POOR INFRASTRUCTURE AFFECTS ECONOMY

KANWAL SALEEM
(feedback@pgeconomist.com)
Mar 7 - 13, 20
11

Infrastructure sector consists of power, telecommunications, roads, ports, railways, air transport, urban infrastructure, cyber parks, and industrial estates. The public sector has been the main provider of basic infrastructure in Pakistan. However, given the major unmet needs and limited fiscal space, the government's capacity to address the infrastructure deficiency is severely constrained.

Poor infrastructure services result in constrained economic activity and also reduce the country's growth potential. Elasticity of business sector output and productivity with respect to public core infrastructure investments are usually much higher than those of private business investments in Pakistan.

Private investment in infrastructure projects has declined in Pakistan over the years as apart from Independent Power Plants (IPPs) established in 1990s, no major infrastructure project has been completed in Pakistan on BOT (Build-Operate-Transfer) paradigm.

As per study report of World Bank, Pakistani government's ability to plan and deliver infrastructure projects effectively will determine the future pace of growth of the country. World Bank report mentioned that according to the World Economic Forum Survey (2006-07) of 125 countries, Pakistan ranked 67th in basic infrastructure category. Historically, the balance between demand and supply of infrastructure facilities has faced a chronic imbalance.

The ageing and inadequate irrigation and water infrastructure deficit alone is estimated at Rss4 trillion (US$70 billion). Pakistan needs to invest almost Rs60 billion (US$1 billion) in new large dams and related infrastructure while the under performance of the transport infrastructure costs the economy Rs300 billion (US$5 billion) per year.

The current power shortages are a classic example of the rapidly growing economy's ageing and deficient power infrastructure, which is failing to cope with burgeoning demand and resulting in an energy crisis in the country.

A similar situation also prevails in the supply of the transport infrastructure in Pakistan. Lack of appropriate public infrastructure is constraining government's ability to transfer the impact of this growth to public at large, delivery of basic public services, sustained advancement of traditional sectors such as agriculture and textiles and development of emerging sectors such as services and industries required for continued economic expansion.

The government requires heavy investment in physical infrastructure in order to improve delivery of social services and to enhance its internal and global competitiveness.

Pakistan's physical infrastructure is inadequate in comparison with world standards and has been identified as one of the critical reasons holding back more rapid economic growth in the country.

To augment limited public resources for infrastructure, private sector participation in infrastructure development needs to be encouraged by creating the necessary enabling environment for increased private sector involvement.

Pakistan's electricity and power infrastructure has already come under major strain, and there is a danger that the infrastructure sector in its totality will become a major bottleneck for continued growth and development unless a well-designed long-term strategy to enhance infrastructure investment and expand private sector participation in infrastructure development is evolved and implemented.

As per report of the ADB, the potential of the private sector to meet Pakistan's pressing infrastructure needs is largely untapped. Thus far, the government's initiatives to promote the private sector's role have only succeeded to a certain extent with private sector investment having come in the power sector and mobile telecommunications.

Available data indicates that Pakistan had total private sector investment in infrastructure of $17.206 billion during 1990-2006, with a major concentration of 96 per cent in the energy and telecom sectors. There was very little private investment in transport and no investment in water and sewerage sectors. Despite the laggard interest of the private sector so far, the government remains keen to tap private sector participation and investment in the infrastructure sector.

According to experts, in the aftermath of floods, Pakistan's total requirements for infrastructure development are in the range of $50 billion, but are much higher at about $75 billion if the planned large water storage dams are also included.

In order to encourage private sector financing in other infrastructure sectors like road networks and transportation and water and sanitation, it will be essential to tap domestic financial markets given that foreign capital would be less likely to flow in these `riskier` sectors, they said.

Considering the large investment requirements for infrastructure development, direct financing from financial institutions would be insufficient given the balance sheet and credit exposure limitations of these institutions. The alternative would be to raise funds directly from the public.

Experts and business leaders told PAGE that lack of infrastructure development is a big hurdle for the promotion of business activities.

Infrastructure development plays a crucial role in economic development of a country. But, lack of infrastructure has been a big hurdle in the economic progress of Pakistan putting strains on the smooth growth of trade and industrial activities. Therefore, government should involve private sector by moving to public-private partnership paradigm for developing the country's infrastructure at a fast pace, experts said.

According to business leaders, investment in infrastructure development has proven to be a successful model for reviving economies in the world, but Pakistan could not sustain its growth over time mainly due to lack of supporting infrastructure.

They said the country needs massive supporting infrastructure to absorb, support, and sustain increase in growth, but lamented that Pakistan badly failed to develop proper infrastructure despite making many five years plans.

They maintained Pakistan has world's largest canal system in agriculture but lack of adopting new management practices and latest technology into this system has resulted in poor growth of crops. Similarly, ignoring energy, water and communication infrastructures have badly stalled the growth of trade and industrial activities apart from affecting foreign direct investment. All this has led to making significant enhancement in cost of doing business in Pakistan, they opined.

They further said infrastructure development in education and health sectors contributes effectively to sustaining overall development of a country apart from giving boost to social sector development. But, due to lack of interest, health and education sectors infrastructure could not be developed on sound footings which gave rise to poverty in the country.

Experts were of the firm view that proper development of infrastructure would help to meet much of local demands like energy, clean drinking water, sanitation facilities, transportation and communication system in addition to creating many job opportunities. Apart from that, it will generate demand for more raw materials which in return will make more income for local businesses. Therefore, they stressed for the need of involving private sector and exploiting its potential for developing infrastructure in all sectors of the economy as these projects are quite expensive and partnership with private sector will enhance the pace of execution of these projects.