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Paving the Road to Growth

The extreme poor in Latin America’s rural communities live five kilometers or more on average from the nearest paved road – almost twice as far as non-poor rural households, resulting in difficult and very costly access to markets and needed services. Moreover, poor transport undermines Latin America’s international competitiveness. More than half of Latin American firms consider poor infrastructure to be a major obstacle to the operation and growth of their business.

One option is obvious: spend more (and more wisely) on infrastructure. On average, countries in Latin America and the Caribbean spend less than 2% of their GDP on infrastructure, while 3% to 6% is needed to sustain rapid growth and keep pace with countries like China or Korea.

Given scarce public funds and fiscal constraints, to increase spending, users must cover a higher share of the costs. This requires developing a payment culture, as well as providing a safety net for those citizens who cannot afford to pay.

The temptation to build “white elephants” should be avoided; projects should be chosen for their potential to increase productivity and competitiveness. For many nations, that will require developing institutions capable of conducting adequate planning, monitoring, and evaluation.