Improving transport connectivity in developing countries is crucial to reduce trade costs, boost economic growth, and promote regional integration. Therefore, to address various deficiencies in transport connectivity, numerous regional or sub-regional plans have been established. These are supported and financed by many development partners, particularly to fill the large financing gap. At the same time, due to the wide geographical coverage, there are specific issues in transport connectivity that need to be addressed, such as environmental and social concerns, co‑ordination and harmonisation, debt sustainability, trade and investment policies, and technological innovation. Development partners - including those beyond the Development Assistance Committee - could further enhance co-ordination at the partner country level as well as through collective mechanisms. They could also address ways to help improve the enabling environment in order mobilise private investment for transport connectivity, particularly for the poorer countries.
Enhancing Connectivity through Transport Infrastructure
Overview: Supporting transport connectivity in developing countries
Abstract
Introduction
This report focuses on transport connectivity infrastructure in developing countries, which is defined as international airports and ports, as well as railways and roads that are cross-border, part of corridors and networks, or link major cities within a country.1 Transport connectivity is crucial for reducing trade costs, boosting economic growth and promoting regional integration. In particular, it can help these countries achieve the Sustainable Development Goals (SDGs) - notably Goal 9 on resilient infrastructure and industrialisation, Goal 1 on poverty reduction, and Goal 8 on inclusive growth.
In this context, developing countries need to significantly increase investments for transport connectivity. While governments have the leading role in financing their own development trajectory, bilateral and multilateral development partners also provide official development finance (ODF) to transport connectivity projects. In addition, they try to leverage private investment and help improve the enabling environment, as emphasised in the Addis Ababa Action Agenda (AAAA) (UN, 2015). Therefore, the report discusses how development partners can strengthen their support for transport connectivity by analysing their strategies and activities, summarising challenges, as well as presenting the distribution of current financing and the gap.
Accordingly, this overview chapter introduces the rationale and the investment needs for transport connectivity in developing countries. It then summarises the current state and action plans of transport connectivity in Africa, Latin America, Asia, and Europe, as well as the support provided by development partners. The chapter also elaborates specific issues related to transport connectivity due to its wide geographical coverage. Finally, the chapter provides a summary and conclusion of the whole report.
Background
Rationale for improving transport connectivity
The international community has been increasingly emphasising the need for transport connectivity, owing to its pivotal role in enabling people and firms to reach regional and international markets (WBG, 2017). In other words, better connectivity can increase trade volume and competitiveness of major cities and countries as well as reduce transport costs, thereby promoting economic growth, social integration, and development. Even more so in today’s globalised economy, where value chains are spread out all over the world. Concurrently, transport connectivity could also enhance human development within and between countries by allowing people to have better access to jobs, education, and health services (OECD, 2016; UN, 2016).
With respect to boosting trade volume, upgrading the road network to strengthen connectivity between cities in sub-Saharan Africa can catalyse USD 250 billion in trade over 15 years (Buys et al, 2010). In terms of lowering trade costs, transport connectivity in Latin American countries would help reduce their high logistic expenses, which on average take up more than half the price of delivered goods and account for 18% to 40% of gross domestic product (GDP) (WBG/ECLAC/IADB, 2010). This is also the case of least developed countries (LDCs), whose average freight and insurance costs amounted to approximately 14% of their value of imports in 2016, while that of developed countries was approximately 7%2 (OECD/WTO, 2017) - although this could be due to the relatively lower import value of LDCs.
More specifically, improving transport connectivity infrastructure could increase the productivity of companies, thereby accelerating their integration in global value chains (GVCs). A study based on firm-level panel data in four African countries shows that firms operating across countries have higher productivity and growth with adequate cross-border infrastructure. In fact, inadequate infrastructure is often cited as the most significant trade-related challenge to global value chain participation for firms in developing economies (ODI, 2016). In particular, transport connectivity has been found to have a greater effect on global value chains than on overall trade flows, owing to the higher elasticity in intermediate goods than in final goods (Saslavsky and Shepherd, 2012; OECD, 2016). This is particularly pertinent as developing countries increasingly import raw materials and intermediate goods to produce manufactured products for export.
Moreover, enhancing transport connectivity is crucial in view of the rising freight demand in developing countries, which is forecast to continue growing (ITF, 2017). This is also the case for passenger transportation with increasing population and demand for mobility. Thus, it is important to enhance both quantity and quality of these infrastructure, especially in major corridors and networks to make border-crossing and international transport easier, cheaper and faster. Furthermore, to increase the competitiveness of firms, cities and countries, it is paramount to strengthen the reliability of trans-shipments and predictability of supply chain operations in transport connectivity (OECD, 2016).
In this respect, apart from improvements in the hard aspects, soft transport connectivity projects can also reduce transit costs, increase cross-border trade and enhance productivity of firms. Soft projects include supporting harmonisation of transport procedures and regulations, better management of cross-border infrastructure such as customs clearance, and capacity building of authorities in specific transport sectors. In fact, deficiencies in soft aspects often force firms to adopt inefficient trade routes (ODI, 2016).
For instance, goods between Lagos and Accra are frequently transported by sea - despite the land proximity between the two cities. This is due to the high transit costs for crossing Benin and Togo, which is a result of the complex transit regulations and extensive delays in obtaining documentation at borders (Hoppe and Aidoo, 2012; ODI, 2016). These impediments especially limit trade activities of landlocked developing countries (LLDCs) that depend heavily on transport links with their neighbouring countries, such as Bhutan and Nepal, whose exports and imports mostly transit through Kolkata and Haldia ports in India (ODI, 2015).
Addressing soft aspects becomes all the more important since enhanced movement of goods and people through transport connectivity could potentially increase the levels of CO2 and greenhouse gas emissions. Therefore, incorporating climate mitigation measures in projects can help countries reduce these negative externalities and meet their targets of the Paris Agreement on climate change. In particular, enhancing soft aspects such as operational efficiency, route optimisation, and technological innovation can curb the trend of growing greenhouse gas emissions from freight transportation.
For example, emissions in ports can be curtailed by improving: transition within maritime logistics; slot booking and ship-tracking technology to reduce vessel queues at anchorage; and shore-side electrical power systems for ships at berth to save fuel consumption. In addition, the adoption of differentiated port fees according to environmental impact can provide incentives for ports to limit greenhouse gas emissions (ICTSD, 2010; OECD/IMO, 2017). Moreover, freight transport companies can minimise road emissions by optimising the design of delivery routes to reduce traffic time and vehicle fuel consumption, as well as by sharing assets such as warehouses, trucks, and information technology systems among themselves (ITF, 2017).
Enhancing transport connectivity should also incorporate climate adaptation measures to reduce the vulnerability of a region in the event of climate hazards. In other words, better design and maintenance of hard transport connectivity infrastructure could lower the risks posed by the consequences of climate change. For example, incorporating shore protection facilities can help minimise the erosion and other damages in ports caused by sea-level rise. Likewise, increasing the capacity of culverts and compaction as well as building up weirs and spillways can improve the resilience of roads to floods and storms (Transport & ICT, 2015).
Transport connectivity in regions: Current state and action plans
In Africa, deficiencies in transport connectivity infrastructure - both in hard and soft aspects - partly lead to its low level of international and intra-regional trade, economic integration, and industrialisation. In 2015, African exports only accounted for 2% of total worldwide merchandise exports, with its intra-regional trade being low at 18% compared to 52% in Asia (UNCTAD, 2017). To address this situation, the Programme for Infrastructure Development in Africa (PIDA) was developed in 2012 by the African Union Commission (AUC) and others in order to promote Africa’s regional economic integration by building infrastructure and strengthening trade. Specifically, 24 transport connectivity projects are identified in PIDA’s Priority Action Plan for 2012-2020, requiring a total investment of approximately USD 25 billion (PIDA, n.d.a; n.d.b). In this context, the African Development Bank (AfDB), as the executing agency for the management of PIDA, established an infrastructure fund, Africa 50, to leverage private investments for high-impact infrastructure projects (Africa 50, 2018).
In Latin America, under-developed transport connectivity infrastructure - especially water transport - is estimated to be the cause of high logistic expenses which amount to more than half the price of delivered goods or 18% to 40% of its GDP (WBG/ECLAC/IADB, 2010). For intra-regional transport, many rivers with navigation potential in Latin America have not been transformed into efficient inland waterways. Moreover, insufficient depth and poor maintenance of seaports hinder the upgrade of port capacity and logistic efficiency. In this context, the Union of the South American Nations (UNASUR) established a Portfolio of Integration Infrastructure Projects (COSIPLAN) in 2013 to increase economic, social and cultural integration. Likewise, the Initiative for the Integration of the Regional Infrastructure of South America (IIRSA) was launched with the aim of linking Latin American economies by integrating highway networks and inland waterways through soft and hard projects.
In contrast with Africa and Latin America, Asia has more transport connectivity infrastructure and a higher degree of regional integration. However, the relatively poor quality and insufficient capacity to meet the fast-growing demand remain challenges for this region, especially for LLDCs. Therefore, many sub-regional projects, programmes and strategies have been established, such as projects in Greater Mekong Sub-region (GMS),3 the Central Asia Regional Economic Co‑operation (CAREC) Programme, and the South Asia Sub-regional Economic Co‑operation Programmes. Likewise, the Association of Southeast Asian Nations (ASEAN) developed a new Master Plan on ASEAN Connectivity to implement connectivity infrastructure projects up to 2025.
Developing countries in Europe4 have weak transport connections with Western and Northern Europe. This is due to, first, low density of national highways in these countries in general owing to underinvestment (Turkey being an exception); and second, the challenges in harmonising their gauges and other technical characteristics in railways. In addition, transport infrastructure in these countries is generally below international standards in terms of safety, efficiency of passenger and freight services, energy performance, and environmental safeguards. Accordingly, the Central European Initiative (CEI) finances the Trans-European Transport Networks, which is a set of planned highways, railways, airports and ports, to enhance territorial co-operation (CEI, 2014). Moreover, since 2000, the European Commission has been funding the Transport Corridor Europe-Caucasus-Asia programme to help develop and implement regional transport policies and projects in the Black Sea Basin and Central Asia region including developing countries.
(More details and maps of the current state and action plans of transport connectivity in regions can be found in Chapter 1.)
The role of development partners in transport connectivity
Strategies and activities of development partners
Development partners help enhance transport connectivity with the aim of increasing jobs, reducing poverty, stimulating economic growth, fostering regional co-operation, and facilitating countries’ integration in GVCs. They also uphold social, safety, and environmental standards when supporting transport connectivity projects. Some of them have geographical focus such as GMS, or specific considerations such as LLDCs, climate issues or transport safety.
In general, the strategies and activities of development partners are aligned to the regional and sub-regional plans for transport connectivity. Furthermore, there are pooled funding facilities for projects that allow development partners to ensure coherence and co-ordination among themselves and with partner countries. Similarly, international organisations related to infrastructure or dedicated to specific transport modes also provide platforms for development partners to provide support collaboratively. Using these collective mechanisms, it would be important to enhance co-ordination, including with bilateral development partners beyond the OECD Development Assistance Committee (DAC) - Brazil and People’s Republic of China (hereafter China) - as well as the newly established Asian Infrastructure Investment Bank. More details can be found in Chapter 5 on development partner profiles.
Financing transport connectivity
In 2014-15, the 33 development partners that report to the DAC committed a total of USD 15 billion of ODF per year on average to transport connectivity projects. In comparison, the private sector committed on average USD 52 billion per year. By analysing the distribution, it appears that development partners and the private sector have different focus in supporting transport connectivity - the former mainly on Asia and Africa or low‑income countries (LICs) and lower middle‑income countries (LMICs) while the latter focus on Latin America and Europe or upper middle‑income countries (UMICs).
Furthermore, based on estimates by Brookings et al (2015), the authors of this report calculated that the current amount of annual spending for transport connectivity totals roughly USD 315 billion. Of this amount, developing country governments financed around 80%, the private sector around 15% and development partners reporting to the DAC around 5% (see Figure 3.12). At the same time, in order to meet the SDGs by 2030, there remains a significant financing gap for transport connectivity infrastructure, estimated to be approximately USD 440 billion per year.
In this context, much emphasis has been placed on mobilising private finance through risk instruments to fill the financing gap. However, the share of private investment mobilised by development finance institutions and international finance institutions (IFIs) for transport connectivity is relatively small - equivalent to USD 820 million or 2% of the total private investment. In particular, mobilisation is minimal in LICs, owing to higher risks and uncertainties. Accordingly, development partners are also helping the governments improve their enabling environment to attract more private investment to fill the gap. Financing for transport connectivity is further discussed in Chapter 4.
Issues around transport connectivity
There are specific issues related to transport connectivity due to its wide geographical coverage that involves multiple countries, many stakeholders and high costs. These include trade-off between the types of transport modality, environmental and social concerns, and geopolitical tensions in project planning. There are also challenges in co-ordination and harmonisation, such as synchronisation of project timing, the free-rider issue, standardisation of both hard and soft aspects, and the capacity of supra-national organisations. In addition, debt sustainability, broader trade and investment policies, as well as the potential impact of technological innovation also need to be taken into consideration. The following describes these issues and the collective action that can be taken to address them.
Project selection and planning
Development partners and governments need to weigh the costs and benefits of transport connectivity projects to ensure good value for money and the equitable distribution of benefits from the projects. Therefore, trade-off between different modalities of transport often poses dilemmas in project planning and financing. For instance, while constructing or upgrading highways requires large upfront investment and maintenance costs, it can significantly reduce trade costs in developing countries, especially in low and middle-income countries where road transportation represents roughly 70% of the total freight bill (PPIAF/GIF, n.d.; IBRD and World Bank, 2009). Conversely, while rail services tend to have low profit margins and rates of return, they can become cost-effective when transporting large amounts of minerals and commodities, notably in Africa (AfDB, 2015). Furthermore, while rail usually costs more than maritime transport, it is generally faster, especially for trade across the Eurasian continent (Galushko, 2016). Such economic factors are all the more important since governments often have to incur debt in order to finance transport connectivity infrastructure. In particular, the demand side - such as the scale of potential beneficiaries, user charges, and affordability by the poor - should be sufficiently addressed in project planning.
These economic considerations also have to be balanced with environmental and social concerns, particularly climate change. For example, air freight is considered a highly carbon-intensive mode of transportation (ICTSD, 2011); and road and maritime transport also emit significantly more CO2 than rail transport which tends to incur lower environmental externalities (OECD/ITF, 2017). However, roads are crucial for development as they provide the “last mile” of any long-distance transportation (AfDB, 2015) and often enable farmers to have easier access to markets and sell their products. Furthermore, emissions in ports can be significantly reduced by the wide adoption of innovative and effective port-based mechanisms as mentioned above in the Background Section. At the same time, the deployment of these mechanisms requires additional financial and human resources to co-ordinate multiple actors, including ship-owners and port authorities (ICTSD, 2010; OECD/IMO, 2017).
The development of transport connectivity infrastructure could also impact ecosystems and biodiversity. For example, a preliminary analysis conducted by the World Wide Fund for Nature (WWF) indicates that the six land-based economic corridors proposed by the Belt and Road Initiative (BRI) overlap with the range of 81 endangered species. Given the significant quantity of planned highways and railways in these corridors, WWF suggests the establishment of unified environmental standards or safeguards for BRI to ensure biodiversity and environmental sustainability as well as to mitigate potential negative impacts (WWF, 2017).
In addition, transport connectivity plans entail the risks of involving geopolitical tensions since they often cover multiple communities or countries. For instance, the China-Pakistan Economic Corridor included a plan to connect western China to a port in Gwadar in Pakistan by rehabilitating part of the existing Karakoram Highway. However, India raised objections over the project,5 which was designed to pass through the disputed territory of Jammu and Kashmir (Ministry of External Affairs of India, 2017; Forbes, 2017). Another example where political and geographical friction acted as a barrier to a cross-border transport project related to a road corridor linking the Brazilian and Chilean borders through Bolivia, planned under IIRSA. The road was planned to traverse a national park, home to four indigenous ethnicities that had ownership of these territories through a constitutional mandate. This led to demonstrations, marches, occupations, and road blocks, subsequently escalating into violent confrontations with the police. As a result, the project was eventually suspended (De la Cuadra, 2015). These two cases show the need for development partners to be mindful of the potential geopolitical tensions at the planning stage for transport connectivity projects.
Co-ordination and harmonisation
Apart from difficulties in project planning, transport connectivity projects often involve co-ordination and harmonisation issues, such as synchronising the timing of implementation. If road or rail construction or related regulations in a few countries are ready but not in others in a multi-national plan, then connectivity can be compromised. For example, a section of the Rundu-Elundu Road located at Namibia’s border with Anited Nationsla was upgraded in 2015, expecting to facilitate trade in this region. However, since the connecting roads on the Angola side remained unpaved and deteriorated, this project alone was not sufficient to make an impact on trade volume. (JICA, 2015; KfW, 2009). As this case shows, it is important to synchronise projects in different sections, or the effectiveness of these corridors in facilitating trade for the whole region can become suboptimal.
Similarly, transport connectivity projects could be subject to the free-rider challenge due to their significant spillover benefits to neighbouring countries, whose incentive to improve their own infrastructure is thereby reduced. In other words, if one country finances transport connectivity infrastructure across or close to a neighbouring country, the latter can free ride at the expense of the former, since such infrastructure can boost trade in both countries. This creates a form of prisoner’s dilemma in which the distribution of costs and benefits of improving transport connectivity becomes asymmetric, making both countries reluctant to undertake the operation and maintenance for the transport infrastructure (OECD, 2016). In order to prevent such issues, development partners need to ensure that the responsibility and finance of connectivity projects is appropriately distributed among concerned countries, in tandem with capacity building on financial and budget management for the central and municipal governments.
Another issue relates to standardising physical aspects of transport infrastructure among many countries. In the case of roads, standardising the quality is necessary to ensure the efficiency and effectiveness of transportation. For example, the structural adequacy of different road sections has to be unified to accommodate heavy lorries that cross several countries. The issue of overloading is especially important for trans-border shipments due to the significant differences in the engineered road tolerances by country. Moreover, the variance in levels of surface friction, structural distress, and various other conditions related to culverts, signs, fences, and so on, can affect the smoothness of road transportation, especially for long-distance regional freight (Hass et al., 2009).
In the case of railways, standardising physical aspects of transport infrastructure is particularly a challenge for African countries since there is lack of consistency in their gauges. Specifically, converting or constructing railways to a standard gauge is costly and time consuming. In this context, regional organisations can co-ordinate among stakeholders to enhance harmonisation. For instance, for the construction of the Standard Gauge Railway connecting Uganda, Kenya, Democratic Republic of the Congo, and South Sudan, the New Partnership for Africa’s Development - with the assistance from Australia - established the Infrastructure Skills for Development initiative to facilitate stakeholders to work regionally to address inter‑operability standards. It also provides capacity building to administrative departments in monitoring deliverables for the relevant projects (Australian Aid, 2015).
In addition, common standards for soft aspects of transport connectivity, such as safety and environmental standards, transport regulations and social safeguards, also need to be developed across countries. In this respect, development partners such as Australia and New Zealand are helping harmonise and co-ordinate air traffic safety and control, notably among Pacific Island Countries through staff training, knowledge sharing, and so on (Box 2.1). However, unifying standards at a policy level does not guarantee implementation. In practice, adjusting national systems to harmonise with regional transport standards can take time or face resistance.
For instance, following the signature of the Cross-Border Transport Agreement (CBTA) in the GMS in 2007 - which covers, inter alia, border-crossing formalities, transit traffic regimes, and exchange of commercial traffic rights - many development partners, such as the Asian Development Bank (AsDB), Japan, China and Thailand, financed several CBTA-related transport projects. Yet, as domestic laws have not been changed to meet the agreement’s stipulations in several countries, there are still many institutional bottlenecks in border crossing. In particular, custom officials reportedly have vested interests in resisting the implementation of the CBTA (JICA, 2007). Therefore, in some transport connectivity projects, it could be more feasible to introduce mutual recognition arrangements than to fully harmonise transport standards across different countries (ODI, 2015).
Moreover, the lack of co-ordination capacity of governments and sub-national agencies could hamper the harmonisation of transport standards as well as regional integration. At the national level, the government needs to gain support from and co-ordinate various ministries and authorities in order to prioritise projects in the national agenda. However, some developing country governments lack capacity to engage multiple departments and development partners to co-operate even at the project planning stage. In this respect, development partners could encourage and facilitate the participation of relevant ministries in dialogue and discussion over key transport connectivity projects.
At the regional level, several development partners point to the lack of capacity and resources of the Regional Economic Communities (RECs) in Africa to co-ordinate multiple stakeholders, particularly in connectivity projects. To address this issue, some development partners are helping build the capacity of RECs. For example, they jointly finance TradeMark East Africa (TMEA) to facilitate the East African Community (EAC) Secretariat in holding regular high-level dialogue with member states and development partners on the regional trade and integration agenda (TMEA, 2018). In addition, multilateral development banks (MDBs) are playing an important role in co-ordination with their extensive field presence. For instance, AsDB is taking the lead in providing guidelines for transport connectivity projects in the Indochina peninsular that involves project design, environmental and social safeguards, and impact evaluation.
Additionally, efforts to enhance transport connectivity have to be complemented by plans to lower transaction costs and transit time at customs - otherwise the benefits of cross-border connectivity projects will be suboptimal. For instance, manual processing at borders is still common practice in African countries, coupled with challenges stemming from different regulations and standards. Therefore, data recording, as well as exchange between border and central custom authorities, remains inefficient and time consuming. In this context, development partners are supporting projects to streamline these processes by modernising and automating customs with centralised IT systems (AsDB, 2013).
Debt sustainability
As transport connectivity projects tend to require significant amount of loans, commensurate with their generally wide geographical coverage, debt sustainability needs to be taken into consideration. While this is primarily the responsibility of the borrowing countries, development partners should also work together with them to prevent and resolve unsustainable debt situations, as emphasised in the AAAA (2015). In this respect, DAC members and multilateral development banks generally share information on major infrastructure projects, co-finance, carve out their respective niches, and avoid overlaps through co-ordination platforms led by host governments on a regular basis. However, some other development partners may not participate in these dialogues and share information, partly due to their thin presence on the ground. Still, development partners could support host governments in engaging all relevant stakeholders to co-ordinate on debt sustainability issues in financing transport connectivity projects.
For example, when Lao People’s Democratic Republic (“Lao PDR”) planned to borrow USD 450 million for the China-Laos Railway project in 2016, the International Monetary Fund (IMF) pointed out that the loan would push the country to exceed its debt sustainability level (IMF, 2013). AsDB also warned that the current account deficit of Lao PDR would widen to 20% due to the expected large imports of construction materials and machinery for this project (AsDB, 2017). Similar concerns were raised for the Nairobi-Mombasa railway construction, with the level of Kenya’s debt to China accumulating in a relative short period of time and reaching 6% of its GDP (BBC, 2017).
In this regard, some policies and co-operative mechanisms to ensure debt sustainability of developing countries have been developed, such as the Principles on Responsible Sovereign Lending and Borrowing developed by the United Nations Conference on Trade and Development. In addition, the DAC introduced new safeguards in its statistical system whereby loans whose terms are not consistent with the IMF Debt Limits Policy and the World Bank’s Non-Concessional Borrowing Policy will not be reportable as official development assistance (ODA). Moreover, the G20 countries - including Brazil, China, India and Turkey - have endorsed the G20 Operation Guidelines for Sustainable Financing, which encourage information-sharing and co-operation among borrowers, creditors and IFIs, in order to enhance access to sound financing for development while ensuring debt sustainability (G20, 2017).
In addition, the China International Development Research Network (CIDRN), established by China in 2013 as a platform for sharing and disseminating knowledge on international development, addresses debt issues. CIDRN organises public forums and conferences on China’s role in international development, by engaging academia, government departments such as the Ministry of Commerce and the Ministry of Foreign Affairs, development agencies including Department of International Development of the United Kingdom, the German Corporation for International Cooperation GmbH (GIZ), the Japan International Cooperation Agency (JICA) and United Nations Development Programme, as well as non‑governmental organisations such as Oxfam. Debt issues in China’s international development have been one of the main topics in these forums and conferences (Institute of Development Studies, 2014; Research Center for International Development, 2013).
At the same time, there have been diverging views around the issue of debt sustainability of developing countries in infrastructure investment. On the one hand, the AAAA and the SDGs, the IMF/World Bank (2012) Debt Sustainability Framework (DSF) of 2006, 2009, and 2012, and the G20 Compact with Africa (Compact with Africa, 2017) under the German presidency are more cautious regarding debt sustainability. On the other hand, the G20 High Level Panel on Infrastructure under the French presidency (2011), the G20 Action Plan for MDB Balance Sheet Optimisation under the Chinese presidency (2015), as well as the latest IMF/World Bank DSF of 2017 (IMF, 2017) are more optimistic concerning debt sustainability based on the idea that investments in infrastructure can yield enough economic returns to repay the debts. In this context, developing country governments and development partners should be mindful of debt sustainability within specific country contexts. This is notably the case when developing country governments with weak capacity for co-ordination and fiscal management receive large amounts of external public finance from multiple development partners.
Trade and investment policies
More generally, transport connectivity would need to be in tandem with broader policies that affect trade and investment, such as reducing tariff and non-tariff barriers as well as harmonising standards. To address tariff barriers, for example, the Southern African Development Community (SADC) has been planning to establish a customs union to enhance regional economic integration and increase trade volume. As such, the establishment of the customs union could complement the 72 transport infrastructure projects that have been planned in this region. However, the plan has been delayed mainly due to the complex negotiation process of converging 11 tariff regimes into one common external tariff policy.
Similarly, addressing non-tariff issues, such as technical barriers, lack of competition, market rigidity, as well as harmonisation and mutual recognition of standards, is crucial to enhance intra-regional or international trade and private sector development in developing countries. Therefore, EAC established the Single Customs Territory to harmonise quality standards for goods, labelling and certification requirements, as well as business registration and licensing procedures among member countries. Another example is the technical assistance by the SADC Secretariat to its members - with help from development partners - in dealing with non-tariff barriers such as adherence to international guidelines for sanitary and phytosanitary measures, which particularly cover food safety and pesticides (SADC, 2012; CUTS Geneva Resource Centre, 2010).
Likewise, transport connectivity often needs to be complemented by other interventions aimed at improving the enabling environment, including supporting liberalisation. Specifically, the lack of competition in trade logistics and transport services in developing countries provides a ground for rent-seeking activities, which in turn can cause high transport prices for end users. Furthermore, even good transport connectivity infrastructure could become under-utilised or economically unsustainable if the users do not have much to produce and sell. From this perspective, in conjunction with support to transport connectivity, development partners would have to consider addressing impediments to trade and investment, as well as the productive capacity of countries to produce value added goods to export.
The future of transport connectivity
In the future, transportation in developing countries could be altered by technological innovation such as the large-scale adoption of 3D printing. At present, although 3D printers generally produce parts of objects, they have the potential to produce whole products. In this respect, on the one hand, manufacturing using 3D printing technology could be more centralised in factories, which could reduce the need for transportation. On the other hand, manufacturing could become globally spread out, which may increase the need for transportation (OECD, 2017).
Moreover, with the advent of new vehicles such as autonomous cars and drones, the demand for and the design of transport infrastructure - especially roads - could change. One possibility is that the wide adoption of autonomous cars would increase mobility and traffic flows, thereby requiring more roads and innovative intelligent traffic management systems. In addition, with increasing electricity and solar cars, roads might need to be equipped with charging stations. Meanwhile, the burden of building transport infrastructure could be reduced by using drones to deliver goods. For example, Swiss WorldCargo is currently exploring the role of aerial vehicles to meet cargo transportation needs in Africa (Air Cargo World, 2014). Likewise, Zipline is running a project to develop drone delivery services in Rwanda by increasing the speed of deliveries, especially for health-related equipment for hospitals (BBC, 2016). In this context, there are predictions that drones could account for 10% to 15% of Africa’s transport sector in the next decade. However, many have pointed out that the current limited lifting capability of drones and the absence of regulatory frameworks are restricting the development of this new mode of transport (BBC, 2015).
In addition, developments in biofuel and nanotechnology could also have impact on transport infrastructure. For instance, as bio-aviation fuel is becoming more popular, airports are increasingly encouraged to incorporate biofuel into their refuelling process, which has been implemented in Los Angeles and Oslo airports. In the meantime, through nanomaterial-based catalysts and additives, fuel efficiency and environmental performance of cars have been significantly improved, thereby making this mode of transport more environmentally friendly. In this context, there is also a growing impetus to ban petrol and diesel vehicles, for instance, with the French Minister for Ecological and Solidary Transition recently introducing a plan to stop the sales of petrol and diesel cars in France by 2040 (Le Monde, 2017). As such, while road and air transportation may currently be less environmentally friendly than other modes of transport, their negative impact may be minimised in the future (OECD, 2017). Accordingly, development partners would have to bear in mind such technological and public policy developments when considering the trade-off between different transport modes.
Summary and conclusion
Many development partners regard transport connectivity as key to economic growth of developing countries and their integration in global trade. Therefore, they support regional or sub-regional transport connectivity plans based on their respective geographical focus or specific considerations such as landlocked developing countries, climate issues and transport safety. Furthermore, there are global and regional initiatives, including pooled funding facilities, which allow development partners to ensure coherence and co-ordination on transport connectivity projects among themselves and with partner countries.
However, there are issues specific to transport connectivity that development partners need to pay attention to. These include: trade-off between transport modalities; environmental and social concerns; geopolitical tensions; debt sustainability; broader trade and investment policies; and technological innovation for transport connectivity. To address these issues, development partners could support host governments in engaging all relevant stakeholders to co-operate better, including bilateral development partners beyond the DAC and new MDBs. Furthermore, they could enhance co-ordination through collective mechanisms such as the G20, the Global Infrastructure Connectivity Alliance, the International Transport Forum, and other international organisations for specific transport modes.
With respect to financing, developing countries themselves are the largest financiers of transport connectivity. Development partners contribute a small proportion of the overall spending, with different preferences from the private sector in terms of modes of transport, regions and income level groups. In particular, development partners tend to finance transport connectivity projects in countries that receive relatively small private investment due to higher risks. Nevertheless, there remains a significant investment gap in transport connectivity to meet the SDGs. Therefore, development partners are trying to mobilise investment from the private sector by ODF interventions, although the amounts are small. Furthermore, mobilisation generally takes place in higher income countries where the private sector tends to invest on its own. As such, development partners could consider how to better mobilise private investment and ensure development additionality to fill the financing gap, particularly in LMICs and LICs.
Moreover, development partners allocate significant amounts of ODF to help improve the enabling environment for businesses, such as building infrastructure beyond transport, enhancing the investment climate, and boosting the productive capacity for trade. In particular, the investment climate addresses areas such as dispute resolution, anti-corruption, taxation, land rights, labour rights, and so on. In this context, it is important to identify what kind of reforms work best in improving the enabling environment to attract private investment for transport connectivity. Here, one needs to bear in mind that effective reforms and capacity building to enhance private investment require a long-term perspective and strong collaboration among development partners, developing country governments, the private sector, and other stakeholders.
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Notes
← 1. Urban and small-scale transport projects are not covered in this study. In addition, transport connectivity here also includes trade facilitation projects that are aimed at removing impediments to international trade at the location of transport infrastructure, such as One Stop Border Posts (i.e. one stop customs inspection) projects, streamlining customs clearance and supporting customs union agreements.
← 2. The figures are for all modes of transport, representing the cost of international transport and insurance as a percentage of the cost, insurance, and freight value of the imported goods.
← 3. The Greater Mekong Sub-region includes Cambodia, Lao People's Democratic Republic, Myanmar, Thailand, Viet Nam, and Yunnan Province and Guangxi Zhuang Autonomous Region of the People’s Republic of China.
← 4. These include Albania, Belarus, Bosnia and Herzegovina, Former Yugoslav Republic of Macedonia, Kosovo, Moldova, Montenegro, Serbia, Turkey, and Ukraine.
← 5. The Ministry of External Affairs of India stated that “Regarding the so-called ‘China-Pakistan Economic Corridor’….. No country can accept a project that ignores its core concerns on sovereignty and territorial integrity.” in May 2017.