Syndicate content

Transport

What’s holding back India’s automotive sector?

Priyam Saraf's picture

For several decades, manufacturing in the automotive sector has made a strong contribution to spurring national growth, to promoting technology acquisition, and to raising incomes for workers across skill levels in developing economies as well as in developed nations. In India – the world’s sixth-largest producer of cars, where the automotive sector has been growing but at well below its tremendous potential – productivity levels would need to increase rapidly. A wave of autonomous functionality in vehicles and other technology-driven disruptions are not far away with the involvement of tech giants like Google, Tesla, and Uber. This makes the need to improve productivity in order to respond quickly to changing environments even more critical for traditional automakers. 

Some long-awaited reforms in India to improve automotive manufacturing performance came through this year. In July, the Government of India implemented a unified Goods and Services Tax (GST) regime to replace the multiple taxes that had been levied, in the past, by the state and central governments. This makes for a more integrated market, with uniformity in tax rates where automakers will be helped by easier compliance, the removal of cascading effect of taxes and the reduction of the costs of doing business. Reinforcing this, the union budget allocation in February allows for more investments in roads and highways, farm-friendly policies and income-tax reform for the middle class. Those steps will increase demand for small passenger vehicles and for the farm-equipment segment. This is all good news for the automakers in India.

Still, much more needs to be done to increase overall productivity in this job-creating and technology-rich sector. According to a recently published report by the World Bank Group, entitled “Automotive in South Asia: From Fringe to Global,” productivity (measured by value added per worker) in India’s auto sector remains less than one-third the level of China. From 1993 to 2004, the growth rate of Total Factor Productivity in China’s automotive sector was 6.1 percent per year, compared to only 1.1 percent in India. The growth rate of labor productivity was 9.8 percent per year in China, compared to 3.1 percent in India. Even though India has been increasing production of units at 11 percent to 15 percent per year (from 2005 through 2015) , it could do much better on improving productivity levels.

Institutional Investment in Infrastructure: A view from the bridge of a development agency

Jordan Z. Schwartz's picture

The Buzz on the Street: Can institutional investors really close the infrastructure gap? 

Once again, infrastructure is a hot topic.  Not since the first waves of energy, water and transport privatizations in the early 1990s has infrastructure been a central topic in the daily discourse of the media, of the development community, of economists and financiers.  Now, governments are crying for more of it, new development institutions are being built around it and even the IMF is asserting its central role in economic growth.

Not only has infrastructure re-emerged as a popular, nearly consensus solution to the economic and societal woes of developing countries and industrialized nations alike, but the font of the resources needed to fill the infrastructure financing gap has also been identified.  Suddenly, it is impossible to walk through London, Washington, Paris or Singapore without bumping into a conference on institutional investors in infrastructure.  The G20 has discovered the link along with their business counterparts at the B20.  So too has the World Economic Forum, the OECD, the UN and the international financial institutions.  Match the long-term liabilities of pensions and insurance plans with long-term assets, the mantra goes, and the infamous infrastructure gap will close.  Win-win.

If only life were so easy. 

Newest private participation in infrastructure update shows growth and challenges

Clive Harris's picture



In 2013, investment commitments to infrastructure projects with private participation declined by 24 percent from the previous year.  It should be welcome news that the first half of 2014 (H1) data – just released from the World Bank Group’s Private Participation in Infrastructure (PPI) database, covering energy, water and sanitation and transport – shows a 23 percent increase compared to the first half of 2013, with total investments reaching US$51.2 billion.

closer look shows, however, that this growth is largely due to commitments in Latin America and the Caribbean, and more specifically in Brazil. In fact, without Brazil, total private infrastructure investment falls to $21.9 billion – 32 percent lower than the first half of 2013. During H1, Brazil dominated the investment landscape, commanding $29.2 billion, or 57 percent of the global total.

Four out of six regions reported declining investment levels: East Asia and the Pacific, South Asia, Africa, and the Middle East. Fewer projects precipitated the decrease in many cases. Specifically, India has experienced rapidly falling investment, with only $3.6 billion in H1, compared to a peak of $23.8 billion in H1 of 2012. That amount was still enough to keep India in the top five countries for private infrastructure investment. In order of significance, those countries are:  Brazil, Turkey, Mexico, India, and China.

Sector investments were paced by transport and energy, which together accounted for nearly all private infrastructure projects that were collected in this update. The energy sector captured high investment levels primarily due to renewable energy projects, which totaled 59 percent of overall energy investments, and it is poised to continue growth due to its increasing role in global energy generation.

The energy sector also had the biggest number of new projects (70), followed by transport (28), then water and sewerage (12). However, transport claimed the greatest overall investment, at $36 billion, or 71 percent of the global total.

While we need to see what the data for the second half of 2014 show, what we have to date suggests that infrastructure gaps may continue to grow as the private sector contributes less. It also suggests that, in many emerging-market economies, there is much work to be done to bring projects to the market that will attract private investment and represent a good deal for the governments concerned. 
 

PPPAmericas 2015: Taking public-private partnerships to the next level

David Bloomgarden's picture

The Latin America and the Caribbean region is crying out for infrastructure improvements. An investment estimated at 5 percent of the region’s GDP — or US$250 billion per year — is required to develop projects that are fundamental for economic development. This includes not only improving highways, ports and bridges, but also building hospitals and creating better transport, public transit and other mobility solutions for smarter cities. Rising demand for infrastructure also is prompting countries to redouble efforts to attract greater private investment

At the Multilateral Investment Fund (MIF), as at the World Bank Group, we believe that public-private partnerships (PPPs) can help governments fill this infrastructure gap. However, the projects must be implemented effectively and efficiently to achieve social and economic objectives.

Governments in the Latin America and the Caribbean region not only lack financing to address the infrastructure gap, but also face challenges in selecting the appropriate large infrastructure projects, planning the projects, managing and maintaining infrastructure assets — and gaining public support for private investment in public infrastructure. 

However, PPPs are gaining ground in Latin America and the Caribbean. Beyond the larger economies of Brazil, Colombia and Mexico, assistance from the MIF and the Inter-American Development Bank (IDB) has enabled countries such as Paraguay to develop laws that pave the way for PPP projects. Just this week, Paraguay announced its first such project, which involves an investment of US$350 million to improve and build more than 150 kilometers of roads. 

PPPs have been moving beyond classic interventions in public infrastructure, which have typically included roads, railways, power generation, and water- and waste-treatment facilities. The next wave of PPPs increasingly involves and provides social infrastructure: schools, hospitals and health services. In Brazil, IFC, the private sector arm of the World Bank Group, helped create the Hospital do Subúrbio, the country’s first PPP in health, which has dramatically improved emergency hospital services for one million people in the capital of the state of Bahia.

Davos Sees Challenges, ‘Smart Cities’ Seize Opportunities: Finding Sustainable Solutions Via Public-Private Dialogue

Christopher Colford's picture



As the world’s policymakers and business leaders converge in Davos, Switzerland for tomorrow’s opening of the World Economic Forum, there’s certainly no shortage of global threats for them to worry about during the WEF’s annual marathon of policy seminars and economic debates. A world of anxiety enshrouds this week’s conference theme of the “New Global Context,” judging by the WEF’s latest Global Risks Report: Its analysis of 28 urgent threats and 13 ominous long-term trends offers a comprehensive catalogue of extreme dangers to social stability and even human survival.

As if the Davos data isn’t worrisome enough, several just-issued scientific studies – which document worsening trends in climate change, humanity’s imminent collision with the limits of the planet’s resilience and the intensifying damage being wrought by voracious consumption-driven growth – trace a relentlessly gloomy trajectory.

Relieving some of the substantive tension, there’s also often a puckish undercurrent within each year’s Davos news coverage. Poking holes in the self-importance of Davos’ CEOs and celebrities – with varying degrees of lighthearted humor or reproachful reproof – has become a cottage industry, springing up every January to chide the mountaintop follies of “the great and the good.” Skeptics often scoff that the lofty pronouncements of Davos Deepthink have become almost a caricature of elite self-importance, and there’ll surely be plenty of the customary sniping at the insularity of Davos Man and at the insouciance of the globalized jet set as its over-refined One Percent folkways become ever more detached from the struggles of the stagnating middle class and desperate working poor.

Despite such Davos-season misgivings, it’s worth recalling the value of such frequent, fact-based knowledge-exchange events and inclusive dialogues among business leaders and thought leaders. Some of the Davos Set may revel in after-hours excess – its Lucullan cocktail-party scene is legendary – yet the substantive centerpiece of such meetings remains a valuable venue for expert-level policy debates, allowing scholars to inject their ideas straight into the bloodstream of corporate strategy-setting. The global policy debate arguably needs more, not fewer, thought-provoking symposia where decision-makers can be swayed by the latest thinking of the world’s academic and social-sector experts. Judging by the fragmented response to the chronic economic downturn by the global policymaking class, every multilateral institution ought to host continuing consultations to help shape a coherent policy agenda.

Focusing on just one area where in-depth know-how can serve the needs of decision-makers: The World Bank Group has long been tailoring world-class knowledge to deliver local solutions to client countries about one of the trends singled out in this year's WEF list of long-term concerns – the worldwide shift from “predominantly rural to urban living.” The biggest mass migration in human history has now concentrated more than 50 percent of the world’s population in cities, leading this year’s Global Risks Report to assert that the risk of failed urban planning is among the top global concerns.

“Without doubt, urbanization has increased social well-being,” commented one WEF trend-watcher. “But when cities develop too rapidly, their vulnerability increases: pandemics; breakdowns of or attacks on power, water or transport systems; and the effects of climate change are all major threats.”

Yet consider, also, the potential opportunities within the process of managing that trend toward ever-more-intense urban concentration. What if the prospect of chaotic urbanization were able to inspire greater city-management creativity – so that urban ingenuity makes successful urbanization a means to surmount other looming dangers?

For an example of the can-do determination and trademark optimism of the development community – with the world’s urbanization trend as its focus – consider the upbeat tone that pervaded a conference last week at the World Bank’s Preston Auditorium, analyzing “Smart Cities for Shared Prosperity.” With more than 850 participants in-person, and with viewers in 92 countries watching via livestream, the conference – co-sponsored by the World Resources Institute (WRI), Embarq, and the Transport and Information & Communications Technology (TICT) Global Practice of the World Bank Group – energized the world’s leading practitioners and scholars across the wide range of transportation-related, urban-focused, environment-conscious priorities.

(Thinking of the Preston gathering’s Davos-season timing and full-spectrum scope: It sometimes strikes me that – given the continuous procession of presidents, professors, poets and pundits at the Preston podium – there could be a tagline beneath Preston's entryway, suggesting that the Bank Group swirl of ideas feels like “Davos Every Day.”)

Amid its focus on building “smart cities” and strengthening urban sustainability, the annual Transforming Transportation conference took the “smart cities” concept beyond its customary focus on analyzing Big Data and deploying the latest technology-enabled metrics. By investing in “smart” urban design – and, above all, by putting people rather than automobiles at the center of city life – the scholars insisted that society can reclaim its urban destiny from the car-centric, carbon-intensive pattern that now chokes the livability of all too many cities.

The fast-forward series of “smart cities” speeches and seminars reinforced the agenda summarized by TICT Senior Director Pierre Guislain and WRI official Ani Dasgupta – formerly of the Bank Group and now the global director of WRI’s Ross Center on Sustainable Cities – in an Op-Ed commentary for Thomson Reuters: “We can either continue to build car-oriented cities that lock in unsustainable patterns, or we can scale up existing models for creating more inclusive, accessible and connected cities. Pursuing smarter urban mobility options can help growing cities leapfrog car-centric development and adopt strategies that boost inclusive economic growth and improve [the] quality of life.”

The Importance of Managing Unsolicited Proposals in Infrastructure

François Bergere's picture

Transparent, competitive bidding is a sound way for the public sector to buy goods and services. It is also standard procedure for Public-Private Partnerships (PPPs). Besides reducing opportunities for corruption, this approach generally attempts to achieve the best value for money and is perceived as fair by all stakeholders. When the sums involved are big, for example, in large infrastructure projects, transparency in government procurement becomes even more critical. Unsurprisingly, competitive bidding is considered best practice in most countries, not only in the public sector but also for corporations and institutions such as the World Bank Group.
 
This system works well when a government knows exactly what goods and services are procured for infrastructure development that best serve the public interest. But in many developing countries, governments may not have the requisite capacity and resources to define the scope of the project, or to prepare the tender documentation. Such situations often lead to inadequate infrastructure development. Sometimes the private sector uses such opportunities to proactively submit proposals for infrastructure projects on their own without waiting for a government initiated tender.
 
When the private sector submits such types of proposals, they are called Unsolicited Proposals, or USPs. USPs are an exception to the typical government-initiated approach and allow a private company to initiate the process. A private-sector entity (“USP proponent”) reaches out to the government with a project proposal to develop an infrastructure project. Typically, such a project may not have been identified within the government budget or policies, and the project’s purpose and need may not have been defined. In some instances, a USP may be nothing more than a mere idea or concept when it is presented to the government.

Trends in Private Participation in Infrastructure

David Lawrence's picture
The private sector has long been a major player in infrastructure projects around the globe. Its contribution is important on many levels: besides making financial, technical and managerial resources available for infrastructure projects, its participation has policy implications that impact investment and development.
 
The World Bank’s Public Private Partnership Group and the Public-Private Infrastructure Advisory Facility (PPIAF) support public discussion on the role of private participation in infrastructure, or PPI. To provide relevant information on this topic, they maintain a PPI database that includes information on over 6,000 infrastructure projects implemented from 1984 through 2013 in 92 emerging economies. The information is useful for analysts, policymakers, private sector firms involved in infrastructure, donors, NGOs and other stakeholders.

The data can be used to identify regional or sectoral trends. The recently-released 2013 Global PPI Update, for example, shows that PPI in 2013 in emerging markets fell by 24 percent in comparison with 2012, with decreases in Brazil and India accounting for much of the change. The data also show that investments in telecom and energy top the list, each accounting for 38 percent of global PPI. 



 

Recent World Bank Data Reveal Worrying Trends in Transport

David Lawrence's picture



The World Bank’s Public-Private Partnership Group and Public-Private Infrastructure Advisory Facility report that total private participation in infrastructure (PPI) fell in the transportation sector in emerging markets by 39 percent to $33.2 billion in 2013, compared with 2012 levels.

In part, this reflects a broader trend – overall, PPI in all infrastructure sectors fell by 24 percent. The biggest drop was in South Asia, which saw PPI in transport fall from just over $20 billion in 2012 to approximately $3 billion in 2013, mostly because of significant decreases in India. Two other regions – Latin America & the Caribbean (LAC) and Eastern Europe and Central Asia (ECA) – also saw decreases. PPI in transport increased in East Asia and the Pacific (EAP) and Africa, but not by enough to offset decreases elsewhere.



2013 Transport PPIs by region
 
This is not good news for the world’s poor. Transportation is a critical component of development and growth, enabling people to access schools, hospitals and markets. It facilitates labor mobility and ensures that raw materials and finished goods get to customers. In rural areas, transportation systems provide an economic and social connection with the rest of the country. Within cities, good urban transportation is often the only form of transportation available to the poor. It also improves the flow of goods and services, reduces greenhouse gas emissions, and improves the overall quality of life.

A New Model to Chip Away at the Infrastructure Financing Gap: Brazil Leads the Way

Cara Santos Pianesi's picture



Infrastructure bottlenecks have created seemingly perpetual traffic jams in and around São Paulo. Photo credit: Marcelo Camargo/ABr.

There’s a lot of time for innovative thought when you’re stuck in traffic in São Paulo.
 
Perhaps that’s why, in the words for Deborah L. Wetzel, World Bank Country Director for Brazil, “São Paulo has continuously innovated to overcome its infrastructure bottlenecks, often becoming a model to other states in Brazil.”
 
With a loan signed last month between the state and Banco Santander, and insured by the Multilateral Investment Guarantee Agency (MIGA), the state is at the vanguard of infrastructure financing.
 
Forty-one million people use the state’s transportation networks. While the network is one of the most developed and modern in Brazil, it is still insufficient for the state’s needs.

The State of São Paulo has sought to address the situation for some time, and the World Bank has played an important role through lending and technical assistance. An important component of this work is the São Paulo State Sustainable Transport Project that aims to rehabilitate roads in several key corridors and to reconstruct two bridges.

Yet, with a total cost estimated at $729 million, this project has faced a major financing hurdle. In September 2013, the World Bank approved a $300-million loan toward the initiative. But with growing demand for loans from Brazil’s poorest states, the bank was unable to commit additional funds. The State of São Paulo itself committed $129 million. That left a shortfall of $300 million.

How was the state going to mobilize these funds at a cost that would be acceptable to taxpayers?

A partnership with MIGA was a natural answer. In addition to political risk insurance, MIGA provides credit-enhancement products that protect commercial lenders against non-payment by a sovereign, sub-sovereign or state-owned enterprise.

In an unprecedented move, the State of São Paulo bid out the project to commercial banks with a requirement that their loans be backed by MIGA’s credit-enhancement instrument.

The result:  MIGA issued guarantees to Banco Santander on a $300-million loan. With MIGA’s credit enhancement, the cost of the commercial loan was lower, and the length of the loan was longer, than São Paulo could have achieved on its own. The additional financing will be used to increase the scope of the project’s activities.