Well-maintained infrastructure is perhaps the most striking and observable difference between impoverished nations and prosperous ones. In many ways, it is synonymous with economic development. Visit most prosperous nations and their hard infrastructure—roads, electricity, airports, seaports, communications systems, and so on—and soft infrastructure—legal systems, healthcare systems, education systems, etc.—are functional. In less wealthy countries, not so much.
Rankings such as The Legatum Prosperity Index and The World Economic Forum’s Global Competitiveness Report highlight the importance of countries developing both their soft and hard infrastructures, and understandably so. Infrastructure is often seen as a prerequisite to economic development and is even defined as the “basic physical and organizational structures and facilities (e.g. buildings, roads, power supplies) needed for the operation of a society or enterprise.” In other words, without infrastructure, the operation of a society or enterprise cannot happen. This underscores the importance of infrastructure investments. But infrastructure isn’t free, and it doesn’t come cheap. And in fact, many infrastructure projects, according to Danish economist Bent Flyvbjerg, under-deliver on their promise of economic development.
Flyvberg surveys infrastructure projects in wealthy countries like the United States and the United Kingdom. This is important to note, because he’s not surveying countries where overt corruption is rife, technical expertise is lacking, and economic productivity is relatively low. Instead, he surveys places where the financial, technical, and institutional expertise are advanced. Flyvbjerg’s research shows that nine out of ten mega-projects, of which many infrastructure projects are, are over-budget, late, and under-deliver on the projected economic impact laid out by the project designers.
If wealthy and relatively efficient nations struggle to build and sustain their infrastructure, how can less wealthy countries develop more lasting infrastructure, especially when, according to the World Bank’s International Finance Corporation, “the weaker the institutions [i.e. more corruption, fewer skills. etc.] the lower the growth payoff”?
These two tips can help make financing infrastructure projects more economically sustainable.
- Start small and leverage innovators
The temptation to copy and paste grand infrastructure projects from prosperous nations is alluring. All too often poor countries build hospitals and schools with the goal of mimicking those in rich countries. They have legal systems and law enforcement systems designed that seek to uphold the rights of citizens in the same way they’re upheld in rich countries. In theory poor nations should strive to build the best infrastructure they can. But unfortunately many of these projects fail because they don’t start small. And usually large projects are not only prohibitively costly, but also incredibly difficult to manage.
For example, in the early 19th century, the United States federal government undertook what many consider to be its most ambitious project, construction of the “National Road” from Maryland to West Virginia, nearly 400 miles long. Soon after, however, the government ran out of money and abandoned the project. Fortunately, many smaller private companies—private turnpikes—picked up road construction projects all across the country. These projects were much smaller, focused, and easier to manage. And although they might have been small projects to begin with, most of these “private-turnpike-built-roads” are responsible for today’s incredibly complex transportation infrastructure.
The Aravind Eye Care System in India—one of the largest eye hospitals in the world—is another powerful example of the importance of starting small. The hospital has treated more than 52 million patients, performed over six million eye surgeries, and has more than 4,000 hospital beds. It also houses an ophthalmology school and offers more than 40 clinical and non-clinical courses annually. The hospital, however, started with just 11 hospital beds but has grown over time.
If Dr. Govindappa Venkataswamy, the founder of Aravind Eye Care System, decided to build a 4,000-bed hospital in 1976 along with an ophthalmology school, he would likely not have been successful at providing much needed healthcare infrastructure for a nation that so desperately needs it. But Dr. Venkataswamy intuitively understood the infrastructure-value equation. He started small. He figured out a financially sustainable model that took the value he was able to provide into consideration. And finally, as the hospital became more successful, he added more services.
- Understand the value the infrastructure stores or transports
In my upcoming book with Clayton Christensen and Karen Dillon, The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty, we define infrastructure as the most efficient mechanism a society has designed to store or transport value (or innovations). As such, whatever value infrastructure stores or transports—be it knowledge for schools, healthcare for hospitals, vehicles for roads, cargo for trucks, trains, or planes, and so on—must be able to pay for the construction and maintenance of the infrastructure. If it can’t, the infrastructure won’t be sustainable.
Consider the following example. In 2017, Kenya took out a loan from China to build a $3.2 billion rail line from Mombasa, a port city in southern Kenya to Nairobi, the country’s capital. Many, including the president of the country, celebrated the completion of the rail line. But roughly a year after its completion, The Economist published an article that suggested the rail line “may never make money.” So far, there doesn’t seem to be enough “value” being moved on the rail to pay back the loan and to maintain the infrastructure. And according to a 2013 World Bank study, only if the rail line moved 20 million tons of goods—all the value at the Mombasa port—would it be financially sustainable. At best, estimates suggest it will move half that amount.
This is why many infrastructure projects, especially in poor countries, are not sustainable. Governments build roads that aren’t maintained because there aren’t enough cars—or value—being transported on the roads to pay for the maintenance, typically through gas taxes. They build world-class hospitals but there aren’t enough paying customers who can afford the world-class healthcare. So, over time, roads, hospitals, and other infrastructures, crumble.
Before taking on a new infrastructure project governments must first assess whether the value that infrastructure will store or transport can sustain it. If the answer is no, then they must also develop a strategy of enabling the development of innovations that can pay for the infrastructure development.
It is one thing to build infrastructure; it is quite another to maintain it. But if governments follow these simple tips, they will be more likely to develop infrastructures that are appropriate in size and that can grow as their nation’s economy develops.