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Infrastructure Is Critical to Sustained Economic Development in the Global South – Here’s Why

It’s not overstating things to say that the world depends on infrastructure. Without ports, railways, roadways, airports, bridges, utilities, and the like, business doesn’t get done.

In much of the world, the infrastructure conversation revolves around maintaining or upgrading what’s already in place. The United States hasn’t built a major new commercial airport in nearly 30 years, and even ground-based transportation infrastructure is challenging to complete due to ballooning construction costs and onerous approval processes. (New York’s 1.8-mile Second Ave Subway is widely regarded as the most expensive rapid transit project ever constructed on a per-mile basis.)

Of course, high development costs and permitting issues aren’t unique to first-world countries like the United States. They affect infrastructure projects in the developing world as well. But, by definition, building new infrastructure is more critical in the underdeveloped economies that collectively make up the “Global South” than in Europe, the United States, and other high-income parts of the world.

Unfortunately, key stakeholders don’t always fund badly needed infrastructure in places like Africa, Latin America, and Central Asia. Here’s why they’d do well to remove barriers to innovative development.

1. Infrastructure Is a Force Multiplier for Foreign Direct Investment

Modern physical infrastructure is a vital precursor to local economic development. It’s also a force multiplier for foreign direct investment. To many international businesses and high-net-worth individuals, infrastructure quality is a make-or-break factor in developing-economy investment decisions.

Recent infrastructure development in places like the Southern African Development Community (SADC) confirms this thesis. From 2016 on, foreign direct investment in the SADC’s logistics infrastructure increased sharply, spurring private investment in related projects as the decade drew to a close.

“From warehousing and last-mile fulfillment to the road, rail, and port infrastructure, these investments underpin an increasingly stable and prosperous regional economy,” writes Christopher Roy Garland, a business advisor and economic development expert based in Botswana.

2. Infrastructure Improvements Brighten Prospects for Local Entrepreneurs

Infrastructure improvements don’t only redound to the benefit of foreign governments, grantmaking organizations, and international conglomerates. The biggest beneficiaries are often local entrepreneurs who secure contracts with these organizations and develop businesses downstream of their activities.

Vibrant entrepreneurial communities take decades to build. Once they’re present, however, they’re vital assets for their host countries. Their market activities support growing middle classes, which in turn help consumer economies that spur further local investment. And by employing unskilled and semi-skilled workers in their home countries, they provide an under-discussed but crucial political function, boosting economic morale and dampening potential sources of social instability.

2. Infrastructure Investment Provides Sponsor Nations With Political Leverage

Initial investments in large-scale infrastructure projects in the developing world very often do require active outside stakeholders. China’s Belt and Road initiative is merely the highest-profile example of concerted developing-world infrastructure investment as a more prosperous nation’s foreign policy project. The United States has USAID; other advanced economies make an intentional foreign direct investment for political purposes.

Like it or not, this is the global state of affairs in the early 21st century. It’s the sincere hope of most global development stakeholders that policy-driven FDI will one day cease to be a driving factor in developing-world infrastructure investment. Still, that day remains well over the horizon.

4. Stable, Prosperous Economies Enable Geographic Diversification for Risk-Averse International Investors

As the saying goes, a rising tide lifts all boats. When the groundwork laid by targeted infrastructure investments succeeds in stabilizing a country’s politics and raising its ceiling for economic growth, a broader class of risk-averse global investors takes notice.

These investors, both retail and institutional, vote with their dollars. They place bets on the economic future and create virtuous feedback loops for developing economies.

They also pave the way for other investors for whom geographic diversification is essential only when achievable without undue risk. And that’s the point at which a country or region can say, “Yes, we are open for business.”

5. Better Infrastructure Means Shared Prosperity

The history of the past 200 years would likely have been very different for European and North American nations without sustained public and private infrastructure investment in those parts of the world.

When some future generation looks back at our moment in time, let’s hope they’ll have something similar to say about the trajectory of infrastructure investment in the developing world. Let’s hope they’ll see a sustained and fruitful campaign to unlock the economic potential of dozens of nations and billions of individual humans.

Let’s hope. And let’s work together to make it happen. Because better roads, bridges, ports, broadband — these are the raw ingredients for a more prosperous and productive future. We owe it to generations to come to invest today.

TwinzTech

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