Poor quality of physical infrastructure and human resources

Physical infrastructure services—power, transport, roads, civil works, telecommunications, water, sanitation, and waste disposal—represent a significant share of every economy, typically 7 to 11 percent of GDP, with transport the largest. They are not only important consumption goods, as with clean water and electricity for households, but also vital inputs into the production process, as with power, transport to markets, and communications with buyers and sellers. Provision of infrastructure services lags behind in low-income countries, severely hampering development efforts as well as welfare improvements.

The share of infrastructure services provided by state-owned utilities is much higher in low-income countries than elsewhere. The dominant public role, exercised largely through vertically integrated and monolithic entities, has arisen for a combination of reasons: technological characteristics, economic and political importance; and scale of financial requirements, as well as high levels of uncertainty and risk that have deterred private investment. Provision of infrastructure services in low-income countries presents common problems—operational inefficiency, overstaffing, poor maintenance, and an inability to meet rapidly increasing demands for new infrastructure.

Inefficiencies in the provision of physical infrastructure are quickly felt throughout the economy because of their impact on the costs of doing business. In Nigeria, power shortages have induced most large private enterprises to install their own electricity generators, increasing total machinery and equipment costs by 10 to 25 percent. Inefficiencies and shortages also restrict access to markets. Neglect of rural infrastructure in particular has slowed the integration of rural and urban markets and cut off farmers from inputs at competitive prices. Moreover, lack of access to new technology, especially in telecommunications and transport, erodes the competitiveness of both rural and urban producers.

Low-income countries are also characterized by widespread deficiencies in human resources, which are the key to long-term competitiveness. While many countries have improved their social indicators—enrollment ratios in primary and secondary education, literacy ratios, access to clean water and sanitation, life expectancy at birth, and infant mortality rates—they continue to lag behind middle-income countries, especially in Sub-Saharan Africa (figures 1.10, 1.11, and 1.12).

Low-income countries are also characterized by widespread deficiencies it? human resources and infrastructure services which are the keys to long-term competitiveness

Adult illiteracy rates remain high, especially for females, in most of Sub-Saharan Africa and Asia. There are exceptions, such as China, Kenya, Madagascar, Myanmar, and Sri Lanka, where literacy rates are relatively high for both males and females. The link between literacy and productivity improvements is strong, and experience has demonstrated the difficulty of imparting information about technologies, markets, and so on to an illiterate population. In addition, the relatively high rates of female illiteracy in most low-income countries are significant for private sector development—because women are major actors in the informal sector and agriculture, and because public extension services and other agencies relevant to business development typically focus their activities on males.

Some countries where illiteracy remains high, such as India, now have relatively high primary and secondary enrollment ratios—the result of efforts to improve the quality of human capital. But in most Sub-Saharan African countries, primary and secondary enrollments have grown relatively slowly and still lag well behind those in other developing countries. Indeed, between 1985 and 1990 primary enrollment fell as a percentage of all those eligible to attend primary school—a most troubling development. Moreover, while the share of outlays on education in total government expenditure in Sub-Saharan Africa has increased—in 1989, the average was 4.1 percent of GDP, on par with many middle-income countries—African governments have been less successful than those elsewhere in shifting spending toward primary and secondary education.

Figure 1.10 Adult literacy rates in low-income countries, 1992

Figure 1.11 School enrollments in low-income countries, 1990

Figure 1.12 Access to sanitation in low-income countries, 1985-91

To support growth and poverty alleviation and promote the private sector, governments in low-income countries need to use the fiscal space created by public enterprise and tax reform to redirect spending toward infrastructure and human resources, subject to the first priority of maintaining fiscal stability. The challenge is not only to expand spending and increase its efficiency in these areas, but also to focus spending on essential public goods, such as transport, water, and primary and secondary education.