Washington, September 10-11 2009

1. Managing infrastructure for social and productive development Pablo Sanguinetti Research Director Corporación Andina de Fomento IDB Seminar Development Challenges and Policies in Latin America and the Caribbean: What are the issues? Washington, September 10-11 2009

2. Presentation Structure • Introduction: Why infrastructure? • A brief diagnosis of the state of infrastructure in Latin America • Main messages of the Report • Impact evaluation of infrastructure services • Improving management • Final remarks

3. Why infrastructure? • In the current context of Latin American countries, improvement in the quantity and quality of infrastructure has an enormous importance: • Declining participation in global trade (RED2005) • Widening productivity gap with developed countries and other developing regions (Asia) (RED2006) • Persistent poverty and inequality (RED2007-2008) • Infrastructure is currently on the agenda of developed and developing countries and multilateral organizations. Infrastructure management in Latin America Building a path to the future

4. State of infrastructure in Latin America Although its relevance is widely recognized, infrastructure services in Latin America are insufficient both in quantity and quality.

5. State of infrastructure in Latin America Slow convergence to OECD country levels … Electricity production per capita with respect to OECD Electricity production per capita (Kwh) Source: Own calculations based on World Bank (2007)

6. State of infrastructure in Latin America Slow convergence to OECD country levels … Fixed line and mobile phone subscribers with respect to OECD Fixed line and mobile phone subscribers (per 1,000 people) Source: Own calculations based on World Bank (2007)

7. State of infrastructure in Latin America The challenge of improving quality of services in Latin America Infrastructure Quality Index by region / 134 countries

8. State of infrastructure in Latin America The challenge of improving quality of services in Latin America Quality of electricity infrastructure (1 to 7 scale) Number of electrical outages by region (days) Source: Own calculations based on WEF (2008) and World Bank (2006)

9. State of infrastructure in Latin America The challenge of improving quality of services in Latin America Infrastructure sector scores per region Source: Own calculations based on WEF (2008)

10. State of infrastructure in Latin America Perceptions regarding quality of services vary widely across cities in Latin America Quality indicators in Latin America (% of households) Source: CAF survey (2008)

11. In the context of the previous evidence on the quantity and quality of infrastructure in the region, how has investment evolved? State of infrastructure in Latin America

12. Overall infrastructure investment has decreased… State of infrastructure in Latin America Infrastructure investment (public and private) as a percentage of GDP Source: Own calculations based on Calderon and Serven (2008)

13. State of infrastructure in Latin AmericaThere is a correlation between fiscal adjustments and public infrastructure investment Public investment in infrastructure and fiscal deficit as a percentage of GDP Source: Own calculations based on Calderon and Serven (2008) and official data

14. 1. Since infrastructure is such an important element for the development process, one needs a better understanding of the factors underlying the link between infrastructure and: Households’ quality of life, Productivity of firms and industries and international trade, Environment It is important to undertake rigorous impact evaluations analyses. This will provide: better information for decision-making; enrich public debates; improved ex-ante evaluations and more efficient public spending. Main messages of the report

15. Main messages of the report • Improve management process both at the public and private level. This implies: • To have a comprehensive vision of the different intervention mechanisms: - New investment - Maintenance - Administration of existing infrastructure facilities • Strengthening institutions associated with planning, evaluating, regulating and supervising infrastructure services.

16. Managing infrastructure for social and productive development (intro chapter) 2. Infrastructure and welfare: reaching households • Paths for productive transformation 4. Environmentally sustainable infrastructure? • Options for the provision of infrastructure: Latin America experiences (regulatory models) • Access and equality • Partnering with the private sector: risk sharing and efficiency 8. Achieving prosperity: the role of institutions Detailed content of the book Impact analysis Management

17. Impact of infrastructure

18. Impact of infrastructure • Proper impact evaluation will ensure better infrastructure project selection. However, causality remains an important challenge. • Sector complementarities must be considered (e.g. water and electricity) and tradeoffs among different types of policies must be analyzed (e.g. new investment vs. maintenance).

19. Electricity generation in Brazil Yellos dots: Actual location (1967) of hydroelectric generating plants Red dots: Model-predicted location based on geological factors • This model helps to measure the impact of electricity generation linked to supply-related factors (geology and technological restrictions) • Electricity generation improves productivity and attracts a larger population (population density may double each decade)

20. Natural gas in Buenos Aires Yellow border: Cuartel V Blue border: study area Treatment group Control group • Treatment and control groups were similar, at least until the program was applied • Direct access to natural gas resulted in lower incidence of respiratory and gastrointestinal diseases • Complementary factors: social capital, housing improvements

21. Improving Infrastructure management

22. Improving Infrastructure management • An adequate management of infrastructure depends on the nature of the established institutional and regulatory framework. The private sector has been and could be a key player. • The public sector should be capable of planning, evaluating, regulating and overseeing infrastructure investments, both public and private. - Examples of planning institutions: multiyear planning in Brazil; “Botton Up” Territorial Planning in Colombia - Examples of evaluating schemes : SNIP legislation in Peru.

23. Public Private Partnerships • Public Private Partnerships (PPP) have had an increasing role in infrastructure provision - Intermediate approach between outright privatization and traditional public provision (pubic work contracts). - They can be applied even for projects that user tariffs would not cover all cost. Public sector could participate co-financing the project. Example: highways. - PPP´s main advantage is enabling better risk distribution (allocation rules) and efficiency gains (bundling).

24. Public Private Partnerships • Institutional scheme for better management of PPPs: - Strategic planning and project identification: sector ministries (transport, etc.)- Priorization or coordination: Finance ministries or National Planning Departments (fiscal consequences)- PPP agencies in charge of attracting private sector participants and designing contracts- Independent regulatory agencies: Contract enforcement and information on service provision- Monitoring: ex-post impact evaluation by NSPI in collaboration with local universities.

25. Regulatory aspects • Infrastructure characteristics justify regulation and determine specific regulatory schemes: • Size and maturity of investments • Scale and scope economies • Network effects • There is no single regulatory model. • Regulation encompasses a broad scope of variables and parameters: prices, quality, investments, public subsidies, procurement, property schemes, etc. • Regulate quality standards when cost efficiency may lead to quality reduction. • Regulation should not limiting competition in those segments/markets that this is feasible (electricity generation). It may also meeting social objectives.

26. Final Remarks • Infrastructure plays a key role in development. That is why we need to have a better understanding of the factors underlying this link, and the mechanisms through which this relation takes form. This will ultimately lead to better selection of projects and evaluation methods. • Need for improving infrastructure service management both in the public and the private sector. • This requires strengthening institutions associated with planning, evaluating, regulating and supervising infrastructure services. • A well designed PPP regimen and legislation could improve the social gains associated with private sector participation in infrastructure.

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