In the discourse on infrastructure and economic growth the dominant area of discussion is on the quantity and quality of infrastructure and how countries differ in these respects. While most of the countries emphasise a lot on investing in raising the quantity (and quality) of infrastructure, there is a fundamental concern whether rising supply of infrastructure ensures the access to infrastructure. This problem is manifested through the fact that due to a variety of reasons enhanced supply of infrastructure may not solve the problem of 'entitlement failure' in terms of effective access to infrastructure, as the people/sectors in dire need of improved infrastructure may not have the access even with an increased supply.
There appears to be a consensus among researchers and policy makers that infrastructure is a key contributing factor to economic growth. The importance of infrastructure for economic development originates from the fact that it provides both final consumption services to households and key intermediate consumption items in the production process. The deficiency of some of the most basic infrastructure services is an important dimension of poverty; and therefore, increasing level of infrastructure stock has a direct bearing on poverty reduction. Furthermore, while it is generally accepted that economic diversification is a necessary condition for a sustained and long term growth of the economy and job creation, infrastructure development is a prerequisite for economic diversification.
What is the significance of economic diversification as far as 'inclusive growth' is concerned? If inclusive growth is defined as the inclusiveness in economic opportunities, economic diversification can help attain inclusive growth. However, several supply-side constraints related to weak infrastructure can restrict economic diversification. Some of these constraints are broadly 'general' in nature and some are critically 'sector-specific'. Interconnection and complementarities between general and sector-specific infrastructure are key elements for increasing service efficiency, supporting the adoption of innovative technologies, promotion of economic diversification and supporting inclusive growth.
Yet, policymakers in the developing countries are so inclined to improvement in the broad general infrastructure, i.e., enhanced supply of electricity, improvement in roads, improvement in port facilities, etc. that the development of critical sector-specific infrastructure are largely overlooked. Embarking on developing broad general infrastructure are relatively easy, whereas solving sector-specific infrastructure problems involves identifying priorities in the policy making process and addressing a number of political and economic issues. Failure to deal with sector-specific infrastructure problems leads to a scenario where a large number of potential inclusive-growth enhancing sectors fail to enjoy the benefit from the improvement in broad general infrastructure, and thus end up with 'entitlement failure'.
One such example is the leather industry in Bangladesh which accounts for about one billion USDin exports and which has huge potentials in generating employment and growth by increasing export of higher value added products. However, this sector has not yet reached its full potential primarily due to operating constraints stemming from its production base in Hazaribagh of Dhaka city where there are minimal waste management systems and inadequate industrial layout planning. The Hazaribagh-centric tannery industry is now legally bound to relocate all the factories to a new environmentally compliant tannery estate (under construction) on the outskirts of Dhaka city. However, such relocation has been stuck for many years with unresolved decisions on cost sharing of various components of the new industrial estate. Yet, there is no denying the fact that unless this relocation is effectively done, the leather sector will continue to suffer from 'entitlement failure' despite significant improvements in broad general infrastructure.
Factors responsible for such entitlement failure include the lack of resources to undertake sector-specific infrastructure development, lack of reliable data to determine finance and manpower requirements of projects, lack of infrastructure development framework that adequately delineate links between general and sector specific infrastructure requirements, inadequate planning, inadequate supporting institutions, and unstable political environment. However, on top of all these, the major critical factor behind the failure to address sector-specific infrastructure problems is the inability of the political system to deliver a political consensus about strategic plans for such sector-specific infrastructure and stable policy frameworks to support their implementation.
How to deal with this entitlement failure? A major part of the sector-specific infrastructure problems needs to be solved through public investment. The priorities in the industrial and related policies need to be realigned to the country's long term economic growth strategy in the changing world economy. There is a need for generating political capital for such realignment. However, the task of developing such infrastructure facilities cannot be left to the government alone. It is binding on policy makers to come forward with strategies and mechanisms to encourage the participation of the private sector in such sector-specific infrastructure development. Such mechanisms should not only provide strategies that are rarely implemented, but practical ways of turning them into tangible projects through the provision of adequate finance.
The writer is Professor, Department of Economics, University of Dhaka, Bangladesh, and Executive Director, South Asian Network on Economic Modeling (SANEM).