It is well established in the economic literature that it’s the rich who benefit from the lion’s share of energy subsidies. Yet, it is often the poor and vulnerable who protest loudly against these reforms. Why does this happen? What are we missing?
This blog post was co-authored by Franz Drees-Gross, Director, Transport and ICT Global Practice, and Ede Ijjasz-Vasquez, Senior Director, Social, Urban, Rural and Resilience Global Practice.
Transport in its many forms – from tuk-tuks in Thailand to futuristic self-driving electric cars – is ubiquitous in the lives of everyone on the planet. For that reason, it is often taken for granted – unless we are caught in congestion, or more dramatically, if the water truck fails to arrive at a drought-stricken community in Africa.
It is easy to forget that transport is a crucial part of the global economy. Overall, countries invest between $1.4 to $2.1 trillion per year in transport infrastructure to meet the world’s demand for mobility and connectivity. Efficient transport systems move goods and services, connect people to economic opportunities, and enable access to essential services like healthcare and education. Transport is a fundamental enabler to achieving almost all the Sustainable Development Goals (SDGs), and is crucial to meet the objectives under the Paris agreement of limiting global warming to less than 2°C by 2100, and make best efforts to limit warming to 1.5°C.
But all of this depends on well-functioning transport systems. With the effects of climate change, in many countries this assumption is becoming less of a given. The impact of extreme natural events on transport—itself a major contributor to greenhouse gas emissions—often serve as an abrupt reminder of how central it is, both for urgent response needs such as evacuating people and getting emergency services where they are needed, but also for longer term economic recovery, often impaired by destroyed infrastructure and lost livelihoods. A country that loses its transport infrastructure cannot respond effectively to climate change impacts.
It has been almost four years since I first became involved with the regional public-private dialogue initiative, the Caribbean Growth Forum (CGF). In June 2012, I walked into the conference room at University of the West Indies, Mona Campus for the Launch of the first phase of the initiative and there was something electric in the air. It was new and fresh, but old fears lingered; was this to become 'just another regional talk-shop?'
Wide-eyed and optimistic I was determined that for my small part it wouldn't turn out that way.
Finance ministers, auditors-general, and leaders of professional accounting organizations are meeting Tuesday in Nassau to discuss a topic that is often hidden from view, but is critical to quality of life in the Caribbean: Capacity and standards in public financial management.
How governments manage taxes, borrowing and spending is essential to economic growth, to poverty-reduction, and to ensuring that the region’s poorest can improve their lives. It is a core function of accountability in government. Improvements in this area could increase the health of small and medium-sized enterprises, create jobs, and bring in additional government revenues to spend on essential public services. Residents of Caribbean nations: this strategic dialogue will be about how the government manages your money.
A boat trip from Port Elizabeth to Kingstown, in the Caribbean country of Saint Vincent and the Grenadines, is a one-hour trip that locals take several times a day. It was during one of these journeys that the boat of Kamara Jerome, a young Vincentian fisherman, ran out of gas six miles from Bequia City in what is termed locally as the "Bequia Channel." While waiting for help with strong wind gusts and the sun on his head, the idea of developing a boat that would run with wind and solar energy was born. Soon after, the idea became a prototype; a boat using green technology was on the water making 20-year-old Jerome a winner of international innovation competitions and a role model to other Caribbean youth.
In Mexico, young engineer Daniel Gomez runs a multimillion bio-diesel company originally conceived as a research project for his high school chemistry class. Gomez and his partners - Guillermo Colunga, Antonio Lopez, and Mauricio Pareja - founded SOLBEN (Solutions in bio-energy in Spanish) in their early twenties.
Although Daniel and Kamara have different educational backgrounds, they do share one important skill, the ability to identify a problem, develop an innovative solution, and take it to the market. In other words, being an entrepreneur, an alternative to be economically active, that seems to work and not only for a few.
Prior to about 2005, for many tourists their Jamaican vacation was ruined at the last minute, by the hot and overcrowded conditions inside Montego Bay’s Sangster International Airport. Fast forward 10 years, and waiting for a flight at Sangster is an altogether more pleasant experience. The air conditioning actually works, and the whole environment is infinitely less stress-inducing than before.
What’s the difference? The private sector.
In 2003, the Government of Jamaica finally succeeded in doing what it had been trying to do for a decade: privatize Montego Bay Airport. A private sector consortium, led by Vancouver International Airport, quickly invested millions of dollars in expanding the terminal building, doubling the airport’s capacity and opening dozens of new retail spaces. Since then, the consortium has invested more than US$200 million on expansions and improvements to the airport, all of which has been entirely off the government’s balance sheet.
Jamaica has gone on to implement several more public-private partnerships (PPPs), with mixed results. The second phase of its ambitious highway construction program — the Mount Rosser Bypass — was recently opened, cutting a swath through miles of virgin territory. However, early indications are that traffic levels are not living up to expectations, probably due to the Bypass’ steep eight percent gradient, which is beyond the means of most Jamaican trucks and buses.
In the energy sector, Jamaica is completing three PPPs with a total of 115 megawatts of renewable energy (RE) capacity, putting the country on track to meet its RE target of 12.5 percent of generating capacity by the end of 2015. Lastly, the government is currently completing formalities for the sale of Kingston Container Terminal (KCT) to a consortium of CMA/CGM and China Merchant Marine, a transaction that is expected to result in a US$600 million capital expenditure program by the port’s new owners.
In addition to their often devastating human toll, natural disasters can have an extremely adverse economic impact on countries. Disasters can be particularly calamitous for developing countries because of the low level of insurance penetration in those countries. Only about 1% of natural disaster-related losses between 1980 and 2004 in developing countries were insured, compared to approximately 30% in developed countries. This means the financial burden of natural disasters in developing countries falls primarily on governments, which are often forced to reallocate budget resources to finance disaster response and recovery. At the same time, their revenues are typically falling because of decreased economic activity following a disaster. The result is less money for government priorities like education or health, thereby magnifying the negative developmental impact of a disaster.
To address this problem, the World Bank Treasury has been helping our clients protect their public finances in the event of a natural disaster. The most recent innovation is our new Capital-at-Risk Notes program, which allows our clients to access the capital markets through the World Bank to hedge their natural disaster risk. Under the program, the World Bank issues a bond supported by the strength of our own balance sheet, and hedges it through a swap or similar contract with our client. The program allows us to transfer risks from our clients to the capital markets, where interest in catastrophe bonds is growing.
What does it take to make reforms work in small island countries?
At the end of June 2013, twelve Caribbean countries presented a roadmap for growth in three areas -logistics and connectivity, investment climate, skills and productivity- to a broad audience of private sector representatives, international development institutions, regional organization, civil society and media. That event culminated a 7-month long phase during which policy-making was not the result of close-doors meetings, but a process of intense negotiation, consultations, and consensus building among all actors of each Caribbean country’s societies. All of which was documented in real time and in a transparent fashion by each government. Yes, business was not “business as usual”.
Reforms priorities were agreed and a calendar for implementation brushed on a power point slide in the wonderful framework of five stars Bahamian hotel…After the workshop lights, projects and microphones shut down, many of us went home with a familiar sound in our ears: and now what? Was it another “talkshop”?
The case of the Maldonado stream: The voice of a citizen
Imagine a busy metropolitan avenue crossing the length of Buenos Aires, Argentina, transited daily by buses and trains and lined with a large hospital, medical buildings, schools, shops and businesses.
Now imagine for 27 years this avenue flooding severely 37 times as if it were a river. During a flood, envision people being evacuated in motorboats, cars practically floating downstream, and cars and pedestrians on the bridge above it having to remain stranded there until the waters on the avenue below receded. It sounds implausible doesn’t it? Not for Buenos Aires residents it didn’t. The Juan B. Justo Avenue was such a thoroughfare.