Quick Note: High Third-World Construction Cost Examples

Dhaka, the world’s poorest megacity (at least until Kinshasa crosses 10 million and qualifies as a megacity), is building a metro system. Using Japanese financing and Indian consultants, it is planning to build a multi-line system, and getting bids for the first line. This line is going to be elevated, and 20-21 kilometers long; construction costs are 220 billion takas, which is $2.8 billion in exchange rate terms and about $8.5 billion in PPP terms.based on the 2013 conversion factor here. This is a bit more than $400 million per kilometer, which is high for a fully underground line, let alone an elevated line.

Jakarta, which is much richer, but still third-world (Indonesia is slightly poorer than China, as of 2014), is building a metro as well. Its first line’s first phase is mixed underground and above-ground: 15.7 kilometers, of which 9.2 are underground. The cost is $1.4 billion, or about $4.2 billion after PPP conversion, giving $266 million per km, still on the high side for a 59% underground line, but nothing as extreme as in Dhaka.

It’s a reminder that poor countries aren’t just low-cost. Things usually are cheaper in the third world, but by a much smaller factor than the income difference. Bangladesh’s GDP per capita, before any PPP conversion, is about $1,000. It is cheaper than the US and Europe, but not by a factor of forty or fifty, but by a factor of about three. Three is an average – imported electronics cost about the same in exchange rate terms everywhere, whereas rent is much more sensitive to local wages – but, for rapid transit construction cost, the average turns out to level the entire difference between the first and third worlds. Some countries, like China, are still a bit cheaper than Europe, while others, like Bangladesh, overshoot.

9 comments

  1. Eric

    It’s not entirely clear to me if the Dhaka metro will be mostly paid for by Bangladeshi taxpayers or by international donors. Outside funding has a tendency to lead to extreme waste, as we saw under very different circumstance recently in lower Manhattan.

  2. Yoav

    I do’t understand why you use PPP conversions for a project like this. So many of the components are international, you get 3rd world countries are expensive for no reason.

    • Alon Levy

      Yes, this is probably a major dampener in Indonesia, where so much of the construction involves Japanese consultants. But in Bangladesh, the international components are from India, where the price level is actually (slightly) lower than in Bangladesh.

      • Yoav

        Well, even in India the PPP can change widley. Bangalore is not Delhi.
        And where do they all get their stock and machinery from?

        • Alon Levy

          I don’t know where Dhaka is planning to get its rolling stock, but Delhi did a tech transfer, with most manufacturing done in Bangalore. There are links in comments in my main post about third-world construction costs; only 20% of the capital cost of the Delhi Metro consists of imports, and as a result, indigenization efforts such as making the trains in India rather than Europe or South Korea ended up only cutting costs by 10-15%.

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