Recent evidence examines the long-run growth effects of surges in public investment (Warner 2014): the impact is limited due to poor institutions governing the life cycle of infrastructure products. In this context, enhancing institutions and procedures associated to project appraisal, selection and monitoring plays a key role in raising the quality of infrastructure spending. There are several channels through which more efficient public investment can foster growth (IMF 2015): (a) reducing transaction costs for the private sector, (b) increasing marginal productivity of private physical and human capital, (c) generating fiscal space by the provision of lowcost, better infrastructure services, and (d) releasing resources for growth-enhancing recurrent expenditure.

Closing efficiency gaps in public investment could significantly increase the public investment multiplier. For instance, a one-off 1 percent of GDP increase in public investment will boost output by about 0.3 percent among countries in the lowest quartile of public investment efficiency. However, an analogous increase of public investment will raise output by 0.6 percent among countries in the highest quartile (IMF 2015). In other words, closing the efficiency gap between the top and bottom quartiles could double the impact of public investment on growth.

This section looks first at the quality of institutions governing public investment management systems (PIMs) as well as the transparency of procedures associated to the procurement cycles of public and PPP projects. Next, it looks at the correlations of the soundness of public investment management and economic performance. Countries with sound PIMs tend to have greater growth and efficiency, higher private investment and lower public investment. Finally, it looks at the relationship between PIMs and governance. Again, countries with sound PIMs tend to also display strong levels of governance —i.e. improved control of corruption, rule of law and regulatory quality.

# **E.1. Public Investment Management**

The efficiency of public investment is closely tied to the quality of institutions at the country and the project level. Rajaram et al. (2014) identify several institutional features that countries need to adopt to deliver growth-enhancing public investment. This implies: (a) the implementation of a transparent and accountable system for guiding, appraising, reviewing and selecting projects that will enhance inclusive growth, and (b) design mechanisms and procedures to implement, adjust, operate and evaluate projects so as to optimize public service delivery. Weaknesses in any of these areas may lead to poor investment and lower growth.

Fostering development through public investment requires the strengthening of institutions for public investment management.<sup>26</sup> Dabla-Norris and associates (2012) constructed an index that evaluates the underlying institutional features of public investment management systems (PIMI index) for 71 developing countries from 2007 to 2010 across four different stages: project appraisal, selection, implementation and evaluation. Scores for this index range from 1 to 4 with higher scores denoting better performance. Figure 18 displays the averages for each category that comprises the overall PIMI score in three selected regions (SSA, LAC and EAP). The SSA region’s overall score (1.53) lags behind that of EAP (1.59) and LAC (1.84).<sup>27</sup> Note that the score on _project selection_ for SSA outperforms EAP, but not LAC —while the region trails in the other three subcategories (project appraisal, managing, and evaluation).

> 26 This implies enhanced practices of project appraisal, dealing with uncertainty, the integration of procurement practices into project design and implementation, and managing the decision on public-private partnerships.

> 27 The SSA region comprises 32 <31 are listed here> countries: Benin, Botswana, Burkina Faso, Burundi, Chad, Rep. Congo, Cote d’Ivoire, Ethiopia, Gabon, The Gambia, Ghana, Guinea, Kenya, Lesotho, Madagascar, Malawi, Mali, Mauritius, Mozambique, Namibia, Nigeria, Sao Tome and Principe, Senegal, Sienna Leone, South Africa, Sudan, Swaziland, Tanzania, Togo, Uganda, Zambia. This figure also includes 10 LAC countries (Barbados, Belize, Bolivia, Brazil, Colombia, El Salvador, Haiti, Jamaica, Peru, and Trinidad and Tobago) and 7 EAP countries (Cambodia, Indonesia, Lao PDR, Mongolia, the Philippines, Solomon Islands, and Thailand).

_Infrastructure in Sub-Saharan Africa - 34_