Headline numbers on infrastructure investments needs usually highlight the quantity of infrastructure required to sustain economic growth. But a higher quantity of investment may not necessarily translate to greater returns from infrastructure in the long run.
Equal attention should be devoted to the quality of the infrastructure that is built. After all, higher-quality infrastructure is generally more durable, resilient, and efficient.
ADB’s recent report Meeting Asia’s Infrastructure Needs calculates that developing Asia needs investment of $1.7 trillion per year until 2030 to build infrastructure of sufficient quality and resilience to withstand the impacts of climate change.
Quality infrastructure may cost more in the beginning, but is worth the extra investment. Infrastructure of lower quality tends to deteriorate faster, making it more expensive to maintain, and eventually replace. In other words, you get what you pay for.
Road quality – developing Asia vs. OECD
To demonstrate the importance of adjusting for quality in infrastructure investment, we present a simple illustration using different types of roads. It shows how future infrastructure investment needs that consider quality may diverge from estimates that only take quantity into account.
We draw on data from the International Road Federation about four types of roads: (i) motorways; (ii) highways, main or national roads; (iii) secondary, regional roads; and (iv) other roads. In this exercise, we consider motorways as the only high-quality road type, and ignore “other roads.”
Our comparison model is the Organization for Economic Cooperation and Development (OECD). OECD countries enjoy a larger proportion of high-quality roads than countries in developing Asia. Let’s compare road densities—measured by road length to land area—in developing Asia and OECD countries.
We begin our comparative exercise by estimating two types of composite road densities for developing Asia (excluding the People’s Republic of China) and for OECD countries. First, we derive the “unadjusted road density” by taking a simple sum of road densities for each type of road. Then, we come up with an “adjusted road density” by putting a larger weight on motorways.
An analysis of several ADB projects suggests that a kilometer of motorway costs about double the sum for a kilometer of highway, main or national road and secondary, regional roads. We therefore calculate the adjusted road density from twice the density for motorways plus the sum of the road densities for the two other types of roads.
We can then compute the differences between developing Asia’s average and the OECD average for both unadjusted and adjusted average road densities. Our exercise suggests that there is a 9.05 km per 10,000 km2 difference between adjusted and unadjusted road densities based on our model.
If we apply this gap to developing Asia’s land area and assume a uniform unit cost, this would mean that there is an additional 90,026 km worth of roads that needs to be financed for developing Asia to meet the OECD’s quality-adjusted road density level.
The gap is driven by the higher proportion of motorways in the OECD relative to developing Asia.
Adjusting for quality matters
Our simple illustration using road density demonstrates that we need to adjust for quality when estimating infrastructure investments.
Failure to consider quality may result in a persistently large gap between a country’s true infrastructure investment needs, and how much it currently invests or should invest in the future.
Applying the same principle to other types of infrastructure assets could reveal a clearer picture of how much investment a country might actually need. For instance, we could look at data on electricity distribution losses to adjust for quality in energy infrastructure, or at broadband internet speeds in telecommunications.
In any case, adjusting for quality matters. If countries in Asia and the Pacific truly want to close their infrastructure gap, future investments should avoid scrimping on quality.
Low-quality infrastructure can be seen as better than no infrastructure at all. But in the long run, only high-quality infrastructure can sustain the region’s sustainable economic growth.
Any reckoning of the region’s future infrastructure investment needs must take this into account.
This blog relates to the 2017 ADB Annual Meeting seminar Future Prospect of Quality Infrastructure Projects in Asia through Public-Private Partnership. Follow the 2017 ADB Annual Meeting on Twitter @ADB_HQ using the hashtags #ADBYokohama and #ADB50.