South Asia’s $2.5 Trillion Infrastructure Gap

What is the Gap?

In recent years, South Asia’s economy has seen tremendous growth (6.7% annually from 2000-12). However, a new report “Reducing Poverty by Closing South Asia’s Infrastructure Gap”, reveals that the region’s growing demands for infrastructure has enlarged an existing infrastructure gap.

This gap is defined as the difference between South Asia’s development goals and its actual capability to obtain those goals. According to the report, addressing it will require investing as much as $2.5 trillion over the next ten years: one third to be spent on transport, one third on electricity, and the remainder on water supply and sanitation, solid waste management, telecommunications, and irrigation.

Effect of the Infrastructure Gap

These gaps not only take a toll on the region's growth, but also on households. Only two in five people in South Asia have access to improved sanitation. Seventy one percent of people in South Asia have access to electricity versus ninety-two percent in East Asia.

And the effects can be intertwined. For example, inadequate power supply, poor health, and difficult transport conditions have impeded South Asia’s manufacturing sector from growing as fast as once anticipated. This in turn has meant less and unpredictable employment. 

The report emphasizes how the women, the poor, and marginalized social groups are particularly affected by the region’s infrastructure gap. As Dan Biller, co-author and Economics and Sustainability Manager at Multilateral Investment Guarantee Agency (MIGA), explains: “It is possible to build infrastructure in a way that targets inequality and poverty alleviation while enhancing economic growth. Alternatively, countries could just keep providing infrastructure services to the rich in society, threatening the environment and social stability. Ironically, those are exactly the ones who can often afford many of these services from private provision. Countries should aim at building infrastructure in a way that reduces inequality not enhances it.”

Bridging the Gap

These are tremendous sums of money, and it will not be possible for South Asia to undertake all the necessary projects at once. The report outlines how governments can provide infrastructure access to those who need it the most. It explores a menu of instruments like targeted interventions, subsidization of connections rather than service consumption, etc. to encourage innovative and efficient ways to reduce inequality.

The report authors also lay out a set of methodologies for prioritizing infrastructure projects based on identifying and quantifying the factors that affect infrastructure investment decisions. This exercise can help decision makers assign priorities between numerous sectors or infrastructure portfolios. It is an improvement on existing decision-making frameworks, which are mostly designed for prioritizing individual projects.

"Infrastructure deficiencies in South Asia are enormous, and a mix of investment in infrastructure stock and implementing supportive reforms will enable the region to close its infrastructure gap,” said Matias Herrera Dappe, co-author and World Bank Senior Economist for South Asia.