IUIP- Week-9

Synergetic effects between IIP and the general economic

development

• Contents
• Infrastructure : achievements, challenges and
opportunities for developing countries including
Ethiopia
• Running public entities on commercial principles.
• Using markets in infrastructure provision.
• Beyond markets in infrastructure.
• Financing needed investments
• Setting priorities and implementing reforms
 Infrastructure in developing countries
• In recent decades, developing countries have made
substantial investments in infrastructure, achieving
dramatic gains for households and producers by
expanding their access to services such as safe
water, sanitation, electric power,
telecommunications, and transport.
• Even more infrastructure investment and expansion
are needed in order to extend the reach of services
especially to people living in rural areas and to the
poor.
Infrastructures: low efficiency, improvements
needed
• Low operating efficiency, inadequate maintenance,
and lack of attention to the needs of users have all
played a part in reducing the development impact
of infrastructure investments in the past.
• Both quantity and quality improvements are
essential to modernize and diversify production,
help countries compete internationally, and
accommodate rapid urbanization.
• Future success means building on lessons learned.
Institutional incentives for infrastructures

• The basic cause of poor past performance as

inadequate institutional incentives for
improving the provision of infrastructure.
• To promote more efficient and responsive
service delivery, incentives need to be
changed through commercial management,
competition, and user involvement.
 Commercial management and competitive
spirit
• Commercial management including financial autonomy,
accountability, and well-defined objectives focuses
providers of infrastructure services on increasing efficiency
and meeting customer demand.
• Competition provides users with choices that can better
meet their needs and compels providers to become more
efficient and accountable.
• Involvement of users and other stakeholders in the design,
operation, and maintenance of infrastructure is also key to
better performance, particularly in areas where
competition is constrained.
 Trends to improve the performance of
infrastructure
• Several trends are helping to improve the performance of
infrastructure.
• First, innovation in technology and in the regulatory
management of markets makes more diversity possible in the
supply of services.
• Second, an evaluation of the role of government is leading to
a shift from direct government provision of services to
increasing private sector provision and recent experience in
many countries with public-private partnerships is highlighting
new ways to increase efficiency and expand services.
• Third, increased concern about social and environmental
sustainability has heightened public interest in infrastructure
design and performance.
 Provision of infrastructure leads to
effective poverty reduction in developing
countries
• Differences between and within infrastructure sectors, together with
major variations in country’s needs and capacities, mean that the
detailed design and implementation of policy reform must be tailored
to specific cases.
• But there is no question that the overall benefits from improving
infrastructure are large.
• Roughly $200 billion is invested in the sector annually in the
developing world, and the savings that would accrue from better
provision and performance would be substantial.
• More efficient, more accessible, and less costly infrastructure services
are also, of course, essential to more effective poverty reduction
 Value added of infrastructure services by
country group (percentage of GDP)
Infrastructure Low- income Middle-income High-income
sector countries countries countries
Transport storage 5.3 6.78 9.46
and (9) (26) (3)
communication
Gas, electricity 1.29 2.24 1.87
and water (22) (36) (5)

Note: At market prices. At factor cost (for which fewer observations are available), the
values are slightly higher. Figures in parentheses are number of observations. Data are
for 1990 or latest available year
Source: World Bank national accounts data.
 Public infrastructure investment is a large
fraction of both total and public investment in
developing countries.
Type of countries Total investment Public investment

Low income 20 38
countries
Middle income 22 58
countries

Percentage of investment allocated to

infrastructure
 Assessing Synergy
• The presented approaches and solutions for
assessing synergy have been developed for specific
tasks and use different indicators – economic
growth, cash flows, efficiency, and rate of entropy,
sustainable development.
• The first method uses a strictly formalized description of
the economic growth of enterprises, participating in the
processes of merger and takeover and assesses the
synergy of utilizing labor resources.
 Methods to work out synergy
• The second utilizes discounted cash flows
calculated based on savings or the growth of
relevant components constituting the cash flow.
• The third one evaluates synergy effects through
efficiency.
• The fourth one applies a systematic approach and
assesses synergy through entropy, developing a
condition of positive synergetic effect.
 Positive synergy
• The fifth one utilizes a condition of positive synergy
that can be fulfilled through the cluster design in a
polygon of sustainable development, with the goal of
selecting comparable enterprises and preventing
consequences such as takeover and the seizure of
activities and markets.
• Conceptually, the last two methods come closest to
the expression of a general effect from the
interaction of enterprises, although they lack specific
and easily interpreted values of synergy assessment.
 Problems, effects and future directions of
synergy
• The analysis made shows that the problems of
synergy and its effects have partial solutions and need
systematization, additions and extensions both
conceptually and methodologically so that they can
be applied towards the expression and management
of synergy in economic clusters.
• In regard to future directions for research on synergy
and its effects it is appropriate to search for additional
analogies with practical experience accumulated in
the field of risk identification and risk management.
 Synergy and risks in a system
• Synergy and risk are phenomena that exist in any system.
• Uncovering the correlation between them could provide
an effective instrument for influencing the formation,
activities and optimization of cluster management in
economics.
• Questions such as: what is the desired synergetic effect,
does it manage or assess, at what stage of a cluster’s life
cycle, where in the cluster is synergy assessed, how to
account interactions, “together-ness”, “resonance” in the
functioning of enterprises should be at the core of
formulating the problems in this field of application.
Synergistic effects in critical infrastructure

• The term synergy is used in various forms in many areas of

human activity, but it has rarely been used in connection with the
critical infrastructure.
• The first mention of synergy in the critical infrastructure domain
was in 2001 , but only in the context of linkages in the economic
infrastructure.
• Nevertheless, a classic example of synergistic effects in the critical
infrastructure domain as emerged – the Fukushima Daiichi
nuclear disaster of March 2011. The earthquake, tsunami and
nuclear cooling system failure induced massive synergistic effects
that may well continue to impact Japanese society for decades.
Synergistic effects – meaning & example
• A synergistic effect is an effect seen when two or
more substances combine to create an effect that is
greater than either one of them could have
manifested by itself.
For example the combined action of vinegar and
baking soda combines to create an intensely
bubbling eruption that is caused by chemical
interaction.
 Neither the vinegar or baking soda is capable of
producing such a dramatic effect by themselves.
 Synergistic effects in medicines and in
infrastructures
• In medicine, synergistic effects are seen when one
medication might be prescribed in conjunction with
another to intensify the action of the second medication.
• A synergistic effect can also occur by accident with drug
interactions. For example, alcohol can intensify the
effects of some medications.
• Similarly, in case of integrated infrastructure effects of
two and more infrastructures are capable of creating
synergistic effects which each one will not be able to
create alone.
What is synergistic management effect?

• Synergy in business means a specific type of

relation between factors, which results that
final effect is better than the sum of
the effects of each factor acting separately
and thus independently of one another.
Synergy in management is also called as
organizational effect or synergistic effect.
 Synergy of emergency levels
• Synergy of emergencies (Level I synergy): This occurs
due to the interactions of two and more emergencies
on an element or sector of a critical infrastructure.
• Synergy of elements or sectors (Level II synergy): This
occurs due to the interactions of the impacts of
failures of two or more critical infrastructure
elements or sectors on a third critical infrastructure
element or sector.

• Synergy of societal impacts (Level III synergy): This

occurs as a result of the combined interactions of the
impacts of failures of critical infrastructure elements
or sectors with the impacts of emergencies on
society.
Effect of level –I: synergy on society

Level –I synergy

Emergency- Emergency- Emergency-

Transport Energy/ Power Water
 Effect of level –II: Synergy on Society

Emergency service- Health Sector

Emergency service- Sanitation

Effect of level –III: Synergy on Society
 Failures of critical infrastructures on societal
needs
• A critical infrastructure is a complex system of socially significant
elements, sub-sectors, sectors and their relationships, all of
which are essential to ensuring national security, a thriving
economy and the continued provision of basic societal needs.
• Critical infrastructure systems are constantly exposed to the
negative effects of incidents and their failures can have
significant impacts on society.
• The impact effects can be one-way (i.e., simple impacts) or
multi-way (i.e., synergistic effects).
 The synergistic effects of critical
infrastructure failures
• Impact on society is directly proportional to the
significance of a sector, sub-sector or element of
a critical infrastructure system.
• The critical infrastructure protection for the
community is essential :
• primarily for assessing basic impacts – without
any synergies.
• Secondarily for searching probable alternatives 
for emergencies.
STRUCTURAL TRANSFORMATION IN ETHIOPIA: THE URBAN DIMENSION
 Stockholm International Peace Research
Institute: Report by Fantu Chery
• Ethiopia is a very poor, mainly rural country dominated by
subsistence agriculture.
• The government's top priority is industrialization to boost jobs
and incomes (Cheru, 2014).
• National leaders have come to recognize that urbanization can
contribute to this objective.
• In 2013 Ethiopia embarked on a Cities Prosperity Initiative in
partnership with UN-Habitat to learn from their international
networks about how best to address infrastructure backlogs
and to accommodate population growth in an inclusive and
efficient manner (Cheru, 2014).
• UN-Habitat has supported a range of projects since 1998,
covering information systems, service delivery, public
 STRUCTURAL TRANSFORMATION IN ETHIOPIA:
THE URBAN DIMENSION (Contd.)

• The Government of Ethiopia has prepared the Ethiopian Growth

and Transformation Plan2013/14-15 (GTP) with the intention of
transforming the country from an agricul-ture-led economy to an
industrialization-led economy, and from rural to urban-based
economic transformation.
• Based on the experience of different countries in managing
urbanization and industrial development, this transformation
demands a high level of skills.
• The Ministry of Urban Development, Housing and Construction
(MUDHCo) believes
UN Habitat Support to Govt. of Ethiopia
• The main objective of UN-Habitat’s support to the Government
of Ethiopia is to assist the Ministry of Urban Development,
Hous-ing and Construction (MUDHCo) to de-velop a
comprehensive framework for the implementation of the ECR-
3G2P package consistent with the overall strategic goals of the
Growth and Transformation Plan, namely, poverty reduction and
accelerated growth through industrialization.
• To meet this objective, Ethiopian cities will have to reposition
themselves so that they can become important manufacturing
hubs, providing millions of well-paying jobs and generating
significant resources to the Federal government and local
authorities in the form of taxes.
 UN Habitat : Final Project Document
• In preparing the final project document, the UN-Habitat team
will concentrate its efforts on :
 feasible,
 cost-effective and
 sharply focused policy interventions and strategies.
• that will help equip the government of Ethiopia with:
 the knowledge,
 capacity-building and
 institutional arrangements
UN Habitat : Final Project Document (Contd.)

• to guide the process of urbanization, and

• to situate Ethiopian cities at the epicenter of
economic globalization
• so that they can tap into the economic
opportunities avail-able in
 the regional and
 global economy on a long-term basis
 Electricity stands out as one of the top
bottlenecks highlighted by industrial firms.
• In 2010, the Ethiopia Electric Power Company (EEPCO)
commissioned three large hydro power plants and
presently has sufficient capacity to service the demand.
• However, reliability of electricity remains a critical issue.
• Firms in Ethiopia experience frequent outages compared
to other countries.
• Moreover, these electrical outages seem to last longer
than in its comparator countries (7.8 hours in Ethiopia
compared to 3.8 in Kenya, 6.0 in Tanzania, 3.3 in Vietnam
and 0.5 in China according to the Enterprise Survey Unit).
 Electricity Infrastructures apacity and
average costs
• EEPCO commissioned Tekeze (300 MW), Gibe II (420
MW) and Beles (460 MW) power plants that
increased its power generation capacity from about
850 MW to above 2000 MW. In FY2011, EEPCO’s
peak demand was around 1,100 MW, which was
well within its capacity.
• On average, the electricity costs in Ethiopia are
$0.023 per kWh while it costs $0.068 in Kenya,
$0.083 in Tanzania, $0.118 in China, $0.180 in South
Africa, and $0.240 in Djibouti.
 Up gradation and extension of electricity
networks
• The Electricity Network Reinforcement and
Expansion Project (US$200 million), financed by
International Development Association (IDA),
consists of two sub-components:
• (i) grid upgrade and
• (ii) grid extension in order to improve the overall
service delivery of the Ethiopian electricity
network, starting with a few cities in Ethiopia,
such as Dire Dawa, Nazret and Jimma (in Oromia).
Logistics Infrastructures in Ethiopia
• The LPI comprises six indicators on customs, infrastructure,
international shipments, logistics quality and competence,
tracking/tracing and timeliness, as assessed by international
freight forwarders.
• According to the Logistics Performance Index (LPI), Ethiopia
ranks 104th out of 160 economies surveyed.
• It lags behind peers like Kenya (74th) and Rwanda (80th) but
is ahead of Zambia (123rd) and Tanzania (138th).
• On specific components of LPI, Ethiopia performs better
than its average rank (and score) in, logistics competence,
and timeliness.
 Trade infrastructure and international
shipments
• Overall, it fares poorly on infrastructure and
international shipments. Ethiopia has
undertaken multiple steps for improving
logistics infrastructure.
• It undertook a major organizational merger of
three agencies involved in trade logistics,
shipping lines, maritime services, and dry
ports.
Trade logistics: multimodal transport system,
modernization of port facility
• At the same time, investments to improve trade logistics in the
medium term are ongoing.
• These include: several new public investments in roads;
• A rehabilitated rail link between Addis Ababa and the rapidly
modernizing container port of Djibouti.
• Modernization of the Djibouti port is important, but similarly
importance needs also be placed on ways to reduce the very high
port handling charges, which are very high and hurt the
competitiveness of manufacturing industries exporting through
the port.
• The expansion of the dry port in Modjo; and expanded coverage of
the multi-modal transport system.
 Custom clearances: A serious bottleneck for
export and imports
• Customs and trade-related regulations as one of the top constraints
that drive costs up.
• It takes up to 44 days to comply with all procedures needed to export
or to import at a cost of US$2,380 and US$2,960 respectively per
container (World Bank, 2015b; Figure 2.6.4).
• These procedures and documents involve different agencies, which
require the manager to go in person to all those agencies.
• As a matter of fact, there is no legal framework in place to recognize
documents exchanged electronically in relation to e-commerce, e-
signatures and e-payments.
• All documents for information exchange both between the private
sector and government actors and between government actors
themselves have to be provided to the authorities using a hard copy.
 Ethiopian Custom and Revenue Authority (ERCA)
plans to upgrade its customs processing system
• The recently approved Customs Proclamation provides
the legal basis for the development of a modern
customs administration with more focus on facilitation
than control.
• Noteworthy key reforms introduced in the
proclamation include:
 the introduction of the use of simplified customs
procedures for authorized traders;
 pre-arrival clearance of goods; and
 use of risk assessment and post-clearance audit.
 Electronic single window facility for
customs clearance and starting a new
business
• The electronic Single Window is an electronic facility that will
allow all traders involved in the import/export/transit business
to discharge all their regulatory obligations with relevant
government agencies electronically in a simplified paperless
environment.
• Starting a Business indicator that ranks Ethiopia 168th out of
189 economies vis-à-vis global comparators (Doing Business
Report, 2015).
• This is therefore an area of concern for Government, because a
growing body of empirical research shows that simpler
processes of business start-up are associated with higher levels
of entrepreneurship and higher productivity.