The following material has been drawn, with permission, from DFID’s Sustainable Livelihoods Guidance Sheets.  For an introduction to the asset pentagon, change in asset status, and relationships within the framework (click here) 

What is Physical Capital?

Physical capital comprises the basic infrastructure and producer goods needed to support livelihoods.  Infrastructure consists of changes to the physical environment that help people to meet their basic needs and to be more productive.  Producer goods are the tools and equipment that people use to function more productively.

The following components of infrastructure are usually essential for sustainable livelihoods:

• affordable transport;

• secure shelter and buildings;

• adequate water supply and sanitation;

• clean, affordable energy; and

• access to information (communications).

Infrastructure is commonly a public good that is used without direct payment.  Exceptions include shelter, which is often privately owned, and some other infrastructure that is accessed for a fee related to usage (e.g. toll roads and energy supplies). Producer goods may be owned on an individual or group basis or accessed through rental or ‘fee for service’ markets, the latter being common with more sophisticated equipment.

Why is it important?

Many participatory poverty assessments have found that a lack of particular types of infrastructure is considered to be a core dimension of poverty. Without adequate access to services such as water and energy, human health deteriorates and long periods are spent in non-productive activities such as the collection of water and fuel wood. The opportunity costs associated with poor infrastructure can preclude education, access to health services and income generation. For example, without transport infrastructure, essential fertiliser cannot be distributed effectively, agricultural yields remain low and it is then difficult and expensive to transport limited produce to the market. The increased cost (in terms of all types of capital) of production and transport means that producers operate at a comparative disadvantage in the market.

Insufficient or inappropriate producer goods also constrain people’s productive capacity and therefore the human capital at their disposal. More time and effort are spent on meeting basic needs, production and gaining access to the market.

What can be done to build the physical capital of the poor?

Supporting the direct provision of producer goods for poor people can be problematic for a number of reasons:

• Acting as a direct supplier of producer goods can cause dependence and disrupt private markets.

• Direct provision can detract attention from the need to addess Policy, Institutions and Processes to ensure that gains are sustainable and producer goods are put to the best use.

• Many producer goods are private goods direct provision through an external agency entails favouring one set of potential recipients over another. This can be divisive and counter-productive. In addition, when goods are ‘rationed’, the rich often manage to gain access at the expense of the poor, for whom the goods were intended.

The livelihoods approach therefore focuses on helping to provide access to appropriate infrastructure that enables poor people to achieve their livelihood objectives. Participatory approaches are essential to establish users’ priorities and needs.

INSIGHT

Infrastructure such as roads, rails and telecommunications are key to the integration of the remote areas where many of the poor live. Not only are people able to move between rural and urban areas more easily if the transport infrastructure is good, but they are also more likely to be better informed about opportunities (or the lack of them) in areas to which they are thinking of migrating, either temporarily or permanently. 

Development of physical capital must be led by demand from the intended users. Without a perceived need for the service it is unlikely that the required infrastructure maintenance will be carried out, meaning that the service is likely to become unsustainable. 

‘Assistance for basic infrastructure provision is most effective when it is part of a broader plan for improving the effectiveness and coherence of government.’ Basic infrastructure for poor people. London: DFID (March 1998).

Physical capital (in particular infrastructure) can be expensive. It requires not only the initial capital investment but an ongoing commitment of financial and human resources to meet the operation and maintenance costs of the service. The emphasis is therefore on providing a level of service that not only meets the immediate requirements of users but is affordable in the long term. It can also be important to provide simultaneous support to skill- and capacity-development to ensure effective management by local communities.

Infrastructure is only an asset in as far as it facilitates improved service provision to enable the poor to meet their needs. For example, a participatory assessment may reveal that a key constraint to the livelihoods of a particular group is the difficulty of carrying produce to market, especially during the rainy season. A livelihoods `response’ to this problem will include not only improvements to the physical infrastructure to improve water crossings, or drain a track during the rains, but also would also consider encouraging an affordable transport service using appropriate vehicles, for example ox carts.

Sustainable livelihoods objective: better access to basic and facilitating infrastructure... achieved through (for example):

Direct support to asset accumulation

Indirect support (through Policy, Institutions and Processes)

Feedback from achievement of livelihood outcomes 

Services provision (e.g. development of intermediate means of transport)

Infrastructure provision (e.g. pumped wells and latrines)

Reform within managing ministries (possibly through sector programmes)

Support to sector strategies and regulatory frameworks including participatory processes with the poor

Support to the development of private sector alternatives

Capacity building for community-based construction and management

Increased income is often spent on shelter, water and power supplies

Better domestic infrastructure is often a core component of well-being.

What kind of information is required to analyse physical capital?

The approach to analysing physical capital must be participatory. Users may place a greater importance on some services than others and these priorities must be taken into account. For example, people may prefer to use a surface water supply a long way away rather than to pump a well near at hand.

• Does the infrastructure support a service? There is little benefit in a school building if there are no teachers, or the pupils cannot get to it when classes are being held.

• Is the infrastructure appropriate? Can the physical capital provided meet the needs of the users in the long term. This involves not just the sustainability of the service as it stands but an analysis of the ability of the capital to be adapted and upgraded in response to changing demand.

Access is also a key concern. Sometimes costly infrastructure exists in an area, but this does not mean that the poor have access to it.  This might be because the user-fees are too expensive for them, or because richer groups use their strength and influence to control or monopolise access.