The Hardware—Physical Integration
The IDB helps connect countries with regional and global economies by financing transportation, energy, telecommunications and other infrastructure investments. The Bank aims to reduce cross-border transaction costs, boost competitiveness, and foster the development of poorer areas. This creates jobs and contributes to the reduction of poverty and social inequality.
The Bank supports the region by building the physical and regulatory infrastructure through investments in key sectors. It also helps the region to be more competitive by connecting transportation networks, supporting cost-reducing energy integration and bridging the digital divide.
Why invest in physical integration?
The region’s infrastructure has advanced remarkably. For instance, two subregional IDB programs—Initiative for the Integration of Regional Infrastructure in South America and Plan Mesoamerica—have helped create regional frameworks from national networks of transportation, energy and telecommunications.
The region still faces four main challenges:
- Implementation delays due to the sheer size of regional integration investments and the asymmetric nature of the benefits they produce;
- A mismatch between physical and regulatory integration;
- The need for regional initiatives to be linked to global integration, which will be a major driving force for countries; and
- Lack of a physical sustainable integration initiative in the Caribbean.
How does the Bank invest in physical integration?
The region struggles to compete globally due to high transportation and logistical costs. The coverage and quality of physical infrastructure are insufficient and lack regulatory harmonization. The Bank helps the region to
- improve and expand the coverage of national transportation routes, connecting them to the main trade hubs;
- enhance the efficiency of the combination of transportation modes;
- address accessibility, congestion, urban conflicts, under-investment and outdated regulation of ports and maritime services;
- promote competitive market structures in air cargo and regional freight by modernizing and expanding existing systems and facilities;
- carry out regulatory reforms in the areas of transportation, customs, trade facilitation and private sector services;
- improve border-crossing infrastructure and services, balancing the needs of users and local communities
- improve policy dialogue on transport integration with governments; and
- strengthen regional institutions and support multicountry initiatives.
For many countries in the region the high cost of energy is not only a burden for consumers but also an impediment to business development and international competitiveness. Greater efficiency and energy security can be achieved by integrating power grids, harmonizing regulations and increase regional generation capacity. The IDB supports
- the interconnection of national electric grids;
- the development of regional gas pipelines;
- the joint planning and financing of bi-national or regional energy projects, particularly in crude oil refineries and hydroelectric power generation;
- policy dialogue on energy matters;
- modernizing regulations to facilitate transactions in energy goods and services; and
- building partnerships with regional institutions.
As information technologies evolve, new development strategies and business models are emerging. Connecting governments, firms and individuals digitally is crucial to improving the comparative advantages of the region. The IDB supports the region with
- capacity building and policy research to create and implement comprehensive Information Communications Technology (ICT) policies;
- lending to reform telecommunications policies and regulation; and
- infrastructure financing for broadband and other ICT infrastructures.