Infrastructure Investment: The Bedrock of Poverty Reduction

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SEATTLE — Infrastructure is the foundation for any country that wishes to generate jobs, improve the quality of life for those living below the poverty line and accelerate economic growth. Infrastructure investment enhances the human, social and financial capital of the poor and thus is a necessary step in alleviating poverty.

Put simply, in order for children living in rural areas to safely get to school, they need reliable, developed roads. Hospitals cannot function without a consistent electric grid. Adults cannot get to work without a functioning transportation system. Education, health and a source of income are all key indicators of success and wealth generation. Thus, infrastructure investment is integral to alleviating poverty, especially in developing countries.

Roads and Electricity Key Building Blocks of Infrastructure Investment

Improved roads are one such example of infrastructure having an impact on poverty. In India, roads alone are responsible for 7 percent of the growth in output in rural sectors. Quite literally, the rural poor have more avenues to sell their goods on the market. 

In Tunisia, 80 percent of all goods are transported by road. The country has recently stepped up investments in road infrastructure to give people in the rural interior areas better access to trade and services. Meanwhile, a feeder road project in Morocco, while instrumental in increasing agricultural production, also enabled increased access to schools. Girls’ enrollment in primary schools tripled and the use of healthcare facilities nearly doubled.

Electricity is another key component of industrialization that expands employment opportunities for the poor. In Costa Rica, a massive rural electrification initiative, made possible through electrification cooperatives, increased business growth. A single cooperative resulted in the number of major businesses rising from 15 to 86 after electrification.

Maximizing Infrastructure Benefits for Those Most in Need

However, it is important to note that investing in infrastructure can only successfully alleviate poverty if the poor have access to that infrastructure. After all, more roads are only helpful to the poor insofar as they are strategically located or there are transport services for them to utilize. Likewise, a powerful electric grid is only helpful to the extent that the poor can afford to connect to it.

Thus, location and pricing are key considerations for smarter infrastructure investment. With regard to location, accessibility ought to operate alongside quantity. The more roads that are accessible, the greater the opportunity for the economic development process to take root.

In order to maximize affordability, costs of various infrastructure services must be reduced. By facilitating competition in the private sector for the supply of infrastructure services, costs are driven down and often, the quality of service improves.

With a better understanding of the somewhat tenuous link between infrastructure investment and poverty alleviation, it will be easier to develop infrastructure policies that are tailored to the impoverished and their best interests.

A promising solution to the infrastructure disparity that plagues so many developing nations can be found in multilateral development banks. In order to reduce the long-term financing gap, China, Japan, Singapore, Canada and Australia, alongside the Asian Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank and the Inter-American Development Bank are all working to identify those specific areas of market failure and effectively incorporate the private sector accordingly.

By building from the ground up, infrastructure investment plays a fundamental role in affording the global poor the capital to accelerate economic growth. As the poor are afforded more opportunities to contribute to the economy and generate their own wealth, the likelihood of further investment grows.

– McAfee Sheridan
Photo: Flickr

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