August 17, 2017

Infrastructure spending by governments, of which road construction is a major part, is often touted as one method to boost national economies. It adds to GDP, creates employment and can lead to follow-on economic and social gains. Poor infrastructure in Africa is often cited as one of the major impediments to economic growth. Does this mean road construction by government is always sound policy, always to be applauded?

A recent drive along Sierra Leone's new Lunghi-Port Loko highway revealed some forty miles of immaculately laid-out tarmac, smooth and well-marked, connecting the country's sole international airport with one of its principal towns. It cuts through terrain that is overwhelmingly bush, interspersed very, very occasionally by a few modest dwellings. Traffic on the road was exceedingly light; stretches of several miles regularly went by without sight of another vehicle. The road was built (actually upgraded, as a poorly-maintained link had been in existence for many years) at a projected cost of almost 40 million US dollars, a grant from the African Development Bank's Fragile States Fund. Was this, or indeed other investments like this around Africa, a sound investment?

We are often told that the life of a well designed and constructed road is 30 years. The hope, no doubt, is that during this period the road can be seen to have "paid for itself" in some fashion.  In the strict economic sense, it is hoped that the road would spur additional economic activity that would eventually exceed the cost of the road itself and justify the initial investment. In its project appraisal report (April 2009), the ADB claims a 16% rate of return for the project, although we are not shown exactly how this figure is arrived at. When the British built the railway in Sierra Leone in the early 1900s they sought out cocoa, coffee and palm kernel producing areas that would provide a ready economic base for the new railroad. In the case of Sierra Leone's newest highway, no such base is apparent. The projection during the project appraisal was that the road would stimulate agricultural activity in the surrounding areas, which are flat and green, apparently prime agricultural land. No such stimulus appears to have taken place since the completion of the highway in 2013. The most prominent agricultural feature along the route are tall and very old coconut trees, apparently the dying remnants of some ancient plantation. The hope that a new highway on its own, absent other enabling conditions, might stimulate agricultural production appears to be a forlorn one. Sierra Leone has several other highways, including the Masiaka-Waterloo road that completes the journey into Freetown, that prove this point.

For a developing country with limited funds each dollar spent needs to be carefully analyzed for economic efficiency. Could this money be better spent elsewhere? Is this the best use of scarce resources? One should thus look at that forty million US dollars and determine whether greater gains could have been secured elsewhere:

Education With university fees of around Le10,000,000 (USD 1,300) per annum, let's assume for argument's sake that it costs USD 10,000 to train a graduate - hopefully an engineer, doctor, scientist or other STEM professional. Let's also assume that the new graduate commands a premium of Le1,500,000 (USD 200) monthly in additional salary over his untrained counterpart. One could quibble with the specific figures, but the attempt here is to gain an approximate picture - the figures need not be precise. Thus the new graduate earns 12x200 = USD 2,400 in additional annual income over his untrained counterpart. Now that USD 40 million spent on the road could instead, at 10,000 USD per graduate, have been used to train 4000 graduates. In total, those 4000 graduates would earn 4000x2,400 = USD 9.6 Million per annum in additional income over their untrained counterparts. In a little over four years time this increased income would have exceeded the initial amount spent to train them. (Yes, the increased income is to individuals as would be any increased agricultural revenue) From our trip along the Lunghi - Port Loko highway it seems extremely unlikely that the new road on its own will stimulate income even remotely approaching these figures for many years to come. True, there are many assumptions in this analysis - the new graduates may not find employment, but this applies also to the untrained, who over the years are probably more likely to be unemployed than the graduates. And the wage differential - the difference in income earned between trained and untrained - probably increases as the years go by. True, the new graduates may decide to seek greener pastures abroad and this would represent  a serious loss, mitigated only somewhat by whatever homeward remittances they might make whilst abroad and whatever additional training and experience they might later return with. The point however is that, unless we have determined to breed a nation of uneducated, the potential returns on investment in education are far, far greater than investment in some road construction.

One could make similar arguments in other spheres, particularly well-planned investments in agriculture and industry. The point here is not to argue that we don't need additional road construction. We do. But that construction needs to be well planned, underpinned by a solid economic base. To simply argue that because we have constructed a road from point A to point B we have "brought development" is simplistic. In thirty or forty years time some of these roads would be at the end of their design life with very little to show for their existence.