Inadequate Infrastructure

Inadequate infrastructure

In many cities in Africa and Asia, infrastructure has not changed much since colonial times. Large areas are not covered due to lack of investment and the systems deteriorated because maintenance has been neglected.

Inadequate infrastructure is a major obstacle for the development of the urban economy, and traffic congestion, communication problems and irregular supply of water and power can seriously reduce productivity.

Detailed survey in 2006 showed that manufacturing enterprises were frequently forced to invest in standby generators and their own wells (Table 6). In Lagos 92 percent of the enterprises surveyed had their own generators and 44 percent had their own bore holes. Those who cannot afford the investment had to live with the frequent disruptions in production. In Thailand, where public electric utilities are efficiently run, only 6 percent had private generators, but 24 percent still needed a private water supply. The additional cost was considerable and at the same time these investments were under utilized, operating at only 25-50 percent of the capacity. The costs of the infrastructure deficiencies generally were more severe for small firms, which we can considered as their main source of employment growth in most developing countries.

A recent world bank study for Urganda reached similar conclusions (Reinikka and Svenson). The respondents rank poor Utility service as a severe constraint to new investment, more severe than high taxes, poor tax administration, high interest rates, lack of access to finance, corruption, and the cost of raw materials.

Infrastructure deficiencies increases costs in several ways. To reduce the risk of supply interruption, manufacturers in developing countries feel obliged to keep raw material inventories that might be two to three times higher than the United States (Guasch and Kogan, 2003). Real interest rates, which are at least twice as high, make the burden of excessive inventories worse for the industry.

As Economic and trade reforms lower protective barriers and expose firms in developing countries to increase global competition, the quality of urban infrastructure will become more significant. In many of the rapidly growing economies in East Asia, direct foreign investments and global competition are creating new patterns of development   in the form of extended urban regions.