A NEW study by the Inter-American Development Bank (IDB) charts a course for a massive infrastructure transformation in Latin America and the Caribbean through gains in efficiency, use of digital technologies, and a focus on quality and affordability of consumer services rather than structures.
The study, “From Structures to Services: the Path to Better Infrastructure in Latin America and the Caribbean,” says that even small improvements in service efficiency by increasing digitalisation and other actions can boost growth by 5.7 percentage points over a 10-year period.
For Latin America and the Caribbean, this represents about US$325 billion in additional income over years.
According to the study, infrastructure improvements will reduce inequality and help vulnerable populations especially hard hit by the Covid-19 pandemic.
“As service efficiency increases and prices drop, the incomes of the poorest people would increase 28 per cent more on average than the incomes of the rich over ten years,” the report finds.
“Infrastructure will be a critical component as we build our post-pandemic economies and aim to reduce inequality,” said IDB Chief Economist Eric Parrado. “Budgets will be tight, so we must invest wisely and sustainably. Our report recommends areas where government policies can promote innovations and bring a service-oriented vision to infrastructure.”
The IDB said: “From Structures to Services: the Path to Better Infrastructure in Latin America and the Caribbean” is part of its “Development in the Americas” flagship series and the result of a multi-year investigation into the latest trends in water, energy and transportation sectors and how they can be incorporated by countries in Latin America and the Caribbean.
The IDB said the region suffers from large infrastructure gaps with wealthier economies.
It said the region invested 2.8 per cent of its gross domestic product (GDP) in infrastructure over the last decade, half the level of emerging Asia.
“For too long we’ve focused on bricks, pipes and other hard assets,” said Agustín Aguerre, IDB’s manager for the Infrastructure Department. “Digital technology allows us to better understand how people use our roads, consume electricity and water. Our future infrastructure will be cheaper, more sustainable and better serve our citizens.”
The study says the region performs well in terms of basic measures of access but poorly in terms of the quality of services.
For instance, it says the average commuting time in the region’s big cities is 90 minutes.
The report says the region also lags in internet penetration, adding that download speeds in Latin America and the Caribbean are 10 times slower than in Organization for Economic Cooperation and Development (OECD) countries.
In addition, the report says low quality of services, households and firms face high prices.
It says the poorest 50 per cent of households spend 14 per cent of their income on water, energy and public transport – 30 per cent more than in the other developing regions.
Additionally, the report says consumers spend more on water, electricity and other services in Latin America and the Caribbean, despite governments providing close to 1 per cent of GDP annually in operational subsidies to service providers.
To rectify these shortfalls, the study envisions a future in which investments take into account the region’s rich natural capital, in which individuals, firms and even cities and regions are more empowered over centralised authorities or utilities thanks to technological innovations.
“This decentralisation is a powerful incentive for households and firms to adapt, for instance, renewable energy,” the report says.
It says smart metres allow customers to track the quality of the water they receive, monitor their consumption, learn about their water-use patterns, pinpoint ways to be more efficient and better understand their bills.
“This is critical in a region where 35 per cent of the population live in areas of moderate to high levels of water stress,” the study says.
GDP would be 1.2 per cent higher over 10 years if 30 per cent of car and bus fleets were powered by electricity, according to the report, which reviews the potential impacts in autonomous, connected, electric and shared vehicle technology.
The report says project execution also has room for improvements.
It says cost overruns and time delays account for 35 per cent of the total public investment in the region, or the equivalent of 0.65 per cent of the region’s GDP.
The study says drones and satellite technologies, among others, could be used to improve the planning and engineering phases of construction projects.
Emerging technologies could reduce project costs by between 10 per cent and 50 per cent, the study estimates.
It also says that technology will not just bring greater efficiency and reduce prices but will change the very nature of markets for services.
“These gains will only be realised if policies and regulations adapt,” the report says.
It urges ministries and agencies that regulate energy, transport and water to update regulatory frameworks to make the most of digitalisation opportunities and to ensure greater competition leads to tangible benefits for consumers.
The study says only one-third of countries in the region enacted or updated laws to regulate the communications sector after 2010, while half of the countries have laws that were enacted in the 20th century and have been only partially updated since.
In light of climate change, it says electricity pricing structures will need to shift from a pricing scheme based on the volume demanded “to one with a higher fixed component to cover the investment required to expand and maintain the electricity transmission and distribution network.
“As Latin America and the Caribbean speeds from structures to services,” the report argues, “regulators must act now to catch the train and keep the process on track to better infrastructure in the region.”