Development Strategies

Lessons

Senior 6 · Economics

Development Strategies

4 lessons

Lesson 4 of 4

Infrastructure and development

25 min

Case: power first, then the internet

According to the World Bank, the share of Rwanda's population with access to electricity rose from 6.2% in 2000 to 72.0% in 2024, and the share using the internet from almost nothing to 31.7%. Rwanda Energy Group, counting households and including solar systems, puts electricity access at 85.4% of households by the end of 2025.

Think: electricity access grew slowly for fifteen years and then very fast. What kinds of investment does that suggest? And why might internet use lag so far behind electricity?

Definition

Infrastructure: the basic physical and organisational structures that an economy needs in order to function, which are usually long-lived, costly to build and used by many people at once.

Economic infrastructure directly supports production: transport, energy, water for production, and information and communication technology (ICT). Social infrastructure supports human development: schools, hospitals, housing, water and sanitation for households.

Types of infrastructure

Type	Examples	In Rwanda
Transport	Roads, feeder roads, bridges, airports, railways, lake ports	The New Kigali International Airport project at Bugesera (MINECOFIN, 2026)
Energy	Power plants, transmission lines, off-grid solar, gas	85.4% of households with electricity at the end of 2025, 60.1% on the grid and 25.3% on solar (REG)
Water and sanitation	Piped water, boreholes, irrigation, sewers	NST2 target: universal access to water for productive use (NST2, p. 12)
ICT	Fibre-optic cables, mobile networks, data centres	Internet users: 31.7% of the population in 2024 (World Bank)
Social	Schools, health centres, hospitals, housing	Health centres and schools across all sectors and districts

How infrastructure contributes to development

Lower costs: good roads, power and water cut the cost of producing and moving goods; for a landlocked country, transport costs are a major barrier (Unit 7, lesson 3).
Higher productivity: electricity lets firms use machines and work longer hours; irrigation lets farmers grow a third season.
Bigger markets: roads and ICT connect farmers to buyers and firms to regional markets, raising competition and specialisation.
Investment: reliable power, water and transport attract private and foreign investment ("crowding in").
Human development: clean water reduces disease; schools and clinics raise human capital; electricity lets children study at night.
Jobs: building and maintaining infrastructure is labour-intensive.
Regional balance: infrastructure spreads opportunity beyond the capital.
Complementarity: infrastructure works best in combination. A World Bank study of 27 sub-Saharan African countries found that access to roads and to electricity each raised employment, and that having both together strengthened the effect (Abbasi and others, Roads, Electricity, and Jobs, Policy Research Working Paper 9976, 2022).

Much infrastructure has public-good features: one more user costs little, and it is hard to exclude non-payers from a road. Some, such as power grids, are natural monopolies. Private markets therefore under-provide it, which is why governments plan, finance or regulate it.

Worked example

Worked example 1: is a feeder road worth building? (illustrative figures)

A 20 km feeder road costs Frw 2,000 million. It saves farmers and traders Frw 500 million a year in transport costs and lost crops, and costs Frw 50 million a year to maintain. It lasts 10 years. Using a discount rate of 10%, is it worth building?

Net benefit each year: $500 - 50 = 450$ million francs. The present value of 450 million a year for 10 years at 10% uses the annuity factor:

\frac{1 - 1.1^{-10}}{0.1} = 6.145

\text{PV of benefits} = 450 \times 6.145 = 2\,765 \text{ million francs}

\text{NPV} = 2\,765 - 2\,000 = 765 \text{ million francs}

\text{benefit–cost ratio} = \frac{2\,765}{2\,000} = 1.38

The net present value is positive and the ratio is above 1, so the road is worth building. Without maintenance, the road would decay and its benefits shrink: this is why maintenance budgets matter as much as construction.

Worked example 2: reaching universal electricity access

World Bank data show access to electricity rising from 63.9% of the population in 2023 to 72.0% in 2024. If it kept rising by the same number of percentage points each year, when would it reach 100%?

\text{annual rise} = 72.0 - 63.9 = 8.1 \text{ percentage points}

\text{years needed} = \frac{100 - 72.0}{8.1} = 3.5 \text{ years, so by 2028}

That would be within NST2's period (to 2029), which aims for universal access to electricity for productive use (NST2, p. 12). But the last households are the hardest and most expensive to reach, so progress usually slows near 100%.

Problems in providing infrastructure

Problem	Explanation
High cost and long payback	Large sums are needed now; benefits arrive over decades
Debt	Projects financed by loans add to public debt and future interest
Neglected maintenance	New projects win attention; old roads and pipes decay
"White elephants"	Prestige projects that are under-used and never repay their cost
Corruption and cost overruns	Large contracts invite inflated prices and poor quality
Land and environment	Expropriation of land; damage to wetlands, forests and water
Hilly terrain	Rwanda's hills raise the cost per kilometre of roads and grids
Affordability	Poor households may be unable to pay connection fees or tariffs

Financing infrastructure

Taxes and the public budget (Rwanda's 2026–27 budget gives 63% to the economic transformation pillar, MINECOFIN).
Concessional loans and grants from development banks and donors (lesson 3).
Public–private partnerships (PPPs): a private firm builds and runs a project, recovering its cost from user charges or government payments.
User charges and tariffs: tolls, electricity and water bills.
Domestic savings: pension funds and bonds that invest in long-term projects.

Warning

Infrastructure is necessary, not sufficient. A road with nothing to carry and a power line no business can afford to use add little. Judge a project by what it enables: firms, farms and services that use it. In an essay, link infrastructure to the other strategies: education (who will use it?), agriculture (what will it carry?) and industry (who needs the power?).

Tip

Remember the five types as "TEW-IS": Transport, Energy, Water, ICT, Social. For each, give one way it raises productivity and one way it raises welfare.

Important

Discuss. With a limited budget, should Rwanda give priority to a new international airport, to rural feeder roads, or to connecting the last households to electricity? Use the ideas of cost–benefit analysis, complementarity and equity.

CNBC Africa, "Invest Rwanda: One-on-one with Infrastructure Minister Jimmy Gasore" (December 2024). The minister describes Rwanda's transport and energy plans. Note which types of infrastructure he puts first and how he expects them to be financed.

✦

Practice

Distinguish between economic and social infrastructure, with two Rwandan examples of each.
Explain six ways in which infrastructure contributes to development.
Explain why the private sector tends to under-provide infrastructure.
A bridge costs Frw 800 million and yields net benefits of Frw 150 million a year for 8 years. The annuity factor for 8 years at 10% is 5.335. Calculate the NPV and the benefit–cost ratio. Should it be built?
Using the chart, describe the changes in electricity access and internet use in Rwanda since 2000.
Explain five problems that developing countries face in providing infrastructure.
Explain what a public–private partnership is, with one advantage and one risk.
"Infrastructure is the most important development strategy for Rwanda." Evaluate, comparing it with education and foreign aid.

Show answersHide answers

Economic infrastructure supports production (roads, power lines, irrigation, fibre-optic networks); social infrastructure supports human development (schools, health centres, household water and sanitation).
Any six: lower costs; higher productivity; bigger markets; crowding in investment; human development; jobs; regional balance; complementarity.
Many infrastructures are public goods (non-rival and hard to exclude non-payers) or natural monopolies; they need huge capital with long, uncertain payback, and many of their benefits (externalities) are not captured by the builder.
PV of benefits $= 150 \times 5.335 = 800.25$ million; NPV $= 800.25 - 800 = 0.25$ million, essentially zero; benefit–cost ratio $= 1.0003$ . It barely breaks even; the decision depends on benefits not counted (safety, regional access) and on the risk of cost overruns.
Electricity access stayed below about 20% until 2014, then rose quickly to 72.0% in 2024. Internet use rose steadily from almost zero to 31.7% in 2024, well behind electricity.
Any five: high cost and long payback; debt; neglected maintenance; white elephants; corruption and overruns; land and environment; hilly terrain; affordability.
A private firm finances, builds and often runs a public project, recovering costs from user charges or government payments. Advantage: private finance and management skills. Risk: high charges, or government guarantees that leave the public budget paying if demand is low.
For: infrastructure lowers costs for a landlocked economy, raises productivity and attracts investment; power and roads have strong complementarities. Against: without educated workers it cannot be used well; it is costly and adds to debt; aid and domestic revenue are needed to finance it; projects can become white elephants. Judgement: infrastructure, education and finance are complements; the best strategy sequences them, with infrastructure chosen by cost–benefit analysis.

1Case: power first, then the internet

2Types of infrastructure

3How infrastructure contributes to development

4Problems in providing infrastructure

5Financing infrastructure

Case: power first, then the internet

Types of infrastructure

How infrastructure contributes to development

Problems in providing infrastructure

Financing infrastructure