Infrastructure, Poverty Reduction and Jobs

Infrastructure, Poverty Reduction and Jobs

1.1 This paper links infrastructure development with poverty reduction and employment creation. It advocates for the incorporation of a local resource-based approach as an integral component of the proposed national employment strategy. It presents some of the earlier work of ILO on infrastructure development in Indonesia and makes a case for scaling-up this work to achieve a nation-wide impact.

1.2 To achieve sustained poverty reduction, countries like Indonesia must pursue economic growth that involves and benefits poor people. Pro-poor growth is crucial to meeting the UN Millennium Development Goals (MDGs), which set clear targets for a number of challenges in different sectors (agriculture and income, education, health, water and sanitation). Although infrastructure as such is not identified as a direct MDG target or indicator¹, the provision of infrastructure is an essential facilitating measure for economic growth and local development. Without sustainable infrastructure development many of the MDG targets may not be met.

1.3 Investing in infrastructure creates income opportunities and generates jobs. Directly as employment can be created during the construction and maintenance of infrastructure by using labour-based methods. An increased use of local resources (labour and materials) in addition will have backward and forward linkages further stimulating the local economy. Indirectly as the assets created by themselves will improve access to income and employment opportunities. Ongoing ILO work in Aceh and Nias demonstrates that up to 2,200 workdays can be created per kilometer of district road rehabilitation. Rural roads provide access to markets and employment centres and have a sustained impact on employment. It is easier, faster, more convenient and less expensive for people to travel and transport their produce if the road network is in good shape. This results not only in expanded opportunities to sell produce or find work but also in increased productivity and profits. Rural roads provide opportunities for the rural transport sector to develop which in turn benefits both users and operators of rural transport services and the entire rural transport service supply industry. Irrigation facilities increase agricultural production and enhance productivity. Public market facilities bring buyers and sellers together and stimulate local trade. Various backward and forward linkages will stimulate local economic development and provide new income opportunities for the rural poor.

1.4 Infrastructure development, poverty reduction and employment creation are linked. Employment generation and poverty alleviation forms part of the ILO’s core mandate. The goal of Decent Work for All and the pledges in the Millennium Declaration are mutually supportive. The ILO Decent Work Agenda contributes to all MDGs in the global fight against poverty but in particular to Goal 1: halving the proportion of the world’s people with income of under one dollar a day. In 2007, a new target was added under MDG 1: “to make the goals of full and productive employment and decent work for all, including for women and young people, a central objective of our relevant national and international policies and our national development strategies.” Reaching this target requires specific strategies, programmes and tools such as the local resource-based approach introduced in this note.

1.5 Providing adequate infrastructure such as clean sources of water, health and education facilities, markets and proper transport access is still a major task, which is yet to be achieved in large parts of developing countries. In order to provide such services to all, there is a need for effective approaches involving the users, local government institutions and private sector in order to effectively plan, develop and maintain the required infrastructure. Jobs can then be created through the use of employment friendly work methods.

1.6 The ILO in collaboration with over 50 countries has been running a programme on infrastructure development and job creation for over 30 years, both in a development and post-crisis context. This programme has developed comprehensive strategies, procedures and tools to increase the impact of investments in infrastructure on employment creation, poverty reduction and local development. The programme works with national and local governments, the private sector and communities in orienting infrastructure investments towards the creation of more productive employment and towards the improvement of access to basic goods and services for the poor. A combined use of local participation in planning with the utilization of locally available labour, skills, technology, materials, and appropriate work methods has proven to be an effective and economically viable approach to infrastructure works in many developing countries. This approach has been applied in fifteen countries in the Asian region including Indonesia and provides a sustainable approach to infrastructure development at the local level. The approach is commonly referred to as the local resource-based approach. It includes:

Participatory infrastructure planning at community and local government (sector) level to identify infrastructure needs and priorities.

The use of labour-based technologies to optimize opportunities for employment creation and income generation while maintaining cost competitiveness and acceptable engineering quality standards.

Small-scale and community contracting, as local infrastructure works provide an opportunity for developing local small contractors and community groups into effective rural infrastructure construction and maintenance entities.

The utilisation of local materials, skills and tools to the extent possible to support the local economy and create indirect job opportunities for local enterprises rather then importing construction materials from far away or from abroad.

2. Current Situation and Recent Trends – Indonesia

2.1 Indonesia has made significant progress in reducing poverty in recent years and notable improvements have been made in progress towards the MDGs. Indonesia however still has an estimated 40 million people living below the national poverty line and an estimated 110 million people living below the US$ 2 a day poverty line. Despite an annual average GDP growth of about 5% in recent years, the country’s open unemployment rate has risen from 9.1% to 10.4%. Underemployment is estimated at around 30% and more than two-thirds of the employed are in the informal sector.

2.2 Compared to countries with a similar level of development, infrastructure is relatively well developed in Indonesia. There is a general concern however about the poor condition of local infrastructure and the insufficient capacity at the decentralized level to develop and sustain this infrastructure. While most people live within an acceptable distance from a health centre or a school, the facilities do not always provide the services people need. Problems remain with respect to quality and access to services, especially by the poor. Improving this will require improved targeting of local infrastructure, increased efficiency and higher levels of funding. Infrastructure systems are often not maintained which puts at risk the potential for sustainable development. Government agencies will need to give priority to the provision and maintenance of the physical infrastructure on which the poor in particular depend if poverty reduction and employment creation remain national development goals.

2.3 The central government influences and supports the development of infrastructure through the development of sector policies and strategies (infrastructure development is one of the main development strategies in Indonesia), through the development of standards, norms and guidelines and through the channelling of funds. Indonesia embarked on a process of decentralization in 2001 and responsibilities for local infrastructure development have been transferred to local authorities. Necessary capacities at these levels have often not yet been sufficiently developed and this is affecting the state of the infrastructure in the country. Priority attention is given to developing the basic systems needed for effective and accountable administrative and financial management, and the development of models for participatory planning and oversight. Local management models are introduced and technical skills are strengthened in different sectors. Capacity building however remains a top priority.

2.4 Indonesia needs to create more jobs and the development of infrastructure can contribute to this. Bappenas has put 'labour-intensive' as a mainstreaming guide in their 2009 plan with the objective to enhance the labour content of large infrastructure projects, without compromising quality. Strengthening the technical capacity at the local level remains crucial in this effort. There is a need for detailed guidance and operating procedures on how to identify design and implement large-scale projects with more labour inputs. Indonesia of course has had various employment creation schemes through infrastructure programmes (P4K, Padat Karya, etc.). The results of these programmes however have been mixed and concerns have been raised primarily about the quality and sustainability of the assets created and the productivity of the works.

2.5 The ILO has been active in Indonesia with respect to promoting and strengthening various forms of labour-based or local resource-based works, to different degrees and at various levels – from direct road rehabilitation on Sumatra to policy dialogue at the national level.

At the central level:

The ILO worked with the Coordinating Ministry for Economic Affairs (CMEA) to establish the Coordination Team for Rural Infrastructure Development (CTRID) in 2002. The work of CTRID contributed to the development of a poverty reduction strategy which was also included in the agenda of the Consultative Group on Indonesia (CGI) meeting. ILO assisted CTRID in the development of strategies and tools for rural infrastructure development. Support at the central level to promote rural infrastructure development as a strategy for poverty reduction and employment creation and work in East Nusa Tenggara (NTT) Province to develop manuals and training modules for sustainable rural infrastructure development in a decentralized context. Activities were designed in such a way that the results of the work at the local level fed back to the policy/strategy work at the national level.

ILO’s work on local resource-based infrastructure development involved a number of Universities to develop tools, procedures and capacity. The work focussed on the complete cycle of infrastructure development from planning, contracting, technology through to maintenance. To scale up the work with the universities, a Memorandum of Understanding was signed between CMEA, the ILO and 8 universities to expand activities across the country and include more districts in capacity building activities. Universities developed the capacity to run Infrastruktur Kliniks, which were local workshops on infrastructure development for poverty reduction, and delivered technical assistance on sustainable rural infrastructure development to local governments. Work with the University Network had a good potential producing a series of guidebooks on how local resource-based technology can be applied in Indonesia.

An ILO study carried out after the financial crisis of 1997 concluded that the country could create 1.1 million jobs over a five-year period by mainstreaming labour-based approaches across various infrastructure sectors. It identified the need for a three-year programme of technical support and training to assist the Government in achieving this outcome.

Bappenas and ILO prepared a paper in 2005 which presents an approach for a “national employment guarantee scheme” to address the employment problems of the poor, particularly those located in rural areas. The proposed programme rests on three pillars:

1. Employment creation for the poor, particularly in rural areas – a maximum of three months in a year, at an average monthly wage of Rp 350,000, targeting 15 million poor households;

2. Productive asset formation in the local economy in various sectors and typical investments would be in the building, repair and maintenance of roads, irrigation systems, water supplies, flood control systems and public buildings and watershed development and reforestation works which in turn could generate more employment as spin-off;

3. Extension of human development options to the workers and their households.

At the local level:

ILO worked in a number of Kabupaten across the country to develop guidelines and procedures for local level infrastructure planning, small-scale contracting and local maintenance systems. This resulted in a set of technical guidelines and manuals which were introduced during the so-called Infrastruktur Kliniks. The different elements together produced the foundation for the local resource-based approach.

The road sector was seriously affected by the 2004 Tsunami and the UNDP/ILO Project “Creating Jobs: Capacity Building for Local Resource-based Road Works in Selected District in NAD and Nias (2006-2009)” was formulated in consultation with BRR and district governments in Aceh and Nias. The ongoing project strengthens the capacity of local governments in Aceh and Nias in their management of infrastructure investments in support of employment creation and economic growth. Specific project goals are to:

capacitate district government and small-scale local contractors in undertaking local resource-based road works;

provide the techniques, standards, systems and strategies for this approach; and

involve the local communities in the provision and maintenance of district and other rural roads.

The project has completed the rehabilitation of 97 km and maintenance of 81.5 km. To date, it trained 77 district Public Works officials and 186 contractors’ staff, developed technical specifications, guidelines and standards, and generated 204,145 worker days (28% women) in local communities where project works took place.

A study carried out in 2008 in Aceh comparing road works using the local resource-based approach with road works using more traditional approaches concluded that the average total costs of the local resource-based roads was 10-50% less than that of other approaches. Overhead costs however were higher (25% of total cost). The quality of the local resource-based roads is perceived to be superior to the quality of other roads. Additional positive features included the increased capacity of local government staff and small contractors, creation of more employment, increased involvement of women in road works, increased community participation and greater transparency in the procurement process.

A key area for employment creation is the maintenance of infrastructure. A study carried out by ILO in 2008 recommends that there needs to be an improvement in the management capacity for planning and an increase in the actual expenditures to maintain the infrastructure and to escape from the pattern of damage followed by rehabilitation or reconstruction. Maintenance is employment intensive and investments in maintenance preserve the assets created, sustain the benefits generated by these assets, and provide long-term employment. Indonesia has a rural road network of about 300,000 kilometers. Routine maintenance on this network could create around 100,000 jobs (and keep the network in good condition delaying more expensive rehabilitation works and keeping transport costs low). Indonesia currently spends about 0.03 per cent of its GNP on road maintenance (amongst the lowest in Asia).

2.6 We may conclude that Indonesia has made progress in reducing poverty but it needs to do more to reach all the poor and create new employment opportunities. Local infrastructure is relatively well developed but more investments are needed to provide access to economic and social opportunities for all and maintain and preserve the infrastructure. The local resource-based approach developed by ILO in collaboration with partners at the central and local level has demonstrated to be a viable approach for infrastructure development. Local resource-based methods could be used on a larger scale for future investments in infrastructure to create assets, reduce poverty and create jobs.

3. Challenges

3.1 Scaling-up: There is considerable scope for the Government to use its authority to direct a major share of the public investments in infrastructure towards labour-based or local resource-based works. The Government also has the means to provide incentives for Kabupaten governments to also improve the outcomes of their discretionary spending on infrastructure in terms of reducing poverty and creating jobs. The ILO activities on Sumatra and elsewhere have demonstrated that the local resource-based approaches are effective. A much wider and lasting impact can be realized through the institutionalization of these approaches so that many more can benefit from such an initiative. The main challenge now is to upscale the work and generate a national impact. This requires that these approaches are institutionalized at the most appropriate level through reforms and modifications to existing policies and procedures. Specific inputs are required for technical and managerial training programmes of key decision makers, consultants and contractors. The twinning of upstream improvements to policies, specification, contract procurement systems and other relevant processes with demonstration sites in the field could probably provide a mechanism for introducing the approaches on a wider scale.

3.2 Funding: Operationalizing local resource-based approaches requires capital investments in infrastructure. Funding for employment creation through infrastructure programmes can come from the Government’s already existing resources. Central government funding of infrastructure has been transformed by regional autonomy. The three main regular funding components available to local governments are the Revenue Sharing Fund (DBH), the General Allocation Fund (DAU) and the Special Allocation Fund (DAK). Several types of infrastructure continue to be provided and funded by the center through the budgets of the ministries. In addition, there are the foreign loans. All these sources could be targeted to increase the labour-intensity of the investments in infrastructure development with limited additional costs to society. Seeking specific donor funding for demonstrating successful interventions should also be considered. There may be a need to pilot promising initiatives that may not deliver macro results in the short run but that could be well publicized and offer prospects for a significant employment contribution. The one million jobs proposal prepared by ILO after the financial crisis identifies some interventions in this context.

3.3 Strengthening local institutions: Indonesia rather suddenly decentralized functions and funding for infrastructure development (amongst other responsibilities) to the regions. Considerable efforts have been made to improve the service delivery standards and norms and the development of appropriate guidelines to assist local governments to plan, design and implement local infrastructure works. The introduction of local resource-based works however requires additional technical know-how. ILO recently carried out a training needs assessment (TNA) which outlines the capacity building strategy necessary to operationalize the local resource-based approach in Aceh and Nias by taking into account the specific conditions and working environment. Essential strategy elements as well as essential and critical requirements are identified and a recommended training programme focuses on practical training (on-the-job) and a problem oriented approach and consists of training inputs that are based on a normal contract implementation process and include i) pre-tender training, ii) mobilisation training, iii) on-the-job training for contract works. Although project specific, the results of the TNA are indicative for training needs in other areas of Indonesia. The importance of training and capacity building at the local level was confirmed by a study commissioned by ILO assessing the suitability of local resource-based approaches in three provinces in Eastern Indonesia (Papua, NTT and Maluku) in 2007/2008. The main purpose of the work was to identify possible areas for collaboration between local authorities and the ILO for improving the delivery of rural infrastructure through local-resource based approaches including the use of employment-intensive works technology, private sector involvement and rural access planning. The work provided an analysis of the current situation in terms of access to basic services and markets in the rural areas in the three provinces and on this basis made projections on rural transport infrastructure development demands, assessed implementation capacity, evaluated some key challenges facing the sector and identified entry points for a possible ILO technical cooperation programme. A lack of capacity at the local level for infrastructure development was identified as a main constraint in all three provinces. Training and capacity building of technical staff from local Governments, area development programmes (KDP, RESPEK) and small-scale contractors were identified as priorities for ILO involvement.

3.4 Viability: There is undoubtedly a place for improved and further use of local resource-based approaches in Indonesia. It is important to note that elements of the LRB approach are already being practiced in infrastructure and planning programmes and it would not be appropriate to establish parallel systems but rather build on and improve existing systems. There is a good basis on which to build through the ILO linking up with either an existing or planned major programme whereby the ILO "added value" involves essentially technical assistance on the back of existing or committed capital investment streams for infrastructure works. The challenge will be to achieve the realization of the LRB approach without being overcome by the major need to address basic technical managerial and planning needs which are likely to be technology neutral or technology insensitive. This is because of the daunting overall need for basic skills improvement especially at district and village level where general capacity building support may well be more welcome than specialist technical support for LRB approaches.

3.5 Effectiveness: In considering different interventions, the following issues need to be addressed to enhance the impact of different initiatives to introduce and mainstream local resource-based approaches:

Selection of good schemes that can have a positive impact on the local economy (agriculture, trade, small industries etc. which in itself will create additional jobs);

Effective targeting of specific groups such as the unemployed, underemployed, rural poor, urban poor, women, youth etc.;

Consultation and participation to ensure local priorities are being addressed, in addition to enhancing the effectiveness and ownership by different stakeholders;

Identification of the role and responsibilities of local governments;

Developing a monitoring and supervision mechanism to ensure employment targets are met as well as to learn lessons for applying best practices elsewhere; and

Ensure sustainability and long-term impacts of the assets created, including addressing maintenance issues.

3.6 Selection of sectors: Examples of initiatives that in the short term could lead to direct and tangible employment impact include:

1. Routine maintenance on highways and district and village roads. This is a subject with substantial potential to have a sizeable and sustainable employment impact, in addition to a possible overall reduction of road rehabilitation and maintenance costs;

2. Rehabilitation and construction of village roads and access to farm roads by using labour-based methods. Rehabilitation of district roads using emulsion-based pavement technologies would have the additional benefits of being more environmentally-friendly;

3. Construction, rehabilitation and maintenance of irrigation systems. Irrigation plays a crucial role in raising agricultural productivity which will generate additional benefits in terms of increasing local food supply. Existing irrigation networks exhibit degradation due to inadequate maintenance and currently over 25 percent of the network is not functioning. Rehabilitation and maintenance of this network has a huge job potential;

4. Watershed development, reforestation, drainage and flood protection, which will all have a positive impact on the environment; and

5. Maintenance and repair of public buildings such as schools, health centres, meeting halls and government offices.

3.6 Private sector involvement: The Government has an important role to play in providing guidelines to assist sector ministries and local governments to plan, design and implement effective labour-intensive/-based works. However, the implementation of infrastructure works is primarily done by the private sector. Stipulations for use of labour-intensive methods need to be build into contract conditions and works specifications. Capacity building is a challenge as well. The need and potential for contractor development is very evident as shown in Aceh and Nias and again by the studies in Papua, NTT and Maluku.

3.7 Mobilizing ILO assistance: the ILO could possibly assist both at upstream and downstream levels (both necessary to effectively institutionalize and mainstream the approaches):

Assessing the potential for employment creation in different sectors;

Identifying the actions necessary to increase the labour-intensity of infrastructure works in different sectors;

Developing standards, norms and guidelines for local resource-based works in various sectors;

Improving the procurement and contracting process also allowing for more labour-based works;

Training and in-country capacity building for the identification, design and implementation of local resource-based/labour-based works;

Technical and managerial advisory support to existing rural infrastructure schemes; and

Monitoring the employment impact of future infrastructure works.

¹ The World Bank has developed a Rural Access Indicator which measures the number of rural people who live within 2 km (typically equivalent to a walk of 20 minutes) of an all-season road as a proportion of the total rural population. This indicator is not an MDG indicator, but it is a key contribution to achieving many of the MDGs. Surveys have shown that poor people view isolation as a major contributor to their poverty and marginalisation.