How does infrastructure investment promote economic development in fragile regions of Africa?

Development happens through structural transformation, which shifts the balance of economic activity away from agriculture and towards manufacturing and service sectors, in the process creating increasing numbers of better jobs (see World Development Report 2013: Jobs).

At the individual level, people join the labor force and find a job, get better at what they do, and move to better, more productive work. The move to a better situation typically involves moving across economic sectors and employment type. The key question is what role infrastructure plays in this process of transformation of economies away from low-productivity agriculture and towards higher productivity manufacturing and services. 

To improve our understanding of this issue, two recent research papers from the World Bank Infrastructure Chief Economist’s Office—“Infrastructure and Structural Change in the Horn of Africa” and “Infrastructure and Structural Change in the Lake Chad Region”—investigate the links between investments in electricity, internet, and road infrastructure and economic development in these two fragile regions of Africa, which include countries with varying levels of infrastructure and economic development. The papers investigate how much development impacts are enhanced when different types of infrastructure are provided jointly rather than in isolation.

What role has infrastructure played in transforming these economies away from agriculture and towards manufacturing and services?

There has been a notable expansion in the geographic reach of infrastructure networks across these regions during the last 20 years. By combining spatial information on infrastructure rollout with georeferenced household surveys reporting on employment patterns, it becomes possible to investigate the resulting impact on economic structure.

Infrastructure investments play a substantial role in structural transformation.  Access to paved roads by itself has led workers to move out of low-productivity agriculture primarily into manufacturing and services in Kenya and Ethiopia. The size of the effect is a reduction of 9 percentage points in the share of the workforce employed in agriculture in the Horn of Africa (see orange bars in figure a).

Access to internet has led workers to move out of low-productivity agriculture into services. The size of the effect is a reduction of 6 percentage points in the share of the workforce employed in agriculture in the Horn of Africa and 3 percentage points in Lake Chad.

To what extent have the benefits associated with roads been amplified through complementary investments in electricity grids?

Bundling road investments with access to electricity leads to a much bigger impact. The share of employment in agriculture falls by as much as 20 percentage points in the Horn of Africa and 23 percentage points in Lake Chad (see yellow and blue bars respectively in figures a and b). Furthermore, in this case, workers shift mostly into manufacturing in the Horn of Africa (figure a) and into the services sector in the Lake Chad (figure b).
 

What are the expected impacts of future regional transport investments in the Horn of Africa and Lake Chad Region?

Simulations based on a general-equilibrium model quantify the subnational and aggregate gains from future major transport investments of interest for the World Bank: a series of regional corridors in the Horn of Africa and the road and rail corridors in Chad and Cameroon.

In the Horn of Africa, Somalia will benefit the most from the transport as well as combined energy and transport investments, as the new road corridors will largely increase its access to bigger regional markets and lead to important price reductions for goods exchanged in the region. Somalia’s annual real income is predicted to increase by 1.4% from the transport investments, by 6.2% when combined with major electricity improvements, and by 10% when border delays are additionally reduced. However, the effects differ across locations within the country. The road investments will primarily benefit the border locations that gain the most in terms of market access. While some regions do not benefit from road investments alone, all regions gain when infrastructure investments are combined with trade facilitation measures, as these help to amplify the affected area.

Around Lake Chad, the gains from transport investments will mainly benefit Chad whose domestic integration and access to larger markets in Cameroon and overseas are greatly improved. However, those gains would be larger when complemented by an electrification program and trade facilitation policies. Chad’s annual real income is predicted to increase by 0.7% from the transport investments, by 6% when combined with major electricity investments, and by 9% when border delays are additionally reduced. The locations near the lake at the intersection of Nigeria, Cameroon, and Niger will benefit the most from better access to bigger markets and lower prices, with an increase in real income from combined investments of 10.7%, while the southern area around Douala and Yaoundé in Cameroon will gain a lot due its existing comparative advantage in the manufacturing sector.

More of this interesting topic will be feature in the Infra4Dev Conference on March 3-4. Register here.

#Infra4Dev is a blog series that showcases recent World Bank economic research to explore how Infrastructure is critical for development.

Previous Infra4Dev blogs:

The effectiveness of infrastructure investment as a fiscal stimulus: What we’ve learned

If you build it, they will come: Lessons from the first decade of electric vehicles

Can policy measures reduce the environmental impact of urban passenger transport?

How can we explain the rise in transport emissions… and what can we do about it?