and a positive connection in the long term”.

The Mbulawa study shows that infrastructure (measured by improvement in road network and electricity distribution) contributes to high economic growth in the long term. Clearly the results support the infrastructure led growth hypothesis. Again results also show that capital is also important for enhancing growth initiatives. Thus, any conservation strategy on development of infrastructure will retard growth. As much as the development of roads contributes to economic growth electricity distribution should be intensified and power cuts should be minimized to boost economic growth.

China as a country has played a pivotal role on infrastructure development in Botswana as demonstrated in a 2009 study titled “China’s Role in Infrastructure Development in Botswana” by Anna Ying Chen notes that China’s total imports from Botswana surged from US$8.1 million in 2006 to $26 million in 2007. Although no detailed trade breakdowns can be sourced, the upward import trend and the surging figures correspond with Chinese construction companies’ footprint in Botswana”.

Following the arrival of China Civil Engineering Construction Company (CCECC) in 1985 to rehabilitate the railway line, Chinese firms have been active in the construction industry in Botswana and have made satisfactory returns on their investments according to Chen.

Understanding Chinese a success in penetrating the infrastructure sector in Botswana according to Chen requires a careful consideration of the mode of entry, the role of Chinese government support, and the low-cost bidding strategy utilized by State Owned Enterprises (SOEs) and private firms. Setting aside some individual problems, the overall benefits of Chinese engagement in this sector to Botswana have been to substantially lower the costs of infrastructure projects and create new employment opportunities for the local people.

It is acknowledged in the study that Chinese firms involved in infrastructure construction in Botswana have carved out a prominent place in a sector once dominated by South African and European firms.

Chen also warns against the quality of Chinese firms delivered projects, “these firms need to be aware of the risks involved in operating in Botswana and work to ensure that they observe quality standards”.

Chen advises that “it is the responsibility of the local government to put adequate laws in place and monitor the enforcement of such law. The evaluation of projects and proper communication between the contractor and the project owner are vital. At the moment, although there are complaints from the end users, such complaints are neither investigated nor documented; therefore, there are no forms of recourse with the Chinese contractors, and more sadly, nothing can be learned from these problems”.

Another study, titled “Transportation and Economic Development in Botswana: A Case Study” undertaken by Vijay Raman noted that the government of Botswana played a major role in the transport sector by virtue of its policy assuming responsibility for transport infrastructure. With a few exceptions, all major investments in infrastructure have been the government’s responsibility.

“The policy on further development of infrastructure will be to consider projects on the basis of economic justification with particular consideration of non-quantifiable strategic and social factors in individual cases, including environmental aspects. However, this approach must be tempered by the macro-economic resource scenario, as reflected in the mid term review of NDPs, where the potential for significant growth in revenues from mineral developments must be considered to have reached a plateau. This and the nation-wide shortage of skilled manpower are the limitations within which successive NDPs will set global priorities and indicate the resources available for individual sectors, including transport”, argues Raman.

Raman’s paper concludes that by using rational methods of developing the transport sector demands, the future development of the transport sector in Botswana will continue to provide a catalytic effect on the country’s economic development.

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Digital edition of The Telegraph, September 23, 2020.