Inclusive Growth: What does it mean, and how do we operationalize it? Joanne Asquith Independent Evaluation Department Asian Development Bank

Outline Why Inclusive Growth? What is Inclusive Growth ADB’s Sri Lanka Program Inclusion in Infrastructure Investments Conclusions

Outline Why Inclusive Growth? What is Inclusive Growth ADB’s Sri Lanka Program Inclusion in Infrastructure Investments Conclusions So let’s start by looking at why inclusive growth is important

Rising Income Inequality Widening income inequality within countries Increased substantially since 1990 in most developed world Marked increases in Asia and Europe Latin America declined but remains the most unequal Overall, increased in advanced economies by an average of 5.25 Gini points Change in Net Gini Index, 1990-2012 Sources: Norris et al. 2015. Causes and Consequences of Income Inequality: A Global Perspective. IMF Staff Discussion Note.  

Change in Income Inequality 1995-2014

Why Inequality Matters Stifles growth Minimizes impact of growth on poverty Undermines social cohesion GDP change from 1% point income rise Source of Data: Norris et al. 2015. Causes and Consequences of Income Inequality: A Global Perspective. IMF Staff Discussion Note.

Outline Why Inclusive Growth? What is Inclusive Growth ADB’s Sri Lanka Program Inclusion in Infrastructure Investments Conclusions So we know where inclusive growth comes from, but what is it exactly?

Making Growth More Inclusive Social protection e.g. conditional cash transfers Inclusive Growth Not any, but broad based growth High growth Access to opportunities: health and education

Outline Why Inclusive Growth? What is Inclusive Growth ADB’s Sri Lanka Program Inclusion in Infrastructure Investments Conclusions So we know that inclusive growth supports growth that is sustainable, that it promotes equal access to opportunities, and it provides safety nets to those who cannot participate. So what does ADB’s program look like in Sri Lanka?

ADB Sri Lanka Program As you can see, the bulk of ADB’s investment in Sri Lanka is in infrastructure = energy, water, and transport infrastructure. And this has grown over the last 10 years. Demonstrates that a conscious effort is to ensure infrastructure projects promote inclusive growth i.e. that they benefit lower income groups So infrastructure projects need to do a better job of impacting on lower income groups Depends crucially on project design. Not just infrastructure, but projects on access to opportunities designed so that they directly impact lower income groups

Outline Why Inclusive Growth? What is Inclusive Growth ADB’s Sri Lanka Program Inclusion in Infrastructure Investments Conclusions So let’s start by looking at why inclusive growth is important

Transport Connections Access to markets/jobs/economic centers or to health and education, road itself may not be sufficient if cost of transportation is high Economic corridors (tourism, agriculture), livelihood training, access to credit Gender focus in all Maximize safeguards, minimize vulnerability e.g. to land grabbing, deforestation, human trafficking, road accidents Choice of labor-intensive construction methods – temporary employment Transport is ADB’s largest area of investment. Over one third. So big responsibility falling on the transport sector in terms of achieving IG. Placing all this on one project may be difficult but the inclusive growth outcomes of the investment need to be considered. So IG requires: Better project design requires better diagnostics Close coordination with government to include a focus on policy Cooperation with other donors So, its not just about the supply or roads, but about the distributional impact. Not just about roads contributing to growth but to inclusive growth i.e. who are the people that won’t benefit….the elderly, the poor, and the disabled. In South Africa, cash transfers to the elderly is used by households to afford the cost of public transport and allow younger members of households to seek work in larger economic centers.

Energy Affordable new connections in low income or rural areas Reliable energy supply Renewable energy sources Provision of small scale credit and technical training

Water and Sanitation Expanding water supply connections and sanitation Estate sector households less likely to have drinking water Uneven access across ethnic groups Water pricing – those who consume most pay most Ensure access by poorest, elderly, and disabled Also a significant and growing share of ADB support. Here issues are about access, affordability, and quality. Life line tariff for everyone. Tariff is set very low so water board has problems meeting its costs.

Conclusions Inequality stifles growth, minimizes impact of growth on poverty, undermines social cohesion Inclusion is not automatic, not just growth but inclusive growth – growth with equality of opportunity, and social protection Better diagnostics for better project design Coordination with government (policy context) Working better with other development partners Pursuing inclusive growth means including lower income groups in the growth process It does not mean growing first and then redistributing the benefits of growth later