Saturday 21 September, 2019

Failure to invest in infrastructure affecting Jamaica's growth-IDB

Jamaica has been named among six countries from the Latin American and Caribbean (LAC) region where growth has been “sharply impacted” by the failure to invest in infrastructure.

The new Inter-American Bank (IDB) study examined the energy, transportation, telecommunications, and water and sanitation sectors in the six countries and found that it was “indicative of the reality for the entire region”. The countries used in the study are Argentina, Bolivia, Costa Rica, Chile, Jamaica and Peru.

“On average, failure to add new capital to existing stocks is estimated to cost the selected Latin American and Caribbean countries approximately one percentage point of forgone GDP (gross domestic product) growth. The cost rises to 15 percentage points in forgone growth if the gaps persist over 10 years,” the IDB said. The Washington-based institution noted that this was the equivalent of around US$900 billion based on the current GDP levels for the entire region.

The IDB Group's annual Macroeconomic Report, which this year has a focus on infrastructure investment, noted that the infrastructure investment gap in the region is estimated at 2.5 per cent of GDP, or US$150 billion per year.

“Latin America and the Caribbean not only lags in investment amounts but also in quality,” the report added.

IDB Principal Economic Advisor Andrew Powell, one of the report's editors, said the impacts vary across countries.

“Our analysis shows just how critical more and better investments are needed in infrastructure, tackling issues that range from better project identification to financing constraints,” he said.

The report warns that failure to invest more in infrastructure hurts the poor the most, “likely because they spend more of their income on infrastructure services”.

The study finds that households in the lower 40 per cent of the income distribution will lose 11 percentage points of real income over a 10-year period.

The report also looks at how infrastructure investments impact the labour productivity in economic sectors and also analyses infrastructure investment strategies in more detail by identifying which types of infrastructure – transportation, energy or construction – affect labour productivity in each economic sector (industry, commerce or agriculture) the most.

“For the region on average, the estimates are that if countries can increase investment levels in these infrastructure sectors enough to close the gaps with developed OECD (Organisation for Economic Corporation and Development) countries, then the economy-wide productivity growth could increase by 75 per cent with respect to the historical average,” the report noted.

“This means the region's income per capita income could double in almost half the time,” it said, noting that in terms of quality, Latin America and the Caribbean comes in fifth place among six regions, ahead of Sub-Saharan Africa.

The report states the region performs best in the energy sector, with scores that are close to emerging Asia.

The region also performs “most poorly” in the transport sector and the report identifies the sectors where the region has the biggest gaps. For instance, in telecommunications, Panama, Mexico and Guyana underperform; while Jamaica, Barbados and Costa Rica score above their predicted quality levels, given their level of development.

“The challenge here is closing the infrastructure gap in times of tight budget constraints,” said IDB Principal Economic Specialist Eduardo Cavallo, a co-author of the study.

“And yet investment in the right infrastructure projects can improve productivity and boost growth thus enhancing fiscal revenues.”

The report recommends closing the infrastructure gaps through greater and better public investment and by attracting more private finance.

The Jamaican Government has embarked on a massive infrastructure programme which includes the upgrade and rehabilitation of major roadways as well as upgrades to telecommunications and water and sewerage services.

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