Economic Revival: with so many areas, which ones should be prioritized?

On the front page of the governments’ manual to address economic and social crises is infrastructure promotion. The jobs it creates in directly affected countries and in the sector’s value chain, together with the benefits of connectivity, productivity and well-being of the population, are some of the reasons why investments in infrastructure have taken center stage in global economic revival plans after wars and crises in the last century, and also in the budgets of Latin American countries for 2021.

A study by the Inter-American Development Bank (IDB) put figures into infrastructure-generating jobs in Latin America and the Caribbean. “On average, for the total sample of infrastructure projects analyzed, USD 1 billion invested in the region is associated with the creation of 35,000 direct jobs. The results by subsector show that USD 1 billion invested in the region on average is associated with the creation of 50,000 direct jobs in the power sector, 18,000 direct jobs in the water and sanitation sector and 12,000 direct jobs in the transport sector, the report states. These figures can double or triple if we include indirect jobs created in material suppliers, and in general, other players in the industry value chain.

A report by the World Bank on the potential for short-term direct and indirect job creation estimates that investment in infrastructure projects creates around 40,000 jobs every year per USD 1 billion invested in Latin America and the Caribbean, depending on variables such as the combination of subsectors in the investment program, the technologies implemented, and local wages for qualified and unqualified labor. There are also certain types of projects, such as those relating to the maintenance of rural roads, that can create between 200,000 y 500,000 direct jobs per year for each USD 1 billion spent.

The proven effectiveness of infrastructure in job creation in the short term begs the question: with so many options to intervene, which areas should be prioritized? CAF—development bank of Latin America—worked on a methodology for prioritization of land transport infrastructure projects with impact-based criteria, applied on more than 2,000 projects in eleven countries in the region.

The publication Analysis of investments in the Latin American intercity land transport sector by 2040 revealed that closing the gap in the region will require significant efforts, at least 2.6% of GDP, where 0.7% should be used for conservation and maintenance actions. Expressed in financial resources, while current investments stand at USD 34 billion annually, the region must allocate an amount 3 times higher, of around USD 100 billion per year, to converge with global averages by 2040.

”The relevance of road investment is based on the fact that every dollar invested in infrastructure generates an increase of 0.2 GDP in the long run, which represents a 20% economic upturn, and makes a contribution to growth three times larger than investment in other areas (ports, airports, railways). In the report we propose a list of integration projects, for binational physical connection focusing on trade development, such as border crossings, bridges and institutional improvements, among others, which can be prioritized in 11 countries of the region,” said Monica López, CAF infrastructure expert and co-author of the publication.

In Argentina, for example, 274 projects were identified, totaling more than USD 7 billion, which can be prioritized over the next two decades to increase the well-being of the population and improve competitiveness and connectivity. Prioritization was done using six rigorous impact assessment criteria: expanding coverage and integration; reducing costs for users; promoting logistical and multimodal integration; minimizing maintenance costs; promoting environmental and social sustainability and the investment amount.

“The initiatives identified include 54 road surfacing and conservation projects that can be rapidly implemented with a positive short-term impact on jobs and growth. We also identified 24 intermodal projects to boost Argentina’s competitiveness,” added López.

Rural roads

The pandemic and economic and social revival projects are also a good opportunity to prioritize projects that are aligned with the 2030 Agenda defined by the UN, with the construction and maintenance of basic works that are resilient and adapted to climate change, to ensure trafficability at all times as a way of supporting sustainable development and the well-being of the population, as put forward in report Rural roads: Key routes for production, connectivity and territorial development prepared by Gabriel Pérez, Economic Affairs Officer of the Infrastructure Services Unit at ECLAC.

“An effective connectivity policy should seek to resolve territorial poverty more than that of individual households. To this end, designing institutional strengthening actions in the ministries of public works, transport and other sectors is essential to incorporate these new dimensions, as a way for governments to tackle problems from multiple fronts in a coordinated effort to leverage synergies and subsequently reduce inequalities and territorial gaps, in order to attain the goals of the 2030 Agenda for Sustainable Development”.

Limited government resources to promote national recovery through road investment are actually an opportunity to create jobs, boost productivity and competitiveness to foster intra-regional trade and local supply chains ahead of a possible period of deglobalization due to the pandemic. These are some of the issues that national and local authorities can bear in mind when prioritizing areas of development.