BETTER infrastructure can play a crucial role in alleviating poverty, but to do so traditional approaches to infrastructure delivery have to be overhauled. The World Development Report 1994 proposes a new agenda that emphasizes user involvement, better incentives for service delivery, and a revised role for government.

A long-held goal of policymakers throughout the world has been eliminating poverty and raising living standards—and in recent decades solid progress has been made. Yet poverty remains one of the most critical challenges in economic development, touching millions of lives each day:

• Roughly 1 billion people worldwide still lack access to clean water, and more than 1.7 billion people remain without adequate sanitation;

• Rural incomes in many countries are unable to rise in step with population growth due to stagnant or even declining agricultural productivity;

• Formal employment opportunities in many cities remain scarce, and small-scale, informal enterprises are often unable to acquire a strong foothold in the marketplace;

• Rates of urban population growth, fueled by rural poverty, are often above 5 percent per year, adding to already overflowing shanty-towns.

Contributing to these and similar problems is a lack of adequate infrastructure. In recent years, overburdened and neglected water and sewage networks have contributed to the outbreak and spread of such diseases as cholera and the plague. Poor agricultural performance has often been linked to the neglect of road networks. In Africa, almost S13 billion worth of roads—one third of those built during the past 20 years—have eroded because of lack of maintenance. In the face of chronically unreliable infrastructure services, manufacturers (in countries such as India, Indonesia, and Nigeria) have been compelled to operate their own generators for power and dig their own boreholes for water. But such measures are often beyond the reach of the informal enterprises most likely to employ poor, unskilled workers.

Improving infrastructure services is key to poverty alleviation, both as an end (e.g., in terms of improved access to basic water and sanitation services for households) as well as a means to greater productivity and expanded employment. What can be done to improve the situation?

The World Bank’s World Development Report 1994: Infrastructure for Development (WDR 1994) concludes that first and fore-most, infrastructure services must actually be delivered. At times, attention has strayed from this fundamental requirement (e.g., as maintenance of infrastructure is neglected in favor of large, overengineered new projects). The Report recommends that policymakers concentrate on improving the responsiveness of infrastructure to users’ needs, strengthening the incentives of infrastructure providers (public or private) to deliver the right infrastructure services at a low cost, and ensuring that governments undertake the coordination, regulation, and strategic planning that is critical to long-term success.

What are the links?

One difficulty in analyzing the links between infrastructure and poverty is that most data sources provide only a “snapshot” of prevailing infrastructure access and levels of poverty. It is hard to trace the dynamic processes governing the impact of infrastructure on poverty, given the long duration of infrastructure project cycles and the subsequent lifetime of infrastructure facilities. In particular, it is difficult to separate the causal impact of infrastructure on poverty from other ongoing processes. Nevertheless, over time, the steady accumulation of experience has been adding to our understanding of these links.

Infrastructure and living conditions. The services provided by certain infrastructure sectors contribute directly to welfare—for example, inadequate water and sanitation infrastructure leads to serious health risks. Thus, it is worrisome that in many cities squatter communities lacking such essential facilities are growing at a record pace. In India, although the share of the urban population unable to afford a minimum food bundle declined in the decade up to 1991, the proportion of the population living in slums (under dangerously unhygienic conditions) actually grew.

Infrastructure and productivity. When it comes to raising incomes and productivity, infrastructure operates in both direct and indirect ways. Different sectors tell different stories.

Water and sanitation. Access to clean water and sanitation can contribute to welfare by increasing the productive capacity of the poor. In many countries, women devote much time to fetching water and gathering fuelwood, as well as to carrying crops to market. Infrastructure improvements can reduce the need for such activities and release valuable time for domestic duties (e.g., child care) or employment.

Electricity, irrigation, and transport. The “Green Revolution” (with power-driven water extraction and large-scale irrigation playing a central role) has helped numerous countries maintain, and often increase, per capita food production in the face of population growth. In India, rising agricultural production has led not only to greater output but also to higher agricultural wages and increased labor utilization. Transport infrastructure, such as roads, has promoted agricultural growth, contributing directly to lower transport costs and facilitating the expansion into remote areas of financial institutions that provide credit to farmers.

Better access to such infrastructure services contributes not only to higher incomes but also to protection against wide fluctuations in farmers’ incomes. Households can more readily diversify out of agriculture, thereby reducing their vulnerability to harvest failure. In addition, an adequate transportation network can help to reduce regional variations in food prices by facilitating the movement of food from areas of surplus to areas of deficit. In Botswana, during the prolonged drought between 1981–82 and 1986–87, the existence of a widespread and competitive retail network for food, made possible by effective transport infrastructure, resulted in a remarkable degree of uniformity in the level of food prices in different parts of the country.

Communications and transportation. Access to products and services is contingent on adequate communications and transportation services. When the poor are concentrated on the periphery of urban areas, as in many developing countries, the costs and availability of public transportation become key factors for obtaining employment and services. In Ecuador, one study showed that access to secure and reliable public transport influences the ability of low-income girls and women to pursue educational opportunities.

“Improving infrastructure services is key to poverty alleviation, both as an end … as well as a means to greater productivity and expanded employment.”

Infrastructure and employment. The construction and maintenance of some infrastructure—especially secondary roads and waterworks—can contribute to poverty reduction by providing direct employment. These activities can involve substantial, often relatively low-skilled labor inputs, although this employment (and poverty-alleviating) potential is not always realized. In many countries, price distortions (such as overvalued exchange rates) can result in the adoption of technologies that favor capital imports over the employment of locally abundant labor.

Civil works programs, which often involve the provision of infrastructure, have been important in strengthening famine prevention in several countries. Such programs in Bangladesh, Botswana, Cape Verde, and India have been highly effective in reaching the most vulnerable, in times of widespread drought, by providing employment to those who lack alternative sources of income.

How can more be done?

Inadequacies in infrastructure provision that limit the poor’s access to essential basic services often stem from weak and contradictory incentives built into current institutional and organizational arrangements. In many countries, outputs and inputs are not closely measured, monitored, or managed, and the rewards of suppliers have little relation to the satisfaction of users. Users tend to have little say on design and other critical aspects of planning, and bureaucracies are rarely run in a cost-minimizing fashion. The WDR 1994 recommends, therefore, that improvements in the delivery of infrastructure services are essential and should fall into three groupings.

User responsiveness. User involvement in the design, construction, operation, and maintenance of infrastructure is one way to improve responsiveness to the needs of the poor. When initiatives for infrastructure expansion originate from communities of users themselves, and when such communities are prepared to contribute (financially or in kind) to such initiatives, projects benefit in several ways. The technical design of infrastructure is less likely to be overly sophisticated (and unnecessarily costly) when communities articulate their needs and are asked to make sacrifices to realize the investments. Moreover, where users inform project design and are involved in constructing infrastructure facilities, these facilities are more likely to be well operated and maintained.

A World Bank study of 121 completed rural water supply projects in Africa, Asia, and Latin America, financed by various agencies, showed that projects with high participation in project selection and design, as opposed to more centralized decisionmaking, were much more likely to result in good water supply maintenance. In Ethiopia, the Gurage Roads Construction Organization has mobilized financial and in-kind resources from local communities to repair and improve over 350 kilometers of roads. While direct user involvement will be more common in certain types of infrastructure provision and maintenance—rural roads as opposed to highways, irrigation canals as opposed to hydropower dams—consulting local communities early on is essential even in large, technically complex projects. This is particularly the case where displacement of people is a likely consequence of the projects proceeding.

Community participation in infrastructure provision, while important, is not sufficient to guarantee that significant poverty reduction will result—even within a community the poorest could well be a marginalized group. Evaluations to date have tended to focus on the contribution of community participation to project performance, rather than on poverty alleviation. More research is needed here.

Cost recovery. Prices that reflect the true cost of infrastructure provision limit unsustainable consumption of infrastructure services. At the same time, cost recovery through pricing encourages the provider of infrastructure to increase precisely the type of infrastructure demanded. The WDR 1994 describes how cost recovery in infrastructure provision results in more clearly articulated objectives for service providers, a more straightforward process of institutional reform, ease in the monitoring of performance, and reduced exposure to outside interference—due to a removal of the need for subsidies.

Would such a change in pricing hurt the poor? After all, the rhetoric against cost recovery is usually couched in terms of an adverse impact on the poor. Yet the effectiveness of subsidies depends on their actually reaching the poor, on administrative and other costs of subsidies, and on the room to maneuver within normally tight government budgetary constraints.

The financial weakness of many infrastructure providers, arising out of a dependence on transfers exposed to political interference, typically results in a failure to extend the poor’s access to infrastructure—undercutting their ability to benefit from subsidized prices. In developing countries, the poor use fuel-wood rather than gas or electricity for cooking, and kerosene or candles rather than electricity for lighting. They also rely on private vendors or public standpipes rather than in-house connections for water supply, and are infrequently served by sewerage systems. Moreover, even when the poor are connected to a network, they consume fewer infrastructure services than the nonpoor, thus deriving proportionately less benefit from price subsidies.

But when the poor are unable to afford basic services, some form of assistance is essential. Pricing schedules, such as increasing block-tariffs, offer mechanisms that ensure that the nonpoor continue to pay full cost for most of the services they consume, while the poor face lower prices for the essential “life-line” quantities.

Financial assistance in the form of loans covering the initial cost of connection is often found to be more helpful than price subsidies on quantities consumed. In Bangladesh, the Grameen Bank provides credit to about 2 million poor and landless persons, most of them women. The Bank combines group lending, which allows the poor to substitute social collateral based on peer pressure for financial collateral, with financing mechanisms to extend credit for tubewells and sanitary latrines. In 1993, the Grameen Bank lent $18 million for this purpose and since 1992 has provided loans for about 70,000 suction tubewells.

For a few sectors (e.g., drinking water and sometimes sanitation), full cost recovery from even the poor is feasible. Studies show that people without connection to water networks are compelled to pay exorbitant prices (ranging up to 100 times the network price per liter) to private water vendors. In these sectors, extremely high private costs for service provision faced by those who are not connected to a network—almost invariably the poor—mean that expanding the network to include the poor and charging them full cost would still result in their achieving substantial savings.

The government’s role. While the WDR 1994 encourages a revised, and in some cases less interventionist, governmental role, combating poverty will continue to require the involvement of governments in strategic planning, budgetary allocations, coordination, and regulation. In some sectors, such as rural roads and irrigation networks—which are closely linked to poverty concerns, with little scope for cost recovery—governments will continue to be responsible for direct provisioning.

“Given tight budget constraints, public resources should be devoted to sectors where they achieve the greatest distributional impact and where other sources of finance are not forthcoming.”

During the past 20 years, the Malaysian Government has consistently ensured that infrastructure provision is sensitive to poverty reduction priorities. Rural roads and irrigation have figured highly in investment programs, as have backward regions. When the Government saw infrastructure bottlenecks emerging because of the growing demand accompanying the high rate of economic growth, it moved to take advantage of the strengthening private sector. An ambitious privatization program has resulted in 85 partly or completely privatized entities. By relinquishing control over those sectors that did not need active government intervention, the Malaysian Government was free to focus on those sectors where its involvement was essential. As a result, the share of rural roads in the total road network grew from 18 percent to 32 percent between 1965 and 1990, while the incidence of rural poverty fell from 53 percent in 1973 to 19 percent in 1989.

To realize infrastructure’s potential in contributing to poverty alleviation, decision makers must have a clear appreciation of the patterns and dimensions of poverty that prevail in their countries. The numerous linkages between infrastructure services and poverty—with services both as means to higher incomes and as ends in themselves—must be understood. At that point, the critical issue becomes how to expand access to, and delivery of, the right types of infrastructure services. The WDR 1994 proposes directions for reform, aimed at achieving a much greater compatibility between infrastructure delivery and use. Infrastructure users should be able to influence choices regarding infrastructure design and standards. Securing users’ commitment to infrastructure projects improves projects’ benefits and extends their lifetimes. Measures such as subsidized prices, which usually act to deter expansion of infrastructure services, should be removed. Instead, access to infrastructure should be expanded via financial assistance to help meet connection costs. Given tight budget constraints, public resources should be devoted to sectors where they achieve the greatest distributional impact and where other sources of finance are not forthcoming.