Infrastructure and the construction sector play a vital role in economic growth, yet high cement costs in low-income countries, limited job creation, and the dominance of foreign firms highlight the challenges in building and delivering infrastructure globally.
Editor's note: This episode of VoxDevTalks is also available on Spotify, Apple Podcasts, and YouTube.
Defining infrastructure and its role in growth
In this episode of VoxDevTalks, Martina Kirchberger discusses the economics of infrastructure and the construction sector. Kirchberger begins by clarifying what she means by infrastructure:
“I typically have in mind the core arteries of an economy. So, think of the roads, the bridges, the highways, airports and supportive infrastructure, electricity, water, sewage systems. And then there is social infrastructure, buildings that are used as hospitals, as schools.”
Infrastructure is central to enabling wider economic activity but proving a direct link to growth is complex. As Kirchberger notes, countries with good infrastructure also tend to implement many complementary policies, making identification difficult. Still, the complementary role of infrastructure is undeniable:
“They’re sort of key to enable economic activity in all kinds of other sectors. At the same time, they’re also a source of wasteful spending... historically, we also know that there are roads built to nowhere. And so, I think getting the spending right is really important.”
The scale of construction investment
The construction sector plays an outsized role in overall investment, as Kirchberger explains: “The construction sector accounts for about half of investment.”
This means that infrastructure, as part of civil works, represents a huge share of investment flows – a fact often overlooked in policy debates. Policymakers view construction as a means of delivering multiple goals: creating jobs during and after projects, supporting upstream firms, and enabling productivity improvements through better matching of workers and firms.
Why cement prices matter for development
One striking strand of Kirchberger’s research focuses on cement. Cement is a critical input in construction and therefore a bottleneck for infrastructure in low-income countries. She distinguishes between integrated plants, which process limestone into cement, and grinding plants, which only complete the final stage. Because limestone is heavy and costly to ship, geology determines plant types and shapes markets.
Global trade in cement remains limited, with only 5% of global consumption being traded.
Using International Comparison Project data, Kirchberger uncovered surprising patterns:
“We saw large differences… Prices were higher in low-income countries, which is very striking, because these are the countries that are going to build up their infrastructure massively.”
In 2011, the average cement price in sub-Saharan Africa was US$260 per ton, compared with $190 in North America and $115 in East Asia. In the Central African Republic, it reached nearly $500 per ton.
The reasons include high input costs, small plant scale, and limited competition. Kirchberger and her co-authors found that countries with fewer firms faced significantly higher prices, and the effects ripple through infrastructure costs:
“Construction components that use concrete are more expensive when cement prices are high. So there seems to be this very clear pass through.”
Policies such as restrictive standards, import bans, and opaque licensing further entrench high prices. Although competition authorities are active, even rich countries struggle with cement cartels:
“Cement cartels, or cartels in concrete, are being discovered across the world... it’s just a difficult problem to solve.”
Jobs and the construction sector
Policymakers often see construction as a way of absorbing growing workforces in developing countries, particularly in sub-Saharan Africa where the working-age population is expected to rise by 40% between 2018 and 2035.
Kirchberger and co-authors tested whether these jobs deliver long-term benefits in an innovative randomised controlled trial in Dakar, Senegal. Partnering with government, donors, and a construction firm, they studied workers hired for the Bus Rapid Transit project.
Selected workers received a three-month formal contract with a multinational firm, including a base salary, transport allowance, and paid overtime. The results were mixed:
“We see immediate effects in the first three months... they’re working longer days, more days, and more hours. But we don’t see any effect on earning.”
After the contract ended, most effects disappeared:
“At endline these workers in many outcomes don’t look different from the control group... the evidence so far does not suggest that these workers are in a substantially different trajectory.”
Short contract durations, low pay, and limited career ladders appear to limit the potential of construction jobs as a pathway to sustained advancement. However, complementary interventions – such as non-cognitive skills training – show promise in improving retention and earnings.
Construction as a global industry
Another assumption challenged in this discussion is that construction is purely domestic. In fact, Kirchberger shows that low- and middle-income countries rely heavily on foreign contractors for large projects. Reviewing World Bank contracts, she found that for sub-Saharan Africa:
“For contracts that are higher than US$2 million, about 50% are carried out by firms registered outside the region... for contracts above $50 million that’s 75%.”
Her ongoing work digitising global contractor data reveals striking shifts: in 2003, the top 10 global firms were all from high-income countries. By 2023, 40% were from China, reflecting the country’s competitive edge and global reach. China’s revenue share in construction grew five-fold, while the US share shrank dramatically. Low-income countries remain almost absent from the rankings.
Can policy build domestic construction capacity?
Given the dominance of foreign firms, policymakers may wish to foster domestic industry. Possible approaches include requiring joint ventures, stipulating local worker hiring, or mandating local suppliers. Kirchberger cautions, however, that evidence on what works is scarce:
“I think this is an area where it’d be very useful to generate more evidence partnering up with governments. I think the evidence that we have from local content policies in natural resources is mixed.”
The challenge is balancing urgent needs for infrastructure against longer-term goals of industrial development. Kirchberger highlights the scale of the opportunity, pointing to the fact that “90% of buildings to exist in Africa in 2040 are yet to be built.”
This immense pipeline means there is time to experiment with policies that encourage spillovers into domestic firms and labour markets.
Trade-offs and future directions
The episode closes by acknowledging the trade-offs facing policymakers. Building infrastructure quickly is often essential, particularly in congested, polluted cities. Yet this urgency must be balanced with creating competition, lowering input costs, generating decent jobs, and building domestic firms. Kirchberger argues it need not be a strict trade-off: with the right policies and dynamic vision, a construction boom could serve as a foundation for inclusive growth.