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ECOF I NT H E E C O N O M I C A N D F I N A N C I A L C O M M I T T E E

National High School Model United Nations

March 6 - 9, 2013

N H S M U N 2 0 1 3

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Hannah OlliffSecretary-General

Georgia Institute of Technology

Bonnie PhamDirector-GeneralWilliams College

Delia SolomonConference Director

Emory University

Puja DullabhChief of Staff


Elizabeth KirschenbaumChief of External Relations

George Washington University

Charles SollDirector of Security

Universit Paris-Sorbonne AbuDhabi

Russell PildesChief of Administrative

AffairsUniversity of Illinois at

Urbana-Champaign

Heather HedgesUnder-Secretary-General

Georgetown University

Maggie LawrenceUnder-Secretary-General

Trinity College

Ryan YouraUnder-Secretary-General

American University

Courtney LeNoirUnder-Secretary-General

New York University

CJ StavrakosUnder-Secretary-GeneralUniversity of Pittsburgh

NHSMUN is a project of theInternational Model United Nations

Association, Incorporated (IMUNA).IMUNA, a not-for-profit, all volunteerorganization, is dedicated to furthering

global issues education at the secondaryschool level.

NATIONAL HIGH SCHOOL MODEL UNITEDNATIONST h e 3 9 t h A n n u a l C o n f e r e n c e M a r c h 6 9 2 0 1 3

November 2012

Dear Delegates,

It is my absolute pleasure to welcome you to NHSMUN 2013 and more importantly to t

General Assembly! My name is Heather Hedges, and I am the Under-Secretary-General fthe General Assembly Main Committees (GA Mains). I can honestly say that there is a specplace in my heart for GA Mains, as this is my fourth year that I have spent with Mains NHSMUN. As a delegate, I was a member of the Legal Committee and in my first year ostaff I was the Assistant Director of the Disarmament and International Security Committ(DISEC). Most recently, I was the Director of DISEC for NHSMUN 2012.

Before I continue introducing NHSMUN and GA Mains, I would like to take this time to tyou a little bit more about myself. I am a proud alumna of Mira Costa High School Model Uin Manhattan Beach, where I served as Secretary-General of our intermediate conferenduring my senior year. I am now a junior at Georgetown University in Washington, D.

studying International Political Economy and earning a certificate in Justice and Peace Studiin the Edmund A. Walsh School of Foreign Service. My particular interests within both theprograms are human rights, international law, and development. Aside from academics, I aalso involved in Model UN at Georgetown and have spent the last two years directing Gcommittees at both our high school and college conferences. In total, this will be my sevenyear of Model UN experience. In my free time, I enjoy dancing with the Georgetown IriDance Team, running to the National Mall, baking, and cheering on the Georgetowbasketball team with fellow Hoyas.

Back to NHSMUN, I would like to express how excited I am that you will all be a part of sucan amazing experience this March. Your Director and Assistant Directors have been workin

tremendously for several months in order to craft unique and intriguing simulations in each your committees, and I could not be more confident in their ability to guide you throughothe conference as you collaborate to solve these critical issues. In my time a delegate anstaffer, NHSMUN has offered me the most incredible educational and personal experiencand I know that you will all be a part of yet another incredible year for me. I hope that you towill enjoy NHSMUN and leave the conference with some lasting memories and greatenthusiasm for international affairs.

On behalf of the entire GA Mains staff, I again welcome you to NHSMUN 2013 and ensuyou that each and every one of us is eager to assist you in this exciting learning experiencPlease do not hesitate to contact me, your Director, or your Assistant Directors, with anquestions you may have. I am always available for you, and I do not exaggerate in saying thatexcitedly anticipate meeting you all in March!

Happy researching!

Heather HedgesUnder-Secretary-General, General Assembly Main [email protected]

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Hannah OlliffSecretary-General


Bonnie PhamDirector-GeneralWilliams College

Delia SolomonConference Director

Emory University

Puja DullabhChief of Staff


Elizabeth Kirschenbaum

Chief of External RelationsGeorge Washington University

Charles SollDirector of Security

Universit Paris-Sorbonne AbuDhabi

Russell PildesChief of Administrative

AffairsUniversity of Illinois at

Urbana-Champaign

Heather HedgesUnder-Secretary-General

Georgetown University

Maggie LawrenceUnder-Secretary-General

Trinity College

Ryan YouraUnder-Secretary-General

American University

Courtney LeNoirUnder-Secretary-General

New York University

CJ StavrakosUnder-Secretary-GeneralUniversity of Pittsburgh

NHSMUN is a project of theInternational Model United Nations

Association, Incorporated (IMUNA).IMUNA, a not-for-profit, all volunteerorganization, is dedicated to furthering

global issues education at the secondaryschool level.

NATIONAL HIGH SCHOOL MODEL UNITEDNATIONST h e 3 9 t h A n n u a l C o n f e r e n c e M a r c h 6 9 2 0 1 3

November 2012

Dear Delegates,

I would like to take this opportunity to personally welcome you to NHSMUN 2013! My namis Amy Chou, and I will be your director for the Economic and Financial Committee, thsecond committee of the General Assembly. I am extremely excited for the opportunity discuss two interesting and relevant topics for this upcoming session of ECOFIN. Botopics, Facilitating Infrastructure Development in the Developing World and Bridging tIncome Gap, are highly relevant topics that are currently being highlighted within the UnitNations and among the members of the international community. These topics hagrandiose implications for the future of development in many countries, and I look forward helping you develop ideas, research, and understand these topics.

A little more about my NHSMUN history: ECOFIN is very close to my heart, as it was m

first committee as a high school delegate and my first staffing experience as an AssistaDirector. Currently, I am a sophomore studying economics and political science at tUniversity of Chicago. Besides NHSMUN, I am active with the Model United Nations at tUniversity of Chicago, and am chairing ECOFIN there as well! In my down time, I enjkeeping up with current events, rock climbing, designing clothes for the school fashiorganization, and talking to anyone that will listen!

As a student of economics, I understand the nuances and difficulties of the topics at hand. invite you to email me with any questions that may arise during your research. I would alrecommend that you research basic economic terms and concepts prior to the conferencHaving spent a little too much time researching and reading about both of these topics

would love to be a resource for you during your own research. Be sure to keep up with tnews, visit your local library, or google the topics frequently! If you cannot tell, I aextremely passionate about both these topics, but I understand the amount of research anpreparation required to truly understand and debate these topics. I welcome questions afriendly emails all year long, and I cannot wait to meet you all in March!

Sincerely,

Amy ChouDirector, Economic and Financial [email protected]

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National High School Model United Nations 2013Economic and Financial Committee

TABLE OF CONTENTS

A Note On the NHSMUN Difference ......................................................... .......................................... 2

A Note on Research and Preparation ........................................................... .......................................... 4

Committee History ................................................................................................................................. 5

Simulation ............................................................................................................................................... 6

Topic A: Facilitating Infrastructure Development in the Developing World ........................................ 8

Introduction .................................................................................................................................................................... 8

History and Description of the Issue .......................................................................................................................... 9

Current Status .............................................................................................................................................................. 24

Bloc Analysis ................................................................................................................................................................ 26

Committee Mission ..................................................................................................................................................... 29

Topic B: Bridging the Income Gap .................................................... .................................................. 31

Introduction ................................................................................................................................................................. 31

History and Description of the Issue ....................................................................................................................... 31

Current Status .............................................................................................................................................................. 40

Bloc Analysis ................................................................................................................................................................ 42

Committee Mission ..................................................................................................................................................... 47

Appendix A: Figures for Topic B ....................................................... .................................................. 48

Figure 1: The Lorenz Curve ....................................................................................................................................... 48

Figure 2: Gini Coefficients and Levels of Income Inequality .............................................................................. 49

Research and Preparation Questions ................................................................................................... 50

Topic A ......................................................................................................................................................................... 50

Topic B .......................................................................................................................................................................... 50

Important Documents .......................................................................................................................... 52

Topic A ......................................................................................................................................................................... 52

Topic B .......................................................................................................................................................................... 53

Bibliography ......................................................................................................................................... 55

Committee History ...................................................................................................................................................... 55

Topic A ......................................................................................................................................................................... 55

Topic B .......................................................................................................................................................................... 63

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ANOTE ON THE NHSMUNDIFFERENCE

Esteemed Faculty and Delegates,

Hello and welcome to NHSMUN 2013! My name is Bonnie Pham, and I am the Director-Generalof NHSMUN 2013. I hope you are as excited as I am to experience this years conference. Our staffhas been working all year to ensure that you have an engaging, substantially accurate, and rewardingexperience in committee. NHSMUN strives to assure that the quality of our debate and in-committee interaction is unmatched. In order to fulfill this mission, our conference has adoptedsome practices that may seem unorthodox, but we feel that they are key to the continued tradition ofexcellence in our committees and the NHSMUN difference.

A Note on the NHSMUN Difference

NHSMUN prohibits the usage of personal electronics during committee in order to ensure thatdelegates do not gain an unfair advantage in debate. We feel strongly that the interpersonalconnections made during debate are enhanced by face-to-face communication. Enforcing a strict nolaptops policy also helps us to ensure that all our delegates have an equal opportunity to succeed incommittee. While many delegates have laptops or tablets at home, NHSMUN serves students froma diverse range of backgrounds, some of whom cannot afford the technology that many studentshave become accustomed to.

The Dais is permitted a laptop for the purposes of communicating with respective Under-Secretary-Generals and other Senior Staff Members as well as attending to administrative needs. The Dais willonly be limited to using their laptops for NHSMUN purposes, and the majority of their focus will be

on the needs of the committee. In addition, we staff a dedicated team in our office to assist in typingand formatting draft resolutions and working papers so that committee time can be focused ondiscussion and compromise.

An additional difference that delegates may notice about NHSMUN is the committee pacing. Whileeach BG contains two topic selections, NHSMUN committees will strive to have a fruitfuldiscussion on and produce resolutions on a single topic; prioritizing the quality of discussion overquantity of topics addressed. In order to respect the gravity of the issues being discussed at ourconference as well as the intellect of our delegates, NHSMUN committees will focus on addressingone topic in-depth. BGs contain two topics in order to allow delegates to decide what problemought to be prioritized, a valuable discussion in and of itself, and to safeguard against the possibilitythat an issue will be independently resolved before conference.

NHSMUN uses a set of the Rules of Procedure that is standardized across all IMUNA-brandconferences. These rules provide a standardized system of operation that is easily translated acrosscommittee or conference lines. While the general structure and flow of committee will be familiar toany delegate who has previously participated in Model UN, there may be slight proceduraldifferences from other conferences. All delegates are encouraged to review the Rules of Procedurebefore attending the conference in the Delegate Preparation Guide and are welcome to directquestions to any member of NHSMUN Staff.

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While NHSMUN does distribute awards, we feel that it is crucial to de-emphasize their importancein comparison to the educational value of Model UN as an activity. NHSMUN seeks to rewarddelegations that excel in the arts of compromise and diplomacy. We always prioritize a dedication toteamwork over solitary achievement. Directors will judge delegates on their ability and willingness tocooperate with their peers while always maintaining an accurate representation of country policy.

At the core of the NHSMUN philosophy is an emphasis on education and compromise. As such,we do not distribute awards to individual delegates, with the exception of committees wherestudents represent their own separate delegation (ICJ and UNSC, for example). Rather, awards willbe distributed to delegations that exhibit excellence across all committees. The awards system isstandardized so as to give equal weight to delegations of all sizes. Awards will also be offered forschools that demonstrate excellence in research and preparation based on the position paperssubmitted by their delegates. Detailed information on the determination of awards at NHSMUN willbe available in Faculty Preparation Guide and online in November.

As always, I welcome any questions or concerns about the Substantive Program at NHSMUN 2013and would be happy to discuss NHSMUN pedagogy with faculty or delegates. It is my sinceresthope that your experience at NHSMUN 2013 will be challenging and thought provoking.

Best,

Bonnie PhamDirector-General, NHSMUN [email protected]

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ANOTE ON RESEARCH AND PREPARATION

Delegate preparation is paramount to a successful and exciting National High School Model UnitedNations 2013 Conference. We have provided this Background Guide to introduce the topics thatwill be discussed in your committee; these papers are designed to give you a description of the topicsand the committee. However, this Guide is not intended to represent exhaustive research on everyfacet of the topics. We encourage and expect each delegate to fully explore the topics and be able toidentify and analyze the intricacies of the issues. Delegates must be prepared to intelligently utilizetheir knowledge and apply it to their own countrys policy. You will find that your state has a uniqueposition on the topics that cannot be substituted for or with the opinions of another state.

The task of preparing and researching for the conference is challenging, but it can be interesting andrewarding. We have provided each school with a copy of the Delegation Preparation Guide. TheGuide contains detailed instructions on how to write a position paper and how to effectively

participate in committee sessions. The Guide also gives a synopsis of the types of research materialsand resources available to you and where they can be found.

An essential part of representing a state in an international body is the ability to articulate that statesviews in writing. Accordingly, it is the policy of NHSMUN to require each delegate (or double-delegation team) to write position papers. The position papers should clearly outline the countryspolicies on the topic areas to be discussed and what factors contribute to these policies. In addition,each paper must address the Research and Preparation questions at the end of the committeeBackground Guide. Most importantly, the paper must be written from the point of view of thecountry you are representing at NHSMUN 2013 and should articulate the policies you willespouse at the conference. All papers should be typed and double-spaced. The papers will be read by

the director of each committee and returned at the start of the conference with brief comments andconstructive advice.

Each delegation is responsible for sending a copy of their papers to the committee directors via ouronline upload process on or beforeJanuary 24, 2013. Complete instructions for online submissionsmay be found in the Delegate Preparation Guide. If delegations are unable to submit an onlineversion of their position papers, they should contact the Director-General ([email protected])as soon as possible to find an alternative form of submission.

Delegations that do not submit posit ion papers to directors or summary statements to the

Director General wil l be ine l ig ible for awards.

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COMMITTEE HISTORY

The second of the six General Assembly Mains Committees, the Economic and FinancialCommittee is the primary economic body of the United Nations (UN). Founded as a standingcommittee of the General Assembly by the UN Charter of 26 June 1945, it is purposed to promoteinternational co-operation in the economic field.1Its mandate is to consider all relevant internationaleconomic issues such as macroeconomic policy, trade statute, sustainable development,globalization, poverty eradication, and technological progress.2 Chaired by H.E. Mr. AbulkalamAbdul Momenof Bangladesh, ECOFIN has devoted its past few sessions to groups of countries inspecial situations, including specific classes of countries such as Least Developed Countries (LDCs)and Landlocked Developing Countries (LLDC), and, along with the entire General Assembly,consider the Palestinian peoples claim to permanent sovereignty in the Occupied Palestinian

Territories, including East Jerusalem, with a specific focus on the use and distribution of resources.In its past session, ECOFIN finalized 44 resolutions in several unprecedented areas, including astance on external national debt and addressing key trade and developmental issues. 3 While mostexperts consider UN resolutions to be recommendatory and non-binding in nature, some keyeconomic decisions are included in Resolution 55/56, which created the Kimberly ProcessCertification Scheme to certify diamonds as non-conflict, and Resolution 1962, which laid thegroundwork for the landmark Outer Space Treaty. Both of these examples illustrate that economicresolutions work best when they specify a broad-based regulatory or advisory framework that can beimplemented successfully by member states or non-governmental organizations.

ECOFIN is part of the larger General Assembly, the main deliberative organ of the UnitedNations,4and as such, resolutions passed in this committee have the support of a far greater bloc ofnations than in other international financial organizations such as the International Monetary Fund(IMF), the World Trade Organization (WTO), and the World Bank. While these organizationscertainly play a large and more active role than ECOFIN in the global economy, their votingconstituencies are both substantially smaller than that of the General Assembly and either cater tospecific interests, or utilize special voting systems. In ECOFIN however, each of the 192 memberstates of the UN General Assembly has one vote, giving an equal voice to each sovereign entity,large or small, developed or developing. Despite the lack of monetary leverage, given the weightbehind each resolution, decisions made in this forum dictate the policies of other more activeorganizations such as the International Monetary Fund, World Bank, and World TradeOrganization. It is for this reason that decisions made at ECOFIN have such wide-ranging effects.

1Charter of the United Nations, United Nations, accessed 27 May 2011, www.un.org/aboutun/charter/.2Second Committee, Second Committee, accessed 27 May 2011, http://www.un.org/en/ga/second/.3ibid.

4General Assembly of the United Nations, United Nations, accessed 11 27 May 2011,

http://unclef.com/en/ga/about/index.shtml.

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SIMULATION

As members of the Economic and Financial Committee (ECOFIN), delegates will represent theviews of their respective countries throughout the duration of our debate on both Bridging theIncome Gap and Facilitating Infrastructure Development. Delegates will be responsible forcollaborating to develop resolutions for these two issues while remaining within the mandate ofECOFIN. While these topics are new to ECOFIN, all resolutions created will need bear in mindthat the goal of ECOFIN is to promote international peace and security. The beauty of theNHSMUN conference is its ability to offer delegates a hands-on global education and to allow themto experience a real work environment they would be unable to experience elsewhere.

Upon arriving in committee, delegates will be introduced to the members of the dais the Director

and two Assistant Directors. After spending the past year writing the background guide and updatepapers, the Director and both Assistant Directors are substantive experts on all matters ECOFIN,and delegates should use them as knowledgeable resources throughout the conference. As veteransof parliamentary procedure and committee simulation, the role of the dais is to ensure that delegateshave a realistic, educational, and enjoyable experience at NHSMUN. Should delegates have anyquestions on either procedural or substantive matters, they should not hesitate to approach anymember of the three members of the dais for assistance.

After delegates have been introduced to the dais, they will first debate the setting of the agenda andthen progress to substantive debate, which will deepen and progress throughout the followingsessions. In a committee of this size, collaboration and decorum are essential for each and everysession. Formal debate consists of delegates adding themselves to the Speakers' List to be formallyrecognized before the rest of the committee for a specified length of time. When delegates appearbefore the committee, it is their opportunity to give an overview of their countrys position as wellas accept questions from other delegates for clarification on policy or solutions. It is imperative thatdelegates remain respectful of others during this time and observe all procedural rules in order fordelegates to be heard and for the speakers list to flow smoothly.

While formal debate is a key portion of our simulation, the majority of debate in ECOFIN will takeplace in caucus format. Caucusing can be done in one of two ways moderated or unmoderated.Moderated caucuses flow similarly to formal debate. Delegates' speaking times are often shorter, andeach caucus has a specific topic delegates must discuss in their comments. Unmoderated caucusessuspend formal rules of debate for a designated period of time during which delegates are free to

move around the room and informally discuss policy and potential solutions directly with otherdelegates. The majority of writing for working papers and resolutions will occur during theseunmoderated caucuses.

Another unique feature of ECOFIN as a committee of the General Assembly is the process bywhich its working papers and resolutions are created. Solutions start out as a set of ideas, areformatted into a working paper, then voted upon as draft resolutions, and finally presented asresolutions in plenary if passed in committee. Delegates will be given more details about theresolution process through an online blog closer to the conference date, but they should keep in

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mind that there is this specific structure they must follow. The length of the resolution-writingprocess, the number of delegates in ECOFIN, and the capabilities of NHSMUN Admin will limitthe number of resolutions that can be introduced, making collaboration and compromise essential.The two most important things for delegates to keep in mind throughout debate are decorum andcountry policy. As a committee of the General Assembly, ECOFIN includes delegates from eachmember state of the United Nations; hence, it is one of the largest committees. Each delegate will begiven equal opportunity to speak before the committee and granted each members undividedattention. Parliamentary procedure and decorum will be respected at all times, without exception.The alteration or suspension of rules may occur at the discretion of the dais in order to maintaincontrol of the committee and to preserve decorum and respect for all delegates. Additionally,delegates are to keep in mind that country policy is the anchor for all proposals both presented andsupported by the delegate. Although collaboration is the goal, it is always secondary to the integrityof a delegates country policy. The desire to compromise should never supersede ones ability touphold his or her countrys stance on the issue. With this in mind, apt preparation for committee onpolicy, background, and potential solutions is imperative in order for all delegates to maintain quality

debate and to remain on task at all times.

Debate in ECOFIN will culminate in a plenary meeting at the final session during which timeECOFIN delegates will meet with their counterparts in the other committees of the GeneralAssembly to vote. Only working papers that have passed in each individual committee will bepresented as resolutions in plenary and voted upon by the entire body. This plenary sessionsimulates the workings of the real UN in that delegates see how ECOFIN is able to makerecommendations that unite the entire membership of the UN when resolutions are adopted. Likein the UN, the quality of resolutions presented before the plenary body is a direct reflection of thedelegates work inside and outside of the committee. These resolutions rely heavily upon thedelegates ability to work diligently and to collaborate respectfully on proposals for the topics at

hand, and will help to make NHSMUN 2013 a great year for ECOFIN and NHSMUN as a whole.

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TOPICA:FACILITATING INFRASTRUCTURE

DEVELOPMENT IN THE DEVELOPINGWORLD

INTRODUCTION

In 2012, the Group of 20 (G-20) countries met in Los Cabos, Mexico and affirmed theircommitment to development, stating that, investment in infrastructure is critical for sustainedeconomic growth, poverty reduction, and job creation.5 Infrastructure provides the basis forgrowth by providing the fundamental supports for it. Oftentimes, infrastructure is a capital good, ora means of production, which provides the means to which money is made and goods and servicesare produced.6 In essence, the infrastructure acts as the tools to economic growth, providing thephysical and institutional framework for production and markets.

Though the international community has recognized the importance of infrastructure developmentin the developing world, it is necessary to continue this commitment and increase the fundingtowards different projects. The United Nations (UN) has acted as an international forum infacilitating infrastructure development, but many exchanges still occur through bilateral ormultilateral processes. Both the public and private sectors including government entities fromdeveloped and developing countries as well as private companies and individual organizations assistthe recipients with infrastructure transfer and thus can help them to sustainable developmentstrategies. The recipients, who include any of the above listed entities, must utilize the assistanceeffectively. It is important to recognize that though the developing countries are the recipients ofcapital and technical infrastructure, the benefits of the transaction reach far beyond the two

individual parties and can improve conditions for a larger part of society. This, in economic terms, isthe idea of a positive externality. A positive externality occurs when a firm or household outside ofthe direct transaction benefits from the production or consumption of something.7In this instance,infrastructure has the ability to help those that may not directly use it. For example, if thegovernment chooses to build a new road, while not everyone will use that road to transportthemselves, goods may be transported via that new road and that increases productivity and helpsthe economy overall. Thus, people that are not directly impacted by the project may feel a positiveimpact elsewhere. Hence, investing in infrastructure can have a large positive externality effect andthus offers a justification for the private costs that may be accrued in the process.

The international community agrees that infrastructure development would benefit the entire

world. However, inadequate funding, undesirable host countries, and risky investments plague theprocess. While it would be ideal to donate infrastructure to all parts of the developing world, somecountries are unable to sustain infrastructure, either technically or intellectually. Additionally, manydeveloping countries are risky investments; deterring possible public and private funds that can helpthem come up from their slow growth state. As the Economic and Financial committee (ECOFIN),

5G20 Leaders Declaration(Los Cabos: G20, 2012) , 5.

6Prudhomme, Remy,Infrastructure and Development(Paris: University of Paris, 2004).

7Johnson, Paul M., Externality,Auburn University, accessed 5 September 2012,

http://www.auburn.edu/~johnspm/gloss/externality.

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it is important to weigh the costs and benefits of infrastructure development in the developingworld. In considering the issue, realizing the initial costs and projected short-term and long-termbenefits is essential. Because of varying groups high versus low social discount rate, meaningdifferences in how long they are willing to wait for returns, the projects may or may not be a smartinvestment for the individual, entity, or government. In economic terms, the social discount rate,whether high and low, describes how a person would like to see the result of their investmentmaterialize, high discount meaning they value results immediately, while low meaning they place avalue on the future.8Discount rate matters in that if a country needs immediate results to boost theirdire situation, then long-term projects and investments may not be the best solution because of theirhigh discount. A country would have low discount when they are stable and have cash flow tosupport long term investment in projects. Green industry and energy is often considered lowdiscount because the effects of global warming are not necessarily glaring, and the impact of helpingthe environment requires immediate investment without immediate evident results. Countries mustbe cognizant of their discount to gauge the type of investment to use. Countries with immediate

concerns such as hunger or health issues should clearly spend more time and money on alleviatingthose high discount problems, before taking action against something low discount, such as globalwarming. Regardless, countries should have both long and short-term investment plans to becomesustainable economies.

Finally, the committee must also consider what type of assistance, private or public, should be themain source of capital in these projects. Because the infrastructure itself will vary with region, thecommittee should develop an idea of how to raise funds, install and maintain infrastructure, andgenerate viable returns, regardless of region and type of infrastructure. Determining the right typeof investment and investor is integral to the success of the project. Certain projects require a largeoutput of money without much profitability, thus an organization or a government should be the

investor, considering that private entities desire to profit from their ventures. Along the same lines,investors must be reliable. Thus, by carefully deciding which type of investment to make followedby which type of investor to consult, one can create the most stable and lucrative situation.

HISTORY AND DESCRIPTION OF THE ISSUE

Types of Infrastructure and Their Importance

Infrastructure can be defined as the basic underlying framework (something theoretical and notnecessarily physical), public works, or resources required for an activity.9 There are many differenttypes of infrastructure including physical infrastructure, government structure, economic

infrastructure, social infrastructure, and intellectual infrastructure, all of which funnel into twocategories: soft and hard infrastructure.10 Hard infrastructure includes physical structures andfacilities that help to spur and support economic development and a society through transportation,energy, telecommunications, and basic utilities. Soft infrastructure is less physical and more

8Romm, Joe, Dont Discount the Stern Review, Think Progress, accessed 5 September 2012,

http://thinkprogress.org/climate/2007/06/18/201428/dont-discount-the-stern-review/?mobile=nc.9Infrastructure, Merriam-Webster, accessed 6 September 2012, http://www.merriam-

webster.com/dictionary/infrastructure.10

Infrastructure for Economic Development and Poverty Reduction in Africa(Nariobi: UN Habitat,2011), 5.

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intangible in that it supports the continued and efficient operation of the hard infrastructure. Thus,soft infrastructure includes policy, regulations, institutional framework, governance mechanisms,systems, procedures, social networks, transparency, accountability, and financial systems.11

Both hard and soft infrastructure development are key to maintaining constant economic growth,and thus, remain vital to ECOFINs debate. Hard infrastructure accounts for the physical aspects ofthe economy and of daily life. Without hard infrastructure, people would lack the physicalconstructs to conduct business and be productive. For example, transportation is extremelyimportant to the production process. While a company may have the means to produce a product,it would not be able to turn a profit unless the product can somehow be transported to a center ofbusiness and be exchanged. Soft infrastructure is important for the logistical and intellectual side ofproduction. Without human capital and stable soft infrastructure, production and the business cyclecould not progress. Good governance is an example of soft infrastructure that helps to facilitatedevelopment and business. Government is the foundation for copyright and patents, protectionfrom robbery, and as an investor. When governments have proper structure and motives, it can

often help business and protect them at the same time. Infrastructure is integral to the businesscycle and economic growth in general, thus, facilitating infrastructure to the developing worldshould be at the forefront of international concerns.

Key Factors Influencing Infrastructure Development

Natural disasters have destructive tendencies that destroy large amounts of infrastructure, especiallyin developing states. Because of the nature of resource, income, and wealth distribution in theinternational community, certain countries have been impacted by slowed growth and continuedcivil conflict. The World Bank estimated that most developing countries have enough infrastructureto sustain their development, but because of natural disasters, an inability to support infrastructure,

civil disruption, and lack of proper maintenance.12

Natural disasters often cause civil strife andphysically destroy infrastructure, and without proper funding, there would be no way for adeveloping state to sustain its new and developing structures. Moreover, natural disasters are moreprone to strike the same area multiple times, leaving the highly affected countries extremelyvulnerable at all times. For example, the March 2011 earthquake and tsunami that hit Japansnortheastern coast has severe effects on the industrial and productive infrastructure of that area.13The disaster resulted in over USD 300 billion in costs and will have continued negative effects onthe productive capabilities of the country.14 Japan is one of the most developed countries in theworld, with a GDP of 5.87 trillion dollars, giving it the third highest GDP amongst countries.15 Asone of the wealthiest countries in the international community, its level of preparedness and securefinancial situation enabled it to reconstruct more quickly than most other member states would havehad the capacity to do in a similar situation. However, this level of development is not consistent

11Ibid, 5.12Freeman, Paul K., Infrastructure in Developing Countries: Risk and Protection. International Institute for

Applied Systems, 1999.13The Cost of Calamity, The Economist, accessed 26 August 2012, http://www.economist.com/node/18387016.14Official: Quake, Tsunami Could Cost Japan USD300 Billion, CNN New, accessed 26 August 2012,

http://articles.cnn.com/2011-03-31/world/japan.disaster.budget_1_tsunami-quake-yen?_s=PM:WORLD.15

Field Listing: GDP (Official Exchange Rate), CIA World Fact Book, accessed 6 September 2012,

https://www.cia.gov/library/publications/the-world-factbook/fields/2195.html.

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worldwide, and it would nearly be impossible for many developing countries to repair theirinfrastructure in such a way because of their limited access to funding and lack of pre-existingstructures, such as good governance or roads to deliver assistance. Natural disasters can burden theinfrastructure process by either hindering the effectiveness of infrastructure by damaging it ormaking it inaccessible or by proving that the current infrastructure is inadequate. It is easy to see thephysical damage done to infrastructure as a result of a natural disaster; however, natural disasters canalso show that current structures are not effective. An example of showing inadequate structureswould be a post disaster situation, which makes it evident that the government cannot functioncorrectly to facilitate aid. This would emphasize that the pre-existing structure, the government, isineffective. As the climate change phenomenon continues, natural disasters will be more prominentand frequent, thus, forcing the issue of infrastructure development and maintenance at the forefrontof the United Nations debate.16

Case Study: Haiti Earthquake Reconstruction

A 7.0 magnitude earthquake hit Haiti on 12 January 2010, causing immense damage and creating adire situation for the developing state.17 With its epicenter only 25 kilometers from Haitis capital,Port-au-Prince, the earthquake affected an area with dense population and concentratedinfrastructure. The damage caused by the natural disaster is estimated at USD 7.804 billion with theprivate sector bearing most of the loss, USD 5.722 billion versus the public sector loss at USD 2.081billion.18 Infrastructure damage has hindered many reconstruction efforts because without roads,water, and sanitation systems in place, much of the aid is difficult to transport or execute. Eventhough it has been over two years since the earthquake has devastated the area, corruption and lackof existing soft infrastructure, such as leadership, has hindered its ability to recover. Even thoughthe international community has pledged USD 4.5 billion to the reconstruction efforts, most of thisaid has been directed through non-governmental organizations (NGOs) because of government

corruption.19

While the NGOs and donor nations have been helpful in implanting relief, the factthat the government cannot facilitate or be trusted with assisting their own people creates tensionbetween the people and their leaders. Furthermore, the United States of America has pledged USD1.36 billion in aid to the region, with an emphasis on building a stronger and more reliablegovernment.20 The sheer volume of this pledge is a testament to the importance of having bothhard and soft infrastructure at all times.

As stated, natural disasters remain one of the reasons that infrastructure development is hinderedwithin the developing world. But even beyond that, low human capital and civil unrest plague muchof the developing world. Conflict and infrastructure are often related as civil strife can hinder theallure of investment in a region and thus prevent infrastructure transfer or development fromoccurring. An example of this would be in Sierra Leone and the implications of their civil conflict.During their conflict, factions attempted to comprise the movement of the other side through

16Holt, Richard, UN Agreement on Severity of Climate Change, The Telegraph, accessed 3 September 2012,http://www.telegraph.co.uk/news/worldnews/1547769/UN-agreement-on-severity-of-climate-change.html .

17Magnitude 7.0 Haiti Region. USGS, accessed 3 Sept. 2012,

http://earthquake.usgs.gov/earthquakes/eqinthenews/2010/us2010rja6/.18

Haiti Earthquake Reconstruction(Washington, DC: The World Bank, 2010), 6.19

Leger, Donna L., Haitis Slow Recovery Leading to Discontent, USA Today, accessed 26 August 2012,

http://www.usatoday.com/news/world/story/2012-02-09/haiti-slow-recovery/53033900/1.20

Ibid.

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blockading roads, which choked trade within the country. Similarly, transportation becameimpossible because of the blockades and rampant violence.21 As a result, local markets failed andother infrastructure, such as healthcare clinics and schools were destroyed.22 This hinders foreigndirect investment because the country is not stable enough to sustain growth and productiveelements of business. Overall, civil strife is devastating to the existing infrastructure and the prospectof investment in the future.

Government stability is a third a key component of infrastructure development. In order to maintainmuch public infrastructure, such as roads, water and sanitation, a capable government must be ableto regulate the public works to a certain degree. Because of the presence of many unstablegovernments, it is often difficult to maintain infrastructure. In order to attract foreign directinvestment or private companies, good governments are necessary to promote lawfulness and createa promising environment for economic growth. For example, the African Development Bankrecognizes the lack of social and economic infrastructure in Africa as a primary reason for the

regions inability to keep up in international trade.23 Sudan has consistently ranked at the top of theFailed States Index, indicating its vulnerability and instability.24 Because of the civil conflict andsubsequent genocide, the legitimacy of its government and the president has been called intoquestion by many international organizations. The International Criminal Court has even issued awarrant for President Omar al-Bashirs arrest for wartime crimes. Subsequently, without goodgovernance coupled with civil conflict, Sudan has been unable to sustain economic growth and itseconomy stands to contract by 7 % because of South Sudans independence.25 Overall, lack ofgovernance not only exacerbated social and political issues, but contributed to stalled economicgrowth.

To illustrate this, consider the many states categorized as Land Locked Developing Countries

(LLDCs). Being a LLDC means a state lacks direct territorial access to seas and has high transportcosts, which limit its economic growth.26 There is a direct correlation between distance andtransportation costs because the more modes of transport and the greater the distance, the greaterthe costs become. Fifteen of a total 31 LLDCs are located on the African continent, making it thecontinent with the greatest concentration of LLDCs.27In terms of transportation infrastructure, onlynine of the 31 total LLDCs have over 50 % of their roads paved, and only nine LLDCs have 1,000or more kilometers of railways for trade purposes.28 This lack of transportation makes it difficult to

21Humphreys, Macartan and Paul Richards,Prospects and Opportunities for Achieving the MDGs in Post-conflict

Countries: A Case Study of Sierra Leone and Liberia (New York: Columbia University, 2005), 10.22

Ibid, 10.23Ncube, Mthuli, Africa: Governance and Infrastructure in the Continent, All Africa, accessed 6 September

2012, http://allafrica.com/stories/201010040506.html.24The Failed States Index 2011,Foreign Policy, accessed 3 September 2012,

http://www.foreignpolicy.com/failedstates.25Riley, Charles, The Worlds Worst Economies, CNN Money, accessed 6 Sept. 2012,

http://money.cnn.com/gallery/news/economy/2012/08/07/worlds-worst-economies/index.html.26Landlocked Developing Countries, United Nations Office of the High Representative for the LDC, LDC, and

Small Island Developing States, accessed 8 September 2012, http://www.un.org/special-

rep/ohrlls/lldc/default.htm.27

List of LDCs, LLDCs and SIDS by Regions(Office of the High Representative for the Least Developed Countries,

Landlocked Developing Countries and Small Island Developing States,28

Landlocked Developing Countries (LLDCs).

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access global markets and transport goods from point to point. Thus, many LLDCs remainimpoverished, with ten of the twenty lowest ranked countries in the human development indexbeing LLDCs. Because of their natural territorial isolation from the sea and global markets,infrastructure is needed to make trade more affordable and communication possible. However, withmany of these states in their early development phases, it is difficult to become fully engaged ininternational trade, thus showing how a lack of infrastructure hinders a countrys economicadvancement severely.

In facilitating infrastructure development in the developing world, one must also consider the typeof investment desired in certain areas. In order for countries to sustain growing economies, it isnecessary to have the basic framework and technology for water and sanitation, power,transportation, and telecommunications. These four categories are integral to the growth of ahealthy population, markets, and businesses alike. Typically, governments and state-ownedenterprises (SOE) are in charge of funding and executing these large projects to ensure that theywould be completed, because of their great benefits to society. In addition to having positive

externalities as previously mentioned, there is such thing as a public goods effect associated withthese projects whereby the economic transaction provides a large benefit to a wide range of peoplewith low marginal cost.29 Due to the lack of resources and experience with these large projects,developing countries simply are not able to provide adequate infrastructure for their regions,resulting in the push to privatization. Privatization is the transfer of ownership of state assets,operations, or businesses over to a private entity or investor.30 The World Bank notes that after thedrive to privatize, in 2001 developing countries received over USD 755 billion in private investmentand foreign direct investment for over 2,500 infrastructure-building projects.31 This trend iscontinuing to rise as the private sector gains a larger role within development schemes. Privatizationhas both positive and negative effects, which is dependent upon the type of business or sector andthe private entity. At times, governments are able to provide certain services or investments better

than a private entity would because its motivations are different from the profit driven motives ofthe private sector. However, the private sector can be more innovative and seek to use marketforces to provide the best service at the optimal price as determined by the supply and demandschedule.

However, the challenges that exist with private sector involvement include the worry that it willbecome too powerful in the future.32 This fear is that private sector investment, through variousmethods, such as buying out and controlling large public works can lead abuse or exploit thesituation. For example, as many public works and entities, such as water purification, becomeprivatized, the owners of the industries may become too powerful and monopolize their control.Beyond that, a positive relationship does exist between good governance and the quality ofinfrastructure. This relationship exists because good governance promotes economic and political

29Kirkpatrick, Colin,Foreign Direct Investment in Infrastructure in Developing Countries: Does Regulation Makea Difference (Geneva: United Nations Conference on Trade and Development, 2006), 144

30Privatisation, Organisation for Economic Co-Operation and Development, accessed 3 September 2012,

http://stats.oecd.org/glossary/detail.asp?ID=3287.31

Kirkpatrick,Foreign Direct Investment. 32

Shkolnikov, Aleksandra, The Private Sector: A Problem or A Solution? Center for International Private

Enterprise, accessed 6 September 2012, http://www.cipe.org/blog/2009/03/20/the-private-sector-a-

problem-or-a-solution/#.UEv1k6RYtv1.

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stability and reduces the private risks in investment.33 Thus, both the private and public sector arewilling to invest large sums of money to create viable projects to help promote economic growth,but the project must be lucrative before any party will be willing to invest.

The private sector has the ability to choose its investments and also to leave a project. The UN andmember states cannot force any private sector entity to invest in a project if the entity decidesagainst it. Similarly, the private sector could cease operations on a project or conduct themrecklessly, which could leave the situation direr than before their involvement. In some cases,multinational corporations (MNCs) abuse child labor, tax policies, and degrade the environment as aresult of their investment in certain projects. Many of these concerns can be mitigated throughcareful government oversight and clear legal framework. Soft and hard infrastructure is needed tonot only promote private sector investment, but to ensure that the private sector remains lawabiding and contributing to economic success.

A final aspect of infrastructure development is determining the role of the international community

and individual countries in regards to facilitating infrastructure development. Even more developedstates still struggle on some levels. To illustrate, it is important to note that while developedcountries may have the means to support infrastructure, some countries are still lacking in the mostadvanced technology because of the lack of interest in investment and the inability to acquire fundsto support these projects. An example of infrastructure this is in Sub-Saharan Africa, where IMFestimates indicate that if these countries had base infrastructure equivalent to a medium incomecountry, the growth per capita would increase by about 2.6 % each year.34 Clearly, infrastructure isattributed to lower productivity and subsequent economic growth. It is also difficult for thesecountries to attract investment, thus, exacerbating the problem of the infrastructure deficit.Although the issue at hand centered on the developing world, an area with even fewer financialresources than developed countries, this issue of developed countries lacking advanced technology

due to limited infrastructure is of course still relevant.

Regional Infrastructure

Because of similar needs shared among countries and close borders between them, a lot ofinfrastructure can only be successful if it is implemented on a multi-state basis. For example,transportation infrastructure including roads, canals, and bridges connect different states togetherand are most effective if they can cross borders and connect greater areas. However, maintenanceof the infrastructure must be done on a multi-state basis, with each state bearing certainresponsibilities. Because of the conflicts of the past and that may arise between neighboring statesand regional groups, much of the donated infrastructure may not have been successfullyimplemented in an entire area because of the lack of cooperation between states. For example, inAfrica, the 53 states act as individual entities, each with their own transportation,telecommunication, legal, standards, and documentation systems.35 Compared with the European

33Ncube, Africa: Governance and Infrastructure in the Continent.34

Redifer, Laure, New Financing Sources for Africas Infrastructure Deficit,IMF Survey Magazine, accessed 6

September 2012, http://www.imf.org/external/pubs/ft/survey/so/2010/car072110b.htm.35

Simuyemba, Shemmy,Linking Africa Through Regional Infrastructure (Tunisia: African Development Bank,

2000), 7.

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Union, which is of similar size and state count, Africa is extremely uncoordinated, thus making tradeand cooperation among states difficult.36

To compare the state of regional integration, looking at the European Union versus the Africanstates highlights stark differences between the two regions. The European Union (EU) has anextremely coordinated approach to trade. Not only does the European Zone utilize the same Eurocurrency, but also the countries have a history of cooperation through trade groups, such as theEuropean Coal and Steel Community and European Economic Community. Through thecooperation of states, the EU has been able to flourish in economic growth and through sharedcommunication and transportation services. On the contrary, the African Union (AU) is not asintegrated as the EU, and conflicts still exist between neighboring states and on the continent as awhole. This limits the regional cooperation efforts and leaves Africa at a disadvantage in trading andconducting business even though they have a wealth of natural resources. An example of Europeanintegration is the Euro, which in spite of the European Debt Crisis, is still one of the worlds

strongest market currencies.37 The Euro has allowed the countries within the Eurozone to easilycomplete transactions without having to convert currencies, greater stability because of its widecirculation, and convenience benefits to consumers and travellers.38 This type of cooperation isfacilitated by soft infrastructure, or the ability for these states to unify and govern somethingtogether. On the contrary, many African states lack this unity and thus, coordination amongstAfrican states is very difficult. The World Bank released a report on the status of trade barriers andnotes that greater regional integration could result in billions of dollars in potential trade earnings.39Comparatively regional goods trade only accounts for 5% in Common Market for East andSouthern Africa (COMESA), 10 % in Economic Community of West African States (ECOWAS),and 8 % in West African Economic and Monetary Union (UEMOA).40 Whereas in more regionallyintegrated areas, regional trade comprises a greater percentage of overall trade; this includes 20% in

ASEAN states, 35 % in North American Free Trade Agreement states, and over 60 % in theEuropean Union states.41 Regional trade is integral in Africas economic development because it canhelp to bring staple foods to places with deficits, raise incomes, potential to create largerconglomerate multi-national corporations that can rival large chains in Asia or more establishedareas of the world, and for goods and services to reach a wider audience and thus drive up demand. 42Regional trade has been unsuccessful in Africa because of the high transaction costs, or costs toconduct business, resulting from a lack of both hard and soft infrastructure to connect the region.Examples of such hard infrastructure include roads, affordable transportation, ineffective bordermanagement, and a well connected telecommunications network.43 In regards to soft infrastructure,

36Ibid .37

Ydstie, John, Euro Currency Still Faring Well For Now,NPR, accessed 3 September 2012,http://www.npr.org/2012/07/11/156557152/euro-currency-still-faring-well-for-now .

38Special Report EMU: The Advantages,BBC News, accessed 3 September 2012,

http://news.bbc.co.uk/2/hi/special_report/single_currency/66473.stm.39DeCapua, Joe, World Bank: Break Down African Trade Barriers, Voice of America News, accessed 3

September 2012, http://www.voanews.com/content/decapua-africa-trade-barriers-9feb12-

139001854/159574.html.40

Ibid., 1.41

Ibid.42

Ibid 10.43

Ibid 10.

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Africa is lacking fundamental tariff and tax policies, and has a highly bureaucratic trade process thatresults in incoherent trade and extra fees.44 Overall, Africa lacks regional infrastructure that couldhelp to develop the country while providing countless economic benefits. ECOFIN shouldunderstand the importance of regional integration and help facilitate infrastructure to promoteregional cooperation.

Case Study: Association of South East Asian Nations (ASEAN) Infrastructure Fund (AIF)

The Association of South East Asian States is comprised of ten countries in Southeast Asia,including Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Singapore, Thailand, andVietnam.45 It was created with the aims to accelerate economic growth, social progress, and culturaldevelopment.46 Beyond this, ASEANs major goal remains regional integration and stability.ASEAN recently launched the ASEAN Infrastructure Fund (AIF) with an initial equity of USD 485million towards regional infrastructure projects.47 The AIF will work in coordination with the Asian

Development Bank (ADB) to finance projects that will boost trade and economic growth in theregion.48 The funding will contribute to the completion of six different development projects overthe next year, with private-public partnerships (PPP) being the primary driving force behind them.Each project, with varying infrastructure development goals, qualifies for USD 75 million in fundingper year.49 PPP is a partnership between a private entity, usually an investor or business, and thegovernment to complete a given goal.50 These PPPs are usually used to complete developmentprojects, such as transportation, water utilities, telecommunications, and other infrastructure.51Essentially, this fund will be open to those sponsors looking to develop infrastructure in South EastAsia. However, current estimates state that South East Asia will need about USD 60 billion a yearto bridge the infrastructure deficits in that area, which far exceeds the current capacity of the fund.52Still, the area is confident that the additional funding will help to provide the region with greater

foreign direct investment (FDI), because of the increased incentives and funding. FDI will help tofuel economic growth by providing liquid funding, or funding that is accessible now for thepurposes of development. For example, in 2009, the investment in the region equaled USD 37.8billion; this value nearly doubled in 2010 with investment reaching USD 75.8 billion in 2010. 53 TheAIF hopes to continue these growing trends in investment by providing funding whilst ensuringinvestors that the countries themselves are supporting any investments made in the region. Thistype of regional cooperation not only creates an environment hospitable to FDI, but also allows

44Ibid 10.

45 Overview,Association of Southeast Asian Nations,accessed 6 September 2012,

http://www.aseansec.org/64.htm.46

ibid, 1.47ASEAN Launches Regional Fund for Critical Infrastructure Needs, The Economic Times, accessed 26 August

2012, http://articles.economictimes.indiatimes.com/2012-05-03/news/31559145_1_adb-rajat-nag-asian-

development-bank.48Ibid.49Ibid.50Ibid.51

Ibid.52

ASEAN Infrastructure Fund Targets USUSD13 billion towards ASEAN Connectivity,Association for South

East Asian Nations, accessed 6 September 2012, http://www.aseansec.org/26643.htm.53

Ibid.

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infrastructure to be shared within the region. FDI is essential to continued economic growthbecause it is through investment that projects can be completed and capital can be generated.Overall, deficit spending, or spending money that one does not have, can create an environment thatis hostile to future investment. Deficit spending has a crowding out effect meaning that interestrates will rise and firms will be less likely to borrow.54 Beyond the effect on interest rates, if agovernment borrows too much and fails to satisfy debt payments, it may be forced to default onloans or print currency to repay the loans, causing inflation or hyperinflation, or devaluation incurrency.55

North-South Cooperation and Triangular Cooperation

North-South Cooperation (NSC) refers to the relationship between the north, developed countries,and the global south, developing countries, in the attempt to develop the southern region, ordeveloping countries. NSC is thus the traditional economic, political, and social cooperationbetween the North and the South.56 While North-South Cooperation mainly involves two parties,

developing and developed countries, triangular cooperation exists between three different entities: atraditional donor from the Organization for Economic Cooperation and Development OECDsDevelopment Assistance Committee (DAC) or a developed country, an emerging donor in thesouth, and a beneficiary country in the south.57 A notable aspect of triangular cooperation is that itis combination of both NSC and SSC, making it a new approach to development investment. Inthese agreements all three major groups are represented, the developed countries, emergingeconomies, and developing countries, allowing three different perspectives on development issues.

An example of Triangular Cooperation would be the United Nations Educational, Scientific, andCultural Organization (UNESCO) and its establishment of the International Centre for South-SouthCooperation for Science, Technology, and Innovation (ISTC) in Malaysia. The ISTC was created

using funds from developed countries and serves to train those in developing states through thedissemination of information. This database is available to all developing countries and serves as ameans to assisting in development. Similar programs can be adopted through other UNorganizations or on a multilateral basis. Essentially, triangular cooperation involves three parties,donor, recipient, and an intermediary. In this example, the donors are the countries that financedthe project; the intermediary is UNESCO; and the recipient is Malaysia and the other countriesutilizing the resource. Triangular cooperation has potential to provide valuable developmentassistance and should be used as a means to acquiring knowledge and investments.58

54

Thoma, Mark, Government Deficits: The Good, The Bad, and the Ugly, CBS News, accessed 3 September2012, http://www.cbsnews.com/8301-505123_162-39741324/government-deficits-the-good-the-bad-and-

the-ugly/.55Ibid.56Strand II North/South Co-Operation,Ireland Department of Foreign Affairs, accessed 6 September 2012,

http://www.dfa.ie/home/index.aspx?id=337.57Triangular Cooperation: Opportunities, Risks, and Conditions for Effectiveness, The World Bank Group,

accessed 6 September 2012, http://wbi.worldbank.org/wbi/devoutreach/article/531/triangular-cooperation-

opportunties-risks-and-conditions-effectiveness.58

Enhancing South-South and Triangular Cooperation (New York: United Nations Development Programme,

2009), 148.

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South-South Cooperation

In 1974, the United Nations General Assembly decided to create a special unit within the UnitedNations Development Organization to promote technical cooperation between developing states.59In accordance with the 1978 resolution adopted by the General Assembly, the Buenos Aires Plan ofAction for Promoting and Implementing Technical Cooperation among Developing Countries(BAPA), the special unit strengthened its mandate to improve the coordination of South-South andtriangular cooperation.60Different from North-South Cooperation, South-South Cooperation (SSC)is the exchange of information, technology, and resources strictly between countries of thedeveloping world, including emerging states, developing states, Highly Impoverished Poor Countries(HPIC), Least Developed Countries (LDC), and other indicators of not reaching full development.Thus, these countries work together to formulate effective development strategies to benefitthemselves and their partner countries in the south. The UN works closely with developingcountries in both the United Nations Development Programme (UNDP) and the United Nations

Environment Programme (UNEP) to facilitate infrastructure transfer and carry out programs fordevelopment.

Illustrating the idea of SSC is the partnership between the African Development Bank Group andBrazil to create the South-South Cooperation Trust Fund (SSCTF), which will be used to helpAfrican countries support development.61 The SSCTF, created in 2011, will be used to support thefollowing sectors: agriculture and agri-business, private sector development, clean energy,environmental issues, governance, health, and social development.62 It will do this through technicalassistance, capacity building, human capital development, technical training, and by sponsoringinnovative projects to help the region.63 Brazil is helping to provide technical and financialassistance to the African Development Bank, to ensure that the project has enough resources to be

successful. Because the partnership and the fund is still developing, there has not been much activitywith the fund, however, it will have the capabilities to support economic growth and human capitalformation. The idea of a fund should be explored as options for regional bodies or the internationalcommunity to help develop infrastructure in the developing world. Looking to trust funds, such asthe one established by the African Development Bank Group can be vital in financing development,but can also be applied in committee as a means to getting investment and capital for projects. Thefeasibility of a global fund as a beginning source of funding for infrastructure projects may beconsidered by ECOFIN, regional bodies, and individual states.

The South-South Initiative on Cotton is another example of SSC between emerging economies,India and China, with eleven cotton-producing states. In 2003, several African states, Benin,

59Background, Special Unit for South South Cooperation,accessed 6 September 2012,

http://ssc.undp.org/content/ssc/about/Background.html.60A/RES/57/263,Economic and Technical Cooperation Among Developing Countries (Geneva: United Nations

General Assembly, 2003).61Santi, Emanuele, et al., Unlocking North Africas Potential through Regional Integration: Challenges and

Opportunities (Tunisia: The African Development Bank Group, 2012).62

Ibid.63

The South-South Cooperation Trust Fund will Support African Countries, South-to-South Cooperation on Land

and Environment, accessed 6 September 2012, http://www.scopeacp.net/news/a-new-fund-to-support-

african-countries-the-south-south-cooperation-trust-fund.

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Burkina Faso, Cameroon, Chad, Cote dIviore, Mali, Nigeria, Senegal, Uganda, United Republic ofTanzania, and Zambia were all struggling to maintain competitive cotton prices and markets becauseof their outdated technology and small markets.64 Furthermore, when the World TradeOrganization (WTO) cancelled the quota set by its own organization, or in other words, limitations,placed on cotton production, African countries struggled even more to keep up with the textile andraw material production occurring in more developed states.65 Many of the common problemsincluded trade distorting subsidies of more developed states, low quality products, low productivity,lack of modern technology, lack of human capital and knowledge, lack of foreign direct investment,and lack of regional bodies with experience. Trade distorting incentives means anything that makestrade less efficient, including tariffs and taxes, which may hinder firms and households fromparticipating in the business cycle. An example of this would be a sales tax, if high enough, woulddistort incentives, meaning that a customer would be less likely to make purchases because of theadditional tax on their purchase. In the case of cotton, trade-distorting subsidies describe developedstates giving their cotton farmers large amounts of money to lower the price of cotton to make theircrop more desirable on the free market. In response, the Cotton Initiative, an alliance between

India, China, and cotton producing states as listed above was created by the WTO in 2003 to assistthe Asian and African small-scale farmers in maintaining competition and providing technicalassistance.66The overall goal of the Cotton Initiative is to have more advanced developing states, theemerging states, assist in maintaining a competitive Cotton-Textile-Garment sector in Africa. Thegoals of the program included improving the capacity building, or ability to produce efficiently, incotton processing.67 Because China and India have more developed and advanced cotton and textileindustries, they are able to provide African countries with both technical and intellectual assistancein building up their emerging markets. Through the transfer of cotton producing technology andgreater technical skill building, the hope is to create a situation in Africa that fostered the cotton andrelated sectors. These countries have been producing cotton at a more efficient level because of thelack of quota and more advanced infrastructure.68 The lack of quota encourages countries to

produce as much cotton as they can; and even though this may cause overproduction, it actuallyallows for African states to take advantage of their absolute advantage, or producing more cottonwith less inputs such as labor, land or capital than other states, and earn more money.69 Thus, SSCcan be instrumental in assisting with development or providing aid because of the similar concernsof developing countries. Countries with similar problems can generate collective solutions and makethemselves and their fellow developing states better off in the process. The committee shouldconsider the impact of developing nations upon development and how to best utilize SSC togenerate the most amount of infrastructure development.

Role of the Private Sector

While many infrastructure projects are financed by the public sector, including governments andinternational organizations, a financing gap has developed, which may require private aid. The

64South-South Initiative on Cotton, United Nations Industrial Development Organization, accessed 6 September2012, http://www.unido.org/index.php?id=o84840.

65Ibid.66Ibid.67

Ibid.68

Ibid.69

Johnson, Paul M., Absolute Advantage,Auburn University, accessed 3 September 2012,

http://www.auburn.edu/~johnspm/gloss/absolute_advantage.

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International Monetary Fund (IMF) has estimated that maintaining infrastructure over the next fewdecades in critical areas, such as telecommunications, power, transportation, water, and sanitation,will cost USD 1.800 trillion a year.70The Organization for Economic Cooperation and Development(OCED) has cited that it would be impossible to meet these demands without private sectorinvolvement to bridge the funding gap. Other international organizations, such as the MillenniumChallenge Organization and the United Nations, have also recognized the important role that theprivate sector can and should be able to play in the future.71 The African Progress Panel, anorganization dedicated to researching and supporting African Development, states, Africangovernments must also make every effort to develop Public-Private Partnerships (PPPs) to attractcapital for the funding of infrastructure projects.72 The United Kingdoms Department forInternational Development (DFID) has recognized that developing countries, especiallyimpoverished ones, have infrastructure demands that far exceed the capacity of governments anddonors. Through leveraging private sector involvement, services can be adequately provided.73Considering this, it is important to further explore the role of the private sector in developing

infrastructure.

The private sector has four primary methods to involve itself with infrastructure development inforeign countries: management and lease contracts, concession agreements, Greenfield projects, anddivestiture.74 Management and lease contracts are temporary agreements where the private entityassumes primary operation of a state-owned enterprise (SOE), such as state controlled water,electricity, telecommunications, and postage services with the state still maintaining actual ownershipof the enterprise.75 This category can be split into management contracts, where the governmenthires a company or private entity to manage the facility and thus the government still maintains therisk; or lease contracts where the government can lease their facility to a private entity, which thenassumes the risk.76 An example of this would be a government owned railroad. If the government

were to hire a private company to run and operate the railroad, it would be a management contract.Conversely, if the government leases the assets to a private company, then it is a lease agreement. Inboth cases, the government still ultimately owns the railroads during and after the contracts expire.Concession agreements are similar to management and lease contracts, but have significantly morerisk and a less active public entity. Essentially, with concession agreements, the government will notprovide much support for the private entity, and they could lose their entire investment if thebusiness conducts the work poorly. Using the same railroad example, if the railroad owned by thegovernment were run down and inoperable, but a company decided to lease the railroad and fix it toearn profits during the lease period, they would sign a concession agreement. Because of the greaterrisk (the company may not ever earn back the investment required to rehabilitate the railroad),

70

Christiansen, Hans, The OECD Principles for Private Sector Participation in Infrastructure(Washington, DC:Monetary Fund, 2007).

71Millennium Challenge Corporation, Private Sector Initiatives, accessed 7 September 2012,

http://www.mcc.gov/pages/business/psi.72Bayliss, Kate, Private Sector Participation in African Infrastructure: Is it Worth The Risk? (International Policy

Centre, 2009), 5.73Ibid., 5.74

Kirkpatrick,Foreign Direct Investment, 147.75

Ibid.76

Glossary,Private Participation in Infrastructure Database, accessed 3 Sept. 2012,

http://ppi.worldbank.org/resources/ppi_glossary.aspx.

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concession agreements distinguish itself from the management and lease contracts. Greenfieldprojects are the most common form of private sector involvement. They include the private entityworking either alone or with a public entity to build and operate a new venture. An example of thistype of venture would be a public-private partnership developing water filtration capabilities throughfunding and contributions from both the private and public sector. Referring back to the railroadexample, a Greenfield project would exist if the railroad project has not been started and a privatecompany would like to invest in the creation and operation of a brand new railroad. Governmentscan be involved in this project by declaring a joint venture project and helping to provide funds.Divestiture is when the private entity purchases a stake of an SOE through a desire for thegovernment to privatize that industry. Thus, the former SOE is completely free of public controland is owned by the private entity.77 If the government decides that they no longer wish to run andoperate the railroad, or bear any burden in regards to it, it may decide to sell the railroad to a privateinvestor or owner. In this case, the railroad is completely separate from the government and all riskand future operations are assumed by the private entity with no relationship to the government that

once owned it.

For the purposes of debate, the focus of the role of the private sector should be limited to how itcan contribute to infrastructure development, and not on economic growth overall. With this,different agreements, such as the management and lease contracts or concession agreements, allowfor the private entity to take over a utility or government operated business and implement theirown changes, including technology improvements and framework changes, to make it moreproductive and efficient. Beyond that, Greenfield projects, work in the same way in that the privatesector determines what type of business to create and does so through providing the capital and thusthe infrastructure to do so. It is integral to remember that the government does not always regulatethe private sector and any infrastructural changes it wants to implement will need to be profitable

for the business, adding another element of complexity to the situation.

Case Study: Public-Private Partnerships for Water Utilities

Beginning in the 1990s, water Public-Private Partnerships (PPPs) have become more popular indeveloping regions for implementing water infrastructure more efficiently.78 Specifically, the UNPPP for Water Utilities has become a driving force for developing infrastructure necessary for cleanand potable water in developing regions. During the decade between 1990 and 2000, the portion ofthe world population serviced by private operators soared from six million to 94 million, and thenumber of water PPP projects grew from four to 38 all over the world. 79 The significant rise of PPPprojects is directly correlated with continued success of the ventures, such as with the waterinfrastructure development projects. On a greater level, PPPs can be extended to other fields, suchas electricity, transportation maintenance, and other infrastructure.

77Ibid.78

Marin, Philippe,Public-Private Partnerships for Urban Water Utilities: A Review of Experiences in Developing

Countries (Washington, DC: The World Bank and the Public-Private Infrastructure Advisory Facility,

2009).79

Ibid., 2.

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PPPs, or the private entity, be it an individual, company, or group, is introduced into the area andwill subsequently build, operate, and maintain the facility. Thus, in privatizing such a venture,companies and individuals can profit while society benefits from greater infrastructure distribution.Most importantly, these PPPs improve access; the number of people with greater access to potablewater has increased substantially, by over 24 million since 1990.80 Additionally, water service qualityhas increased substantially because of the large reduction in water rationing. Water rationing occurswhen the pressure distribution in traditional pipelines cannot service all areas equally. This meansthat areas in typically low-pressure regions will frequently be short of piped water. The PPPs havebeen able to provide more continuous water service in regions such as Western Africa, Colombia,and the Philippines.81 In evaluating the effectiveness and efficiency of these water PPPs, itsimportant to consider the way they impact water losses, bill collections, and labor productivity. Incutting water losses, private entities have had varied success, with some companies reaching 15 %water loss, while others remained at high levels of up to 50 %.82Because of the private incentive tocollect money for their services, bill collection has been much more effective with the integration of

PPP, versus the typical public approach. Labor is more productive under private management, asshown by a reduction in number of employees despite a growing customer base. Tariff levels areinconclusive because in some areas, a rising tariff on water is correlated with better service andcontinued sources, whereas, in some areas, the lowered tariffs helped to increase availability to thepoor. Overall, the water PPP experience in the developing world helped to stimulate water allocationin areas where potable water was scarce, showing the benefits of private sector involvement inproviding valuable infrastructure. In evaluating the efficiency of the water PPPs, access, quality,operational efficiency, and tariff levels are important caveats to consider.

Case Study: Fiji Islands and Fiji Water

While some private-public partnerships are beneficial to the international community, there areinstances where private sector involvement negatively effects the region overall. Fiji Water is a LosAngeles based water-bottling company that has bottled and shipped directly from the Fiji Islandssince 1996. As a business, Fiji Water has been able to bring additional employment to the area andcontributes to the natives through its factories and bottled water market. In the Fiji Islands, FijiWater accounts for about 400 native workers and remains the fourth largest exchange earnerbehind tourism, sugar, and remittances.83The government of Fiji and the Water Authority of Fijihas pledged to remain committed to the MDGs and sought to increase access to clean water to atleast 60 % of the population by 2014. Fiji Water claims that its philanthropic projects in Fijicontribute to the MDG goal of increasing access to basic necessities such as water, and that it hashelped over 40,000 attain access to potable water since its establishment.84

80Ibid.81Ibid82Ibid.83Fiji Water Reserves Decision to Leave Pacific Island Nation: Report, Fox News , accessed 26 Aug. 2012,

http://www.foxbusiness.com/markets/2010/12/01/fiji-water-reverses-decision-leave-pacific-island-nation-

report/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed %3A+foxbusiness

%2Flatest+(Internal+-+Latest+News+-+Text).84

Preston, Clean Water for Fiji, State of the Planet,accessed 6 Sept. 2012,

http://blogs.ei.columbia.edu/2011/06/24/clean-water-for-fiji/.

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Despite this commitment to increasing access to potable water for the native populations, however,Fiji Water exports over 180 million bottles of water per year, which is about 15 % of the requiredwater needed to satisfy the Fijian population.85Fiji Water has also struggled to cooperate with theFijian government. In 2006, a military coup forcibly took control of