Download Luis Serven

Infrastructure in Latin America: a
macroeconomic perspective
Luis Servén
The World Bank
CLAI-OAS Energy Conference
March 19 2002
Infrastructure in Latin America
Outline
1. Where does LAC stand ? A comparative perspective
2. The consequences: infrastructure and growth
3. The changing policy framework
4. The unmet needs
Where does LAC stand ?
A.
Comparative perspective on infrastructure stocks
• Focus on 3 standard indicators across countries [from the
growth literature]:
-Power: generation capacity
-Transport: paved roads
-Telecom: phone lines
• Three main facts:
• LAC lags significantly behind industrial countries and
the successful East Asian economies
• LAC lost a lot of ground relative to East Asia in the
1980s and early 1990s
• There is considerable diversity within the region
Electric Generating Capacity (in MW
per 1000 workers)
Infrastructure Stocks: Power
Medians by Region, 1980-97
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1980
Latin America
1990
East Asia 7
1995
Industrial Countries
1997
Power generating capacity per worker
(MW per thousand)
Venezuela
Uruguay
Argentina
EAP median
Mexico
Chile
Jamaica
Costa Rica
Panama
Latin America median
Brazil
Ecuador
Colombia
Peru
Dominican Republic
El Salvador
Bolivia
Nicaragua
1997
Honduras
1980
Guatemala
0.00
0.50
1.00
1.50
2.00
2.50
Infrastructure Stocks: Transport
Medians by Region, 1980-97
Paved Roads (in km per 1000
workers)
25
20
15
10
5
0
1980
Latin America
East Asia 7
1990
1995
Middle Income non-LAC
1997
Industrial Countries
Main Lines (per 1000 workers)
Infrastructure Stocks: Telecommunications
Medians by Region, 1980-97
1200
1000
800
600
400
200
0
1980
Latin America
1990
East Asia 7
1995
Industrial Countries
1997
Where does LAC stand ?
B.
Comparative perspective on infrastructure quality
• More severe data limitations on international comparisons
-Power: % transmission losses
-Transport: % roads paved
-Telecom: phone faults [or % unsuccessful calls]
• Again the same three facts emerge:
• LAC lags significantly behind industrial countries and
the successful East Asian economies.
• LAC lost a lot of ground relative to East Asia in the
1980s and (early) 1990s.
• There is considerable diversity within the region
Power Losses (% of Output)
Infrastructure Quality: Power
Medians by Region, 1980-97
20.0
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
1980
Latin America
1990
East Asia 7
1995
Industrial Countries
1997
Power losses
(percent of power output)
Paraguay
Costa Rica
East Asia median
Chile
Bolivia
Jamaica
Guatemala
El Salvador
Mexico
Peru
Latin America median
Brazil
Argentina
Uruguay
Venezuela
Panama
1997
Colombia
1980
Ecuador
Honduras
Nicaragua
Dominican Republic
0.00
5.00
10.00
15.00
20.00
25.00
30.00
Infrastructure Quality: Transport
Medians by Region, 1980-97
Paved Roads (% Total Roads)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1980
Latin America
1990
East Asia 7
1995
Industrial Countries
1997
Telephone Faults per 100 main lines
Infrastructure Quality: Telecommunications
Medians by Region, 1980-97
80
70
60
50
40
30
20
10
0
1991
Latin America
East Asia 7
1993
Middle Income non-LAC
1995
Industrial Countries
Infrastructure and growth
Effects of LAC’s infrastructure gap
•
Lower productivity and higher production costs
•
Higher transport and logistic costs -- LAC transport costs and
typical inventory levels double those of industrial countries
•
Higher costs reduce export competitiveness and deter foreign
trade
•
They lower the profitability of capital and discourage investment
•
Through all these channels, the result is slower growth
Gro wth in GD P p e r wo rk e r
In fr a s tr u c tu r e a c c u m u la tio n a n d g r o w th
(1 9 6 0 -9 7 c o untry ave rag e s , p e rc e nt)
6%
4%
2%
0%
O thers
-2 %
lac
y = 0 .4 2 2 4 x + 0 .0 0 0 7
R 2 = 0 .3 4 8 7
eap7
-4 %
-2 %
0%
2%
4%
6%
8%
10%
12%
Gro w th in in fra s tru c tu re s to c k s p e r w o rk e r
Infrastructure and growth
The growth cost of LAC’s infrastructure gap: What was its role in
the widening of the LAC-EAP output gap ?
1980-97
1. Percent growth in the output gap
(change in log of relative GDP per worker)
91.9
2. Portion attributable to the
growth in the infrastructure gap
20.2
(median of country data)
o/w: gap in power generation capacity
3. [2] / [1] (percent)
o/w: gap in power generation capacity
Source: Calderón, Easterly and Servén (2002)
6.8
21.9
7.4
The changing policy framework
Two ingredients in LAC’s policy framework:
1. Macroeconomic crises and fiscal adjustment
• Public sector retrenchment
•
Compression of public expenditures – including
infrastructure
2. Opening up of infrastructure to private participation
•
Diversity across countries / sectors in timing and form
of opening
The changing policy framework
Public sector retrenchment in LAC
•
Generalized decline in public infrastructure spending in the mid
to late 1980s [with Colombia as the exception].
•
In power, sharp decline in all major countries except Colombia
and Ecuador.
•
Lacking private sector involvement, the result in most cases is
a decline in overall (public + private) infrastructure investment.
•
The investment decline was a major factor behind LAC’s
widening infrastructure gap
Public Investment in Infrastructure
Selected Latin American Countries, 1980-98
6.0%
As percentage of GDP
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
ARG
BRA
CHL
COL
MEX
PER
Total Investment in Infrastructure
Selected Latin American Countries, 1980-98
9.0%
8.0%
As percentage of GDP
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
ARG
BRA
CHL
COL
MEX
PER
Public investment in power (% GDP)
3.0%
1980-84
2.5%
1985-89
1990-94
1995-98
2.0%
1.5%
1.0%
0.5%
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0.0%
Total investment in power (% GDP)
4.5%
1980-84
4.0%
1985-89
3.5%
1990-94
1995-98
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
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The changing policy framework
•
Public infrastructure compression contributed a large part of LAC’s
fiscal adjustment: 1980-84 vs 1995-98
Cumulative
Reduction in
public
infrastructure
investment / GDP
[1]
Argentina
Bolivia
Brazil
Chile
Colombia
Ecuador
Mexico
Peru
Venezuela
2.9
3.1
3.1
1.4
0.0
-0.7
2.0
1.5
0.4
Cumulative
Cumulative
Reduction in
Increase in
public
primary budget
investment in
surplus / GDP
power / GDP
[3]
[2]
1.6
1.3
2.4
1.3
-0.1
-0.5
0.3
1.2
0.1
5.3
6.2
1.8
2.4
4.7
1.8
6.3
3.1
-1.9
% [1]/[3]
% [2]/[3]
53.8
50.3
174.3
58.8
-0.8
-37.6
31.5
48.6
-21.7
30.4
20.4
138.1
53.0
-1.7
-28.2
5.2
39.6
-4.5
The changing policy framework
Public sector retrenchment in LAC
•
Was infrastructure compression an effective strategy to
improve public sector solvency ?
-
The first-round effect of spending cuts is to raise public sector net
worth
-
But infrastructure cuts hamper growth, tax collection and the
public sector’s future debt servicing capacity [second-round effect]
-
If the debt stock is large, the second-round effect is big and
infrastructure cuts do little to help public sector solvency
-
Infrastructure compression is not an efficient way to raise
solvency
The changing policy framework
The opening up to private participation
In many cases too early to assess.
•
Effects uneven across sectors / countries in LAC
•
Among the major countries, large response of private infrastructure
investment in Chile and Colombia. But the rest still show a declining
trend in overall infrastructure investment.
•
In power, strong private response in COL, BOL, CHL, but continuing
decline in overall investment in ARG, BRA, MEX (still closed).
•
No clear improvement in efficiency in power generation (as measured
by power losses) – unlike in telecom.
Private Investment in Infrastructure
Selected Latin American Countries, 1980-98
4.5%
4.0%
As percentage of GDP
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
ARG
BRA
CHL
COL
MEX
PER
Private investment in power (% GDP)
2.5%
1980-84
1985-89
2.0%
1990-94
1995-98
1.5%
1.0%
0.5%
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0.0%
The changing policy framework
Power Losses vs. Private Investment
(5-year periods, 1980-97)
Electricity Production Losses
25
20
15
10
5
y = -3.2834x + 18.417
2
R = 0.0663
0
0.0
0.2
0.4
0.6
0.8
Private Share of Investm ent in Pow er
1.0
1.2
The changing policy framework
Telephone Faults vs. Private Investment
(5-year periods, 1980-97)
Telephone Faults per main line
140
y = -75.865x + 100.13
120
2
R = 0.4065
100
80
60
40
20
0
0.0
0.2
0.4
0.6
0.8
1.0
Private Share of Investm ent in Telecom
1.2
The unmet needs
$ Billion
80
70
Annual investment need, 2000-05
60
50
Actual private investment, 1998
40
30
20
10
0
All infrastructure
Transport
Electricity
Water & Sanitation
Telecomm.
Private financing for infrastructure is important, but still not enough
Summary
5 points:
• LAC lags behind in terms of infrastructure quantity and quality.
This applies also to power generation.
• This infrastructure gap entails a significant cost in terms of
output and productivity.
• The gap widened with the compression of public infrastructure
spending in the 1980s and early 1990s.
• Private participation in the 1990s has led to a partial investment
recovery, but uneven across countries and infrastructure sectors.
• Private participation falls way short of actual financing needs.
Fin