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Why infrastructure is key for growth

Setting up and sustaining infrastructural facilities forms vital business activity and economic multiplier effects

Section of Highway corridor linking Kenya and Ethiopia

By MURIITHI NDEGWA

How much does infrastructure contribute to economic growth and does infrastructure really matter? Debates and researches show that the relationship between infrastructure and economic growth are quite complex.

Numerous studies have been conducted to examine the long-term effect of public infrastructure on total factor productivity and growth in developing countries, but few are convincing. This is according to The World Bank in a Research Digest article published in 2011. The importance of infrastructure development in industrial take-off and economic growth cannot be underplayed. In the first forty years of independence, for example, Kenya learned the importance of infrastructure the hard way, when, way back, local businesses were hampered by lack of water, unreliable electricity, roads, and telecommunications.

Indeed, as Organisation for Economic Co-operation and Development (OECD) argued in 2006, investment in infrastructure such as energy, water, transportation and communication technologies promotes economic growth, helps to alleviate poverty and improves living conditions in developing countries. The intensity of infrastructure development directly determines a country’s investment attraction and it’s competitiveness. Moreso, setting up and sustaining infrastructural facilities forms vital business activity and economic multiplier effects.

This is why researchers, policy makers and economists treat infrastructure as one of the main pillars when ranking countries in terms of competitiveness.

Does infrastructure matter?

According to a journal article titled Public Capital and Economic Growth: A Critical Survey; while there is more consensus that public capital positively affects economic growth, the impact seems to be lower than previously thought. This has been used as a guide on the raging debates on how much infrastructure matters. However, researchers note that the level of infrastructure needed differ from region to region.

For Sub-Saharan Africa, according to the research conducted collectively by the donors’ community, the estimated spending needs are USD93 billion (KSh9.4 trillion) a year or 15 per cent of the region’s GDP, about 10 per cent in investment and 5 per cent in operation and maintenance.

The benefits

While it may take time for benefits to be felt, there is a direct link between infrastructure development and economic growth. Kenya, for instance, has over the last decade made great strides in the development of infrastructure and as a result, successfully positioned itself as the preferred destination for business investment in East Africa.

The current government has prioritized infrastructure development to spur economic growth, create jobs especially for the youth and improve Kenyans’ living standards.

Muriithi Ndegwa, OGW, HSC, FKIM, KIM Executive Director/ CEO. Email: mndegwa@kim.ac.ke Twitter: @MuriithiNdegwa

 

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