Most estimates of global infrastructure spend do not account for either the additional
cost of making infrastructure more resilient to the effects of climate change or of
lessening the impact of infrastructure on the environment. A significant proportion of
infrastructure around the globe has not been hardened against rising sea levels and
more frequent extreme weather events. The tsunami that hit parts of Asia in December
2004 damaged or destroyed houses, buildings, roads, bridges, and other physical
infrastructure. In Aceh, Indonesia alone, the estimated costs of infrastructure damage was
US$ 1.4 billion. Additional infrastructure to address growing demand can often threaten
fragile ecosystems and pose new design and engineering challenges that will add further
cost to ensuring they pass the tough environmental scrutiny. The environmental costs
of infrastructure development in some developing countries have already reached an
estimated 4 to 8 per cent of their GDP, with the effects falling disproportionately on the
poor.
Box 1A. Indonesia
Indonesia’s infrastructure challenge is the key impediment to reaching a potential
GDP growth rate of 8 per cent, according to the McKinsey Global Institute4. The
government has repeatedly acknowledged that Indonesia needs around US$ 30 billion
annually (4 per cent of GDP) in infrastructure investment for the next 5 years. Land
infrastructure is concentrated on the island of Java, home to about 60 per cent of
the population; a road network that needs to be at triple its current capacity has seen
limited expansion in the last decade.
The government has begun to address these challenges in several ways, including
setting up a national inter-ministerial committee for the acceleration of infrastructure
projects. Law and regulation changes as well as new initiatives are being instituted
to enable faster infrastructure development. Examples include the “fast-track”
electricity development programmes (2006), private sector participation in electricity
(2009), and most recent land acquisition law (2012). Government spending on
infrastructure in nominal terms has been on the rise, but it has consistently stayed well
below 2 per cent of GDP. While these enablers are in the right direction, they have
been insufficient in catalysing the infrastructure development that the country so
desperately needs.