Railways, Development and the Private Sector

I once took a train from Saratov, a Russian city on the Volga, to Almaty, then the capital of Kazakhstan. The journey took nearly three days. It seemed that for most of that time we passed through nothing but dark, frozen, empty space (it was December). The train moved slowly and noisily on old tracks, a relic from Russia’s Soviet past. But it was still impressive—this creaky transportation network had once held together one-sixth of the world’s land surface. It was part of an economic circulatory system that allowed goods, raw materials, and labor to move incredible distances, from the Black Sea to the Pacific.

You don’t have to be an economist to understand the importance of railway systems for development and economic growth, especially for landlocked countries. Nor do you have to be an engineer to understand what a complex, expensive undertaking it is to build them. But as I lay on my bunk in the train, listening to the rhythmic clattering of Soviet technology, I realized, for the first time, how hard it must be to maintain a solid railway network. Especially for countries in the middle of the massive economic and political upheaval following the breakup of the Soviet Union.

Is there a single best way to build and run a railway network? Some infrastructure-managing ideal that countries can reach for? Or are conditions around the world—whether legal, geographical, or in terms of security—simply too different?

My view is that creating more options for financing, building and managing railway systems is the best approach. And by that, I mean options for engaging the private sector, which can bring financing, technology, and management skills into the system. Well-designed public-private partnerships (PPPs) can do just that.

There are plenty of examples of how the private sector is boosting rail systems. In sub-Saharan Africa, where market conditions are often challenging, railways PPPs have improved transportation efficiency and spurred regional integration. In Kenya, where subsidies to the state-owned railway were bleeding the treasury dry, a private operator won a 25-year concession to manage the railways. Concession fees, taxes, facility rentals and savings in road maintenance now add millions to the state budget. Cameroon and Madagascar have also tapped into the private sector through concessions to improve their railway systems.

Russia’s railways are still government-owned, but its strategy does include private sector participation for 35 percent of its railway development through 2030. It will be interesting to see if they can create the right conditions for PPPs in this very exciting sector.

For more information, see the latest issue of Handshake, IFC’s quarterly journal on public-private partnerships, focusing on Road and Rail PPPs.