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 Development Dublin, January 16, 2009

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)

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

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?

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

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 (<100,000; 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

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

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

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

Contrast Asia and Latin America: A lower dependency rate not necessarily associated with higher investment rate
Gross fixed capital formation (% of GDP) China Indonesia Korea Malaysia Philippines Singapore Thailand 0.58 0.63 0.66 0.68 0.57 0.61 0.54 0.57 0.69 0.68 0.63 0.67 0 10 20 30 40 50 0.63 0.66 Brazil Chile Colombia Peru Uruguay Venezuela Argentina Gross fixed capital formation (% of GDP) 0.57 0.59 0.58 0.63 0.61 0.63 0.58 0.61 0.56 0.59 0.58 0.58 0.57 0.60 0 10 20 30 40 50

1987 to 1996
Source: World Development Index Numbers indicate Ratio of 15 to 59 age group to total population

1997 to 2006

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

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;

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!

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

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

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!

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

 The need to feed an urban population creates pressure for

Other infrastructural consequences of urbanization

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

 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.

Other infrastructural consequences of urbanization (cont)

Coastal protection infrastructure will be a key element in reducing risk. Climate change will exacerbate these forces (as will be discussed later)

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

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

 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;

Policy makers should consider choices among existing technologies

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;

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

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

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

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

Convergence of demand for spatially universal infrastructure

Demand for Infrastructure Quality of infrastructure increasing

Per capita income

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

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

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-specic 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.

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

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

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)

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?

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

Raw facts suggest otherwise. Look at Africas infrastructure deficit relative to other low income countries (Foster, 2008, p.2)
Africas infrastructure deficit SSA Other LICs

Paved road density (km/km2) Total road density (km/km2) Mainline density (lines/1000 inhab) Mobile density (lines/1000 inhab) Internet density (lines/1000 inhab) Electricity coverage (% of population) Improved water (% of population) Improved sanitation (% of population)

31 137 10 55 2 16 60 34

134 211 78 76 3 326 41 72 51

Power generation capacity (MgWt/M3inhab) 27

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

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

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

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)

Africa
Annual required spending as percent of GDP per annum ICT Irrigation Power Transport Water and Sanitation Services Total New .1 .2 4.2 1.7 .4 6.9 2.4 1.5 1.2 5.2 2 .9 .2 3.6 .1 .5

Asia
.9

O&M New O&M

1 .5 .4 2.8

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

What do demographic projections portend about the overall need for infrastructure?
2005-2025
0-14 15-59 60+

2025 - 2050
urban 0-14 +285 +795 +53 -132 15-59 +434 +80 60+ urban +117 +584 +886 +1046

Africa Asia

+124 +306 -26 +521

+42 +346

First, start with absolute growth of population between 20052025: 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

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

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!

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

 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!

Rapid urbanization dominated by working age group population

Change in total pop / Change in urban pop Niger Burundi Liberia Guinea-Bissau Uganda Mali DRC Chad Nigeria Ethiopia Kenya Tanzania Yemen Timor Leste Afghanistan 0 100 200 300 400 0 50 100 150 200 250 Change in 15 to 59 age group / Change in urban pop

2005 to 2025
Source: United Nations Population Division

2025 to 2050

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

Countries in early phase of demographic transition: rapid urbanization but rural areas still important
Change in rural pop Niger Burundi Liberia Guinea-Bissau Uganda Mali DRC Chad Nigeria Ethiopia Kenya Tanzania Timor Leste Afghanistan
-10,000 0 10,000 20,000 30,000 0 50,000 100000 150000

Change in urban pop

2005 to 2025
Source: United Nations Population Division Light areas indicate high variant projection - Population in 1,000s

2025 to 2050

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

Countries where urbanization starts to deplete rural areas and include all age groups
Change in total pop / Change in urban pop Change in 15 to 59 age group / Change in urban pop India

Pakistan

Bangladesh

Phillipines

Egypt

50

100

150

200

50

100

150

2005 to 2025
Source: United Nations Population Division

2025 to 2050

 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 post2025 suggests limits on quantity and quality of infrastructure needed for next decade or so

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

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

Advanced demographic transition: rural areas losing population and shift of urban population towards the elderly
Change in total pop / Change in urban pop Change in 15 to 59 age group / Change in urban pop

Vietnam

Indonesia

China

Mexico

Brazil

-50

50

100

150

-100

-50

50

100

2005 to 2025
Source: United Nations Population Division

2025 to 2050

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)

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 wheelchairaccessible 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 clientcentric and efficient services.

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-both for basic services and economic infrastructure (Issue: projections of urbanization presumed not to be a function of an assumed higher rate of economic growth)

Will growth be sufficient to meet the needs of rapidly urbanizing population: 2005-10?

Will growth be sufficient to meet the needs of rapidly urbanizing population: 2025-30?

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 humaninduced 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))

 Population increases alone would see a 150% increase in number of population exposed to risk of 1:100 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

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

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)

Among top 20 world cities with highest proportional increase in exposed assets at risk by 2070 relative to current situation, 19 are in Asia
Asia Ningbao Dhaka Kolkata Fuzhou Tianjin Surat Xiamen Guangzhou Mumbai Hong Kong Jakarta Zhanjiang Haiphong Bangkok Shanghai Ho Chi Minh City Shenzen Guayaquil Africa: Alexandria Source: OECD (2008)

Issue 4 Policy Implications

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

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

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

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

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)?

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?

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

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

 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

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.

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

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