Should policymakers take account of demographic factors in considering investments in infrastructure

1
Should policymakers take account of
demographic factors in considering investments in
infrastructure?Peter S. Heller
(SAIS)Presentation to POPNET Conference on
Population, Reproductive Health, and Economic
DevelopmentDublin, January 16, 2009
2
Defining infrastructure a broad concept

• Typically, an investment in basic structures (not
  machinery or equipment)
• Spatially universal infrastructure housing,
  water, sanitation, social services
• Economically productive infrastructure energy,
  ICT, irrigation, ports, transport (roads,
  railroads)
• Spatially connective infrastructure within a
  country
• Regional infrastructure (whether to regional
  markets or to global markets)

3

• Distinguish
• New investment
• vs
• Rehabilitation investment for existing
  infrastructure
• vs.
• Operations and maintenance (OM)
• There are substitution possibilities an increase
  in the quality of infrastructure investment
  changes level of demand and periodicity of demand
  for OM, with obvious fiscal consequences

4
Four Issues to Examine

• How might demographic factors influence the
  demand for infrastructure?
• Have demographic factors played a key role in the
  past in influencing infrastructure investments?
• What do future demographic trends suggest about
  infrastructure needs, particularly in LICs?
• What might be the policy implications?

5

• Issue 1
• How might demographic factors influence the
  demand for infrastructure?

6
In principle, many demographic variables
influence the need for infrastructure

• Population size of a country or urban
  agglomeration
• Population dynamics of a country what stage of
  the demographic transition? Implies age structure
• Age structure of the population of country or
  city
• Share of young? Elderly?
• Density rural smaller cities (lt100,000
  100,000--1 million, rural settlements) vs.
  mega-cities
• Extent of migration urban-rural international
• Note basic econometric models typically include
  population size, density, urbanization rate

7
Population size and age structure

• Population size influences the demand for
  spatially universal service infrastructure
  (though influenced by economies of scale)
• Water and sanitation
• Basic social services infrastructure (number of
  schools, health facilities
• Age structure of population
• Young population obvious bias toward demand for
  educational infrastructure
• Working age group public infrastructure to
  provide complementary inputs for private sector
  productivity and job creation
• Elderly population need an elderly-friendly
  infrastructure

8
Dynamics of population structure

• Stage of demographic transition determines
  appropriate composition of infrastructure
  investment
• Not yet in transition need to scale up
  educational and health infrastructure as well as
  provide infrastructure for jobs of growing labor
  force
• Youth dependency rate still high--conflicting
  challenge between meeting needs of youth and
  infrastructural requirements for growth (e.g.,
  Kenya, Vision 2030)
• As overall dependency rates decline and growing
  labor force need infrastructure to foster job
  creation slowing growth of youth population

9
In principle, demographic transition can allow
for higher savings and investment rate

• Higher working age group share and lower
  dependency rate potential for increased savings
  rate and higher rate of capital formation
  (including of infrastructure), and economic
  growth rate.
• Such investments vital to absorb growing labor
  force
• As with Asia, higher growth in labor force might
  prove attractive for foreign investment. Also
  financing infrastructure
• But note difference between Latin America and
  Asia in level of investment associated with lower
  dependency rate in 80s 90s. Higher savings may
  not materialize
• So, higher growth may not materialize
  commensurate with higher level of productive age
  work force

10
Contrast Asia and Latin America A lower
dependency rate not necessarily associated with
higher investment rate
11
Dynamics of population structure (cont)

• Later in demographic transition, should observe
  an increased elderly share falling youth share
  (note some youth bubbles do occur) and possibly
  declining population
• Downsizing may be necessary (too many schools?
  Infrastructure system too large uneconomic?)
• Need infrastructure appropriate for elderly
• Can expect this to happen in Eastern and Western
  Europe looking forward also rural China in
  future
• Particularly a challenge in smaller cities where
  there may be diseconomies of scale associated
  with limited client population served by
  overbuilt infrastructure

12
Urbanization Mixed evidence for its implications
for infrastructure

• Economies of scale and benefits of higher density
  in reducing per capita costs for water,
  sanitation, power, transport infrastructure, and
  possibly social services.
• But demand for higher quality and quantity of
  services increases overall costs per capita in
  urban areas for spatially universal services.
  This is particularly the case for larger cities.
• Differential in infrastructure costs per capita
  with rural areas may be less in smaller cities.
• But lack of financial resources may prevent
  necessary infrastructure investments from
  occurring
• Note the significant disparities within urban
  areas between urban poor and other groups slums

13
Evidence relative costs in urban and rural areas
of water

• Two offsetting forces
• Capital costs and salaries in urban areas are
  much higher
• But lower population densities and longer
  distances can imply a higher cost of providing
  rural populations with access to water.
• Millennium Project assumed that rural capital
  costs for boreholes, rainwater collection, and
  dug wells are about 40 percent of urban cost
• But household connections and public stand posts
  in rural areas are assumed to be twice as
  expensive as in dense urban areas!

14
Recognition that urbanization will require
infrastructure is only first step

• As noted, two critical types of infrastructure
• Universal services infrastructure--water,
  sanitation Also need for housing as
  infrastructure
• Economically productive infrastructure (related
  to job creation--ICT, transport links for export,
  electricity
• But how to approach the creation of urban
  infrastructure?
• Many possible choices--very different cost
  profile!
• Upgrading slums--upgrading housing, retrofitting
  infrastructure for water supply, sanitation,
  transport and energy services
• Requires strong focus on networked
  technologies--sewers, piped water and electricity
  grids, storm drainage
• Also, water storage
• New urban developments as alternatives to
  formation of new slums
• In Transport large scale road and rail-based
  transport infrastructure vs bus-based mass
  transit approaches

15
With urbanization, there is potential for
unbundling

• Example Sewerage
• For large urban areas, unbundling a service area
  into parallel independent service zones, each
  with its own sewerage network leads to lower
  average diameter and average depth for the entire
  city
• Leads thus to lower capital costs, stretching
  funds also leads to management of smaller areas
  of service--thus, easier to manage
• Example Bangkok a megacity where unbundling of
  sewerage has been successfully applied

16
Again, note the cost differentials cited by
Millennium Project

• Slum Upgrading Average investment per person ()
  over 15 years (including. physical improvements
  to housing stock, basic physical
  infrastructure--water, sanitation, drainage, road
  paving, and electricity)
• Upgrading slums 670 or about 42 per
  beneficiary per year
• Providing alternatives to formation of new slums
  400 (26 p.b.p.a)
• Implication new settlements can be build for one
  third to one half lower than the cost of
  comprehensive upgrading.
• Source Millennium Project
• Cost of water storage infrastructure to reach
  South African standards, need roughly 15-70 per
  capita per year!

17
Urbanization by design?

• Some countries have tried to proactively
  influence where urbanization occurs by
  investments in infrastructure
• Sometimes successful, e.g., Korea and China
• But also note failed cases often around EPZs
  (e.g., Kenya)
• May result in costly and inefficient
  infrastructure provision
• Most countries have less proactive policies
  urbanization governments imply respond to forces
  in growing economy agglomeration economies job
  opportunities that pull in labor and/or weak
  agricultural sector that pushes labor out

18
Other infrastructural consequences of urbanization

• The need to feed an urban population creates
  pressure for
• infrastructure in rural areas to support domestic
  agricultural production and to facilitate
  transport of commodities from the rural areas to
  cities
• Need the capacity to both supply a city
  (railways, roads)
• As city grows, existing infrastructure may become
  inadequate and may need to be upgraded or
  replaced
• Creates opportunity for investments in new
  approaches for supplying water or sanitation
• Need to reconsider urban transport infrastructure

19
Other infrastructural consequences of
urbanization (cont)

• Increased urbanization, particularly coastal
  cities, puts pressure on ground water
• Forces consideration of alternative sources of
  water requires better urban water demand
  management
• With ground subsidence, infrastructure needed to
  limit risks posed from storms, wind damage, storm
  surges
• Higher likelihood of residual damage from the
  occasional extreme storm event.
• Coastal protection infrastructure will be a key
  element in reducing risk. Climate change will
  exacerbate these forces (as will be discussed
  later)

20
Migration will also shape demand for
infrastructure

• Will migration be to smaller cities? To mega
  cities? To peripheral exurbs?
• Sources of internal migration and effects on
  infrastructure needs in exporting areas
• Endogeneity factor provision of infrastructure
  may induce in-migration! But not strong evidence
  of this
• Is immigration likely from neighboring countries?
  Conversely, will out-migration dampen domestic
  demographic pressures and influence population
  size and age structure?
• All questions for policy maker to consider

21
Technological factors also shape level and
character of demand for infrastructure

• Technological change can induce or create demand
  for new kinds of infrastructure or substitutions,
  particularly for big ticket items energy,
  transport, ICT
• Dedicated urban bus lanes vs auto-driven
  transport network in urban areas
• ICT role of land lines vs. cable optic fibre vs
  cell phone towers do conventional technologies
  become outmoded? Cell phone technologies
  leapfrogging over demands for landlines
• Energy sector Is there a shift towards
  renewables?
• Is there a potential for economies of scale for a
  given type of infrastructure?
• For certain types of infrastructure (power,
  transport), demographic variables (e.g.,
  population size) may be dominant consideration)
  relative to technological factors

22
Policy makers should consider choices among
existing technologies

• Avoid adopting technical design standards from
  industrial countries.
• Consider adaptation to local circumstances
  (e.g.,Brazil and Australia)
• Millennium Project examples
• Pour-flush systems (the Sulabh program in India)
  vs. flush toilets pour-flush systems reduce
  quantity of water demanded and quantity of
  wastewater produced low-volume-flush toilets are
  water-saving devices
• Consider potential for labor-intensive roads to
  create employment and minimize adverse
  environmental impact
• Water supply choose infrastructure that matches
  occurrence and sources of water, treatment needs
  socioeconomic status of intended users and
  location and size

23
Example choosing among alternative water supply
technologies what size of city?

• Large cities rely on surface water Construct
  dams
• For large scale systems, institutions, and
  domestic and small scale agricultural uses can
  also rely on ground water Dig boreholes and
  tube wells
• For village or community or household uses
  large diameter wells dug wells or mechanically
  dug
• For rural areas rely on ground water spring
  water protected spring box

24
Example selected technological options for
sustainable access to sanitation

• On-site sanitation (function of how much water
  usage, permeability of soil, depth of water
  table, density of housing)
• Excreta Disposal
• Simple unventilated double pit toilet
• Pour-flush toilet with twin soak-away pits
• Pour-flush toilet plus septic tank with twin-pit
  soak-away pits
• Wastewater disposal
• Separate twin-pit soak-away system for sewage
  disposal
• Off-site sanitation function of amount of water
  usage, soil permeability, housing density, depth
  of water table
• Wastewater conveyance simple sewer system
• Primary treatment sludge drying beds and Imhoff
  tank
• Secondary treatment trickling filters , sludge
  digesters, co-composting of sludge with garbage
• Alternative treatment options constructed
  wetlands, in-stream wetlands and
  waste-stabilization ponds
• Source UN Millennium Project Task Force

25
Energy

• Millennium Project illustrates case of Brazil,
  where significant effort to move away from
  biomass production of energy through use of
  across-the-board and targeted subsidies to the
  poor for natural gas including in rural areas.
• Implies a shifting of infrastructure strategy
  from existing technology to an alternative
• Infrastructure requirements? Actually, principal
  upfront cost is the purchase of LPG cylinder and
  stove

26
Level of development and growth imperatives

• Infrastructure can facilitate/stimulate growth
• Provide complementary inputs to private sector
• Key policy issue what infrastructure appropriate
  at different phases of development?
• Role of FDI
• But reverse causality may apply growth and
  rising PCI will stimulate demand for
  infrastructure
• Need to upgrade infrastructure to meet pressures
  and demands for energy ICT water transport
  networks, etc
• Demand for higher standards of infrastructure

27
Stage of development itself fosters demand

• In LICs and MICs, major differential between
  infrastructure in urban and rural areas. Often, a
  major backlog owing to previous lack of
  investment!
• In industrial countries, observe a convergence in
  quality of spatially universal infrastructure
  (WSS, medical, roads, education) per capita in
  urban and rural areas.
• Also, what is defined as spatially universal
  evolves. In MDCs, electricity becomes necessity!
• WEO (2008) notes rapid growth of demand for car
  ownership as PCI approaches a given threshold
  intensifies demand for associated infrastructure
  urban and interurban

28
Convergence of demand for spatially universal
infrastructure
29
Another factor to consider the MDGs!

• MDG 7 relates to ensuring environmental
  sustainability
• Target 7c Reduce by half the proportion of
  people without sustainable access to safe
  drinking water and basic sanitation
• 7.8 Proportion of population using an improved
  drinking water source
• 7.9 Proportion of population using an improved
  sanitation facility
• Arguably Target 7d Achieve significant
  improvement in lives of at least 100 million slum
  dwellers, by 2020
• 7.10 Proportion of urban population living in
  slums
• Simply to meet MDGs, particularly with rapidly
  growing urban populations, need to invest
  significant sums in infrastructure
• Millennium Project estimates it would cost
  roughly 293.5 billion over the period 2005-2020,
  or roughly 20 billion annually (of which 11
  billion from ODA). Averages 70-80 per capita to
  meet all MDGs

30
Millennium Project estimates of annual investment
costs per capita to meet MDGs (as opposed to
universal provision!)

• For Bangladesh, Cambodia, Ghana, Tanzania, and
  Uganda
• WSS 5 - 7 per capita annually more generally,
  2-6, rising to 6-12
• Improve lives of slum dwellers 2 - 4
• Energy 11-19 more generally 6-20 rising to
  18-23
• Roads 21
• Note these are rough averages lower in
  beginning years, higher later on. Countries of
  course differ
• Source Millennium Project Overview chapter 17

31
Cost of just meeting water and sanitation MDGs

• Global ?nance costs range from 51 billion to
  102 billion for water supply and from 24
  billion to 42 billion for sanitation for the
  period 2001-15 average 68 billion for water and
  33 billion for sanitation aver annually 6.7
  billion
• No absolute cost ?gure--would depend upon the
  technologies adopted and country-speci?c
  preferences and conditions.
• Estimates are for a minimum package of services,
  in which low service levels (in terms of
  technologies and costs) were applied for rural
  populations and intermediate service levels were
  applied for urban populations. The vast majority
  of need was assumed to be in periurban areas and
  slums.

32
Another factor influencing demand for
infrastructure in future Climate Change

• Future climate change may significantly
  exacerbate pressures from urbanization.
• Undercut viability of some areas for settlement
• Increased risk of flooding, major disruption of
  trade
• Looking forward, may engender migration or
  resettlement, creating new demands for
  infrastructure
• May influence the viability of existing
  infrastructure
• Difficult to separate out the pressures from
  demographic change from the associated
  developments that can accompany such demographic
  change
• viz., subsidence socioeconomic development etc

33
A further consideration do demographic
considerations have adequate voice?

• An important political economy question in low
  income countries particularly, is whether
• The fact of demographic needs for infrastructure
  are articulated and responded to by policy
  decision-makers. If decisions on demography are
  made on technocratic or political grounds,
  demographic-related needs may not be taken into
  account
• Also, in many societies, there may be various
  sociological factors that ignore the needs or
  demands of important segments of the population.
• Women, for example, may be effectively supplying
  infrastructural services (water, energy) and
  their needs may not be adequately considered by
  the political forces that shape infrastructural
  investment decisions
• Women may also want preference given to
  technologies for infrastructure for which they
  can have some control, rather than large
  infrastructure projects

34
Finally fiscal constraints limit whether
infrastructure investments respond to demographic
needs !

• Infrastructure usually a public goodsubject to
  economies of scale externalities spillover of
  benefits (and costs)
• Externalities often large and capacity for
  excludability may be limited--- such
  infrastructure may not be viable on commercial
  terms for much of the population
• Observe only limited private investment in dams,
  power, highways, reservoirs water and sanitation
• Some exceptions some infrastructure, e.g.,
  satellites, telecommunications, can be undertaken
  privately private willingness to pay
  significant private investment developing (e.g.,
  East Africa)

35
Fiscal constraints (continued)

• At all PCI levels, fiscal constraints dictate
  adequacy, quality, and magnitude of the
  infrastructure to be provided
• These constraints are more binding for LICs with
  low tax ratios, limited capacity for debt
  absorption, and heavy reliance on external
  assistance
• Even where public-private-partnerships (PPPs) are
  used, fiscal contingent liabilities engendered
• Public policy thus critical in influencing what
  infrastructure choices are made where? how
  much? what technology? what policy issues
  dominate?

36

• Issue 2
• Have demographic factors played a key role in the
  past in influencing infrastructure investments?

37
Raw facts suggest otherwise. Look at Africas
infrastructure deficit relative to other low
income countries (Foster, 2008, p.2)
38
Recent World Bank Africa Infrastructure
Diagnostic studies reveal that

• Power consumption in Africa only 10 that in
  developing world and falling (124 kwh per capita
  per year)
• Since 1990, little change in share of population
  with access to land-line telephones, flush
  toilets or piped water. Little improvement in
  population share with access to electricity (from
  22 to 28)
• Rapid urban growth leaving infrastructure
  service providers severely stretched,resulting
  gap in water and sanitation filled by lower
  cost alternatives such as boreholes and pit
  latrines
• Source Foster 2008

39

• Issue 3
• What do projected demographic trends suggest
  about infrastructure needs, particularly in LICs?

40
A few key demographic factors to consider

• Growth of population
• Projected urbanization rates
• Projected growth in the size of school age and
  working age populations
• Projected growth of elderly--in LICs and MICs in
  industrial countries

41
Africa Seeking to catch up Asia moving to the
next level

• Compare two recent estimates of infrastructure
  needs over next 5 -10 years in Asia (Yepes, 2008)
  and Africa (Foster (2008)

42
In considering linkage between demographic
projections and infrastructure needs, policy
makers should differentiate need for

• Spatially universal infrastructure WSS and
  infrastructure for basic social services
  (education and health)
• Influenced by overall pop. growth age structure
  ( of youth)
• Recognize need and effective demand are
  different
• Economically productive infrastructure
  complementing workforce in manufacturing and
  services facilitating growth and employment in
  urban areas
• Influenced more by urban growth demographic
  transition
• Examples power, transport, ITC, ports
• Spatially connective infrastructure WDR2009
  emphasizes need to facilitate growth in
  non-urban areas through transport connections
  rural-urban links

43
What do demographic projections portend about the
overall need for infrastructure?

• First, start with absolute growth of population
  between 2005-2025 Africa 482 million Asia 841
  million
• Whether in absolute population increase, level
  per capita of infrastructure, and even in terms
  of capital complementing increased workers, the
  major focus Asia through 2025
• But, after 2025, Africa will be focus for the
  major increase in infrastructure required for
  economic growth
• Minimal increase in working age group in Asia
  after 2025 and large increase in the number of
  elderly

44

• Let us define three categories of
  country
• 1. Early in demographic transition
• 2. Mid-demographic transition
• 3. Late demographic transition

45

• First category of countries those now
  experiencing fastest rates of population growth
  still early in demographic transition
• Niger, Burundi, Liberia, Guinea-Bissau, Uganda,
  Mali, DR Congo, Chad, Afghanistan, Timor Leste,
  Yemen, Nigeria, Ethiopia, Kenya, Tanzania.
• For these, a need for spatially universal
  services infrastructure, particularly in
  2005-2025
• UN Population projections (med variant) assume
  gradual reduction in fertility rate over time.
• If this holds, countries will observe classic
  early phase of the demographic transition
• falling dependency rates,
• rising shares of the population in the 15-59
  working age group.
• Higher fertility assumption would imply need for
  additional infrastructure for schooling and less
  domestic resource availability with higher
  dependency burden!

46
Category 1 countries

• 2005-2025 Still substantial rapid growth in
  population much still in rural areas, including
  many in working age groups
• 2025-2050 with fertility reduction population
  growth rate falling and urbanization accelerating
• See that growth in urban population largely
  concentrated in 15-59 age group

47

• These are also countries where a significant
  percentage of the increased population will be in
  urban areas, particularly during 2025-2050, as
  the demographic transition takes hold
• In some countries, particularly in 2025-50 the
  increased urban population will be dominated by
  the working age group,
• Suggests relatively greater importance in later
  period of economically productive infrastructure
  power, telecommunication, transportthat
  facilitates increased investments for services
  and manufacturing, relative to basic services
  infrastructure.
• But there will still be demand for such
  infrastructure in earlier period--rising L force!

48
Rapid urbanization dominated by working age group
population
49
Despite urbanization, for many countries, also a
growing number living in the rural areas needing
basic infrastructure

• Particularly for next 20 years, before
  urbanization process in these countries picks up
  stream
• Rural infrastructure needed both to address
  dramatic existing deficiencies to respond to
  rural pop. growth
• For rapidly growing population countriesNiger,
  Burundi, Guinea-Bissau, Uganda, Ethiopia, Kenya
  and to lesser extent Tanzania, DRCongo, and
  Afghanistan, spatially connective transport
  infrastructure will also be important to
  facilitate demand for agricultural production
  from rural areas--supplied to urban areas
• Numbers may be even larger if one accepts that
  median population variant probably too optimistic

50
Countries in early phase of demographic
transition rapid urbanization but rural areas
still important
51
A second category of high population growth
countries but with fertility declining

• Further along the demographic transition India,
  Pakistan, Bangladesh, Philippines, and Egypt.
• Significant absolute increases in population
  through 2050.
• Share of working age population will remain
  roughly unchanged (as will the dependency rate),
• But significant shift in population structure
  towards elderly and away from youth populations.
• Also a dramatic shift, particularly after 2025,
  in urbanization rate, with sharp fall in rural
  population.
• Higher urbanization in these more lower-middle
  and middle income countries may entail higher per
  capita infrastructure costs

52
Countries where urbanization starts to deplete
rural areas and include all age groups
53

• For 2000-2025, growth of rural population will
  still be substantial, particularly for India,
  Pakistan and Egypt, even though dwarfed by growth
  in urban areas. Spatially universal
  infrastructure required as well as spatially
  connective transport infrastructure
• However, dramatic decline in rural sector
  post-2025 suggests limits on quantity and quality
  of infrastructure needed for next decade or so

54
Third category of country low fertility rates
and well advanced in demographic transition.

• Project increase in overall population in coming
  decades
• But sharp decrease in share of young, increase in
  elderly
• Large drop in working age population share ?an
  increase in overall dependency rate
• Substantial increase in urbanization rate
• Absolute population decline in rural areas, even
  in next decade or so
• Category includes China, Vietnam, Mexico,
  Brazil, Indonesia

55
Third category of country (cont)

• Expect, over time, deceleration in the growth in
  demand for productive infrastructure
• Demand for more basic infrastructure services may
  be greater, reflecting higher level of
  urbanization
• With rising incomes, demands for upgraded quality
  of infrastructure in rural areas convergence
  factor

56
Advanced demographic transition rural areas
losing population and shift of urban population
towards the elderly
57
Footnote issue the elderly and infrastructure

• In many industrial and middle income countries,
  will see a large increase in the both the share
  and absolute numbers of elderly, relative to
  other segments of the population.
• Many retired, many working part-time
• How would this population transition be reflected
  in demands for infrastructure?
• Singapore one of the few countries that have
  actively considered this issue and asked what
  policy/spatial/infrastructural changes would be
  needed to cope with an aged society (Committee on
  Ageing Issues Report on the Ageing Population
  (2007)

58
Example Recommendations of Singapores
Commission on Aging

• Guidelines needed on providing accessibility and
  safety features in the homes for seniors,
• Make all new public buses low floor step-free and
  wheelchair-accessible to allow everyone to use
  the public transport system.
• Expand and accelerate the upgrading and
  improvement of existing barrier-free measures on
  road facilities to enhance accessibility between
  destinations
• Establish a new intermediate government
  residential care facility to address the current
  service gap in intermediate residential care for
  seniors.
• Develop integrated models of day care and day
  rehabilitation centres, based on market driven
  needs, to provide more client-centric and
  efficient services.

59
But fiscal constraints will determine whether
infrastructure needs can be met

• How to finance higher urban infrastructure
  spending?
• Many high population growth, rapidly urbanizing
  countries, have economic growth rates less than
  rate of urbanization.
• Raises the question of whether revenue growth
  will be sufficient to create the fiscal space for
  investments in necessary urban infrastructure--bot
  h for basic services and economic infrastructure
• (Issue projections of urbanization presumed not
  to be a function of an assumed higher rate of
  economic growth)

60
Will growth be sufficient to meet the needs of
rapidly urbanizing population 2005-10?
61
Will growth be sufficient to meet the needs of
rapidly urbanizing population 2025-30?
62
Links of demography with climate change and
urbanization will influence infrastructure
spending

• Significant concentration of major urban areas in
  coastal or river ports or in deltaic regions.
• Combination of socioeconomic development,
  population growth, and possibility of
  human-induced subsidence in these urban centres
  will dramatically increase the risk of their
  exposure--both in terms of population numbers and
  value of assets--to the impact of flooding, storm
  surges and wind damage even in the absence of the
  higher sea level and increased storm intensity
  associated with climate change (Source OCED
  (2008))

63

• Population increases alone would see a 150
  increase in number of population exposed to risk
  of 1100 year storm, even with no other factors
  involved (40 million in 2000 to 95 million in
  2070)
• Including storm enhancement, sea level rise,
  human-induced subsidence, population at risk
  rises to 140 million
• Assets at risk rise from 3 trillion to 35
  trillion over the period

64
The largest increase in exposure to such risks
will be in LICs in Asia and Africa

• Significantly exposed in terms of population at
  risk if not value of assets Reflecting minimal
  existing flood/coastal protection infrastructure
  sharp increases in population centres limited
  urban land-settlement programs and rapid
  socioeconomic development
• In terms of magnitude of exposure, Asian cities
  will be among the greatest at risk
• But a number of African countries as well will be

65
Among top 30 cities with maximum exposure in
terms of population at risk

• Asian non-MDC cities at risk (population)
• Kolkata
• Mumbai
• Dhaka
• Guangzhou
• Ho Chi Minh City
• Shanghai
• Bangkok
• Rangoon
• Haiphong
• Tianjin
• Khulna (Bangladesh)
• Ningbo
• Chittagong (Bangladesh)
• Jakarta
• Shenzen
• Qingdao

• Africa
• Alexandria
• Lagos
• Abidjan
• South America
• Guayaquil
• NOTE 13-17 deltaic cities found in top 20
  rankings
• Source OECD (2008)

66
Among top 20 world cities with highest
proportional increase in exposed assets at risk
by 2070 relative to current situation, 19 are in
Asia

• Jakarta
• Zhanjiang
• Haiphong
• Bangkok
• Shanghai
• Ho Chi Minh City
• Shenzen
• Guayaquil
• Africa
• Alexandria
• Source OECD (2008)

• Asia
• Ningbao
• Dhaka
• Kolkata
• Fuzhou
• Tianjin
• Surat
• Xiamen
• Guangzhou
• Mumbai
• Hong Kong

67

• Issue 4
• Policy Implications

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What are the implications for policy makers in
considering infrastructure investments?

• Projecting infrastructure needs yes, consider
  demographics but.
• Cannot simply project growth of population and
  apply existing per capita infrastructure to the
  growth in the population backlogs may be
  substantial!
• Need to examine the nature of demographic
  change--dynamics of age structure aging
  population or young population urbanization
  profile and trends migration--all will influence
  infrastructure priorities
• And, infrastructure may influence demographic
  trends--fertility rates as well as migration
  patterns

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Demographics only takes you so far in considering
policy

• Fiscal constraints force choices--may require a
  balancing in responsiveness to demographic
  factors vs other factors, such as
• Providing preconditions for growth
• Responding to new technological developments
• Climate change impacts
• Choosing among alternative technologies and
  standards in providing basic infrastructure
• And no easy out on fiscal constraints PPPs
  typically entail significant contingent
  liabilities

70
Indeed, economics and policy literature
predominantly focus on how infrastructure can
contribute to growth!

• What are good choices? Bad choices? WDR 2009
  would say
• In considering whether to invest in
  infrastructure, follow the market, dont lead it!
• In LICs, issues of equalization /convergence
  assumes much less prominence than arguments that
  offer prospect of higher economic growth.
• Equalizing infrastructure per capita only assumes
  importance when countries become sufficiently
  developed that it becomes politically
  unacceptable to have significant inequalities

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Prioritizing for the MDGs

• Absent fiscal space, Sachs emphasizes importance
  of some quick-wins-- providing access to
  electricity, water, sanitation and the internet
  for all hospitals, schools, and other social
  service institutions
• Use off-grid diesel generators, solar panels, or
  other appropriate technologies (Millennium
  Project Main Report, Ch. 5 (MPMR5)
• Combine a growth focus with broader MDG
  objectives Green Revolution in rural
  areas--would require improved rural
  infrastructure services in the form of
• Roads and means of transport-- construction and
  rehabilitation of footpaths, feeder, district,
  and national roads
• Modern energy services
• Communication technologies

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Other policy considerations

• What infrastructure is needed to become or
  maintain competitiveness? To attract FDI?
• Evidence is clear need reliable electricity and
  water, adequate for globalized communications,
  and efficient and low-cost transport connections
  to global and regional markets.
• What infrastructure required to restructure modes
  of energy generation? To adjust to higher future
  carbon prices? Geo engineering? Clean coal? etc
• What is required to achieve greater efficiency in
  use of water resources?
• What may be required to adapt to climate change
  (to maintain economic viability)?

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Infrastructural Investments unaccompanied by good
policies--likely to be, inefficient prone to
failure!

• Also, installing infrastructure without
  responding to user preferences or user capacity
  to pay for acquisition, operation, and
  maintenance operations likely to be unsuccessful
• Underscore also importance of sustainability of
  service
• Is technology choice responsive to demand?
• Is there proper design of chosen technology?
• Consistency of installed infrastructure with
  chosen design?
• Use of installed facility as intended in the
  design?
• Is there maintenance of facility for proper
  functioning?
• Is there available competent technical staff or
  support?
• Is there a reliable flow of revenue to pay for
  all of these requirements?

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And policy choices on infrastructure can be made
for the wrong reasons

• In LICs, large scale of infrastructure spending
  contracts can lead to
• Rent-seeking
• Inappropriate absorption by the public sector of
  contingent fiscal risks in negotiation of PPP
  contracts
• Corruption inducing
• Collusion between donors (seeking export
  promotion favoring industrial interests) and
  politicians seeking graft
• Prestige projects (politicians donors)-ribbon
  cutting

75
What countries have been more successful in
thinking about infrastructural implications of
demographic change?

• Bombay
• Bangkok
• Korea--particularly re decentralization
  urbanization through transportation linkages
• Shanghai
• Singapore re elderly issues

76

• Mumbai example where 3 local associations
  --SPARC formed an alliance to raise the political
  visibility of issues affecting the poor and to
  promote creative solutions, particularly re land
  tenure, adequate housing, an access to
  electricity, transport, sanitation and related
  services--used precedent setting pilot projects
  to show feasible low cost designs for affordable
  hosing an sanitation
• Bangkok illustrates regional governance approach
  in which both central and local government play a
  role in the administration of a region
• Korea better transport links within and outside
  the capital region greatly facilitated
  decentralization
• Shanghai a city that took steps early to address
  risks associated with sea level rise also CT
  suggests it as example of a large city
  confronting its service and infrastructure
  challenges in an energetic and innovative
  fashion. Central Gov gave city more autonomy in
  revenue collection and expenditure. Also the city
  established a foundation to mobilize funds for
  urban construction (Shanghai Urban construction
  investment and Development Company

77

• Shanghai (cont)
• Company has displayed an impressive record of
  achievement in infrastructure financing since its
  creation. CGT 366 quoting Wu
• Most spectacular outcome is development of Pudong
  New Area, virtually new district from the old
  commercial center
• Has employed wide range of financing mechanisms
  through state and non state channels as
  international capital, bank loans and credits,
  construction bonds, stock market and service
  concessions. Entered into concessions with
  profit-making enterprises to operate three
  bridges and a tunnel across Huanpu River
  established subordinate entities in charge of
  water supply.
• But still severe backlogs on the housing side for
  low income groups, despite impressive delivery or
  urban services and urban infrastructure
  improvement.

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Two final questions? Is there a link from
infrastructure to demography? Should it motivate
policy on infrastructure spending?

• Might the availability of infrastructure
  influence the extent, focus, and direction of
  migration (e.g., Chinas strategy for employment
  creation in eastern regions?)
• Absence of infrastructure clean water,
  sanitation, medical care infrastructure, and
  transport (to facilitate access to health
  facilities)may increase mortality and morbidity
  rates. Might it delay decline in fertility
  associated with demographic transition?
• Provision of infrastructure, e.g., facilitating
  girls education (separate toilets), may
  indirectly influence fertility decisions

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The cost of infrastructure may influence policies
towards fertility

• Awareness of cost of infrastructure--and need to
  meet basic needs and provide basic
  infrastructural services---may sensitize policy
  makers to the importance of policies shaping
  demographic situation
• Failure to limit population growth, resources
  will be preempted by need to respond in terms of
  more infrastructure for schools, etc