Boosting infrastructure in developing countries

Geneva - Meeting the huge needs of developing countries for infrastructure such as roads, ports and electricity supply is a major challenge and requires better use of private-sector resources, including those of Transnational Corporations (TNCs), this year's World Investment Report1 contends. It adds that low-income countries are often too poorly equipped to attract or maximise the benefits of TNC involvement in infrastructure development, and hence a concerted effort by host countries, the international community and investors is needed to address the challenge.

UNCTAD's 2008 annual global investment review is subtitled "Transnational Corporations and the Infrastructure Challenge."

The report was released last week.

UNCTAD Secretary-General Supachai Panitchpakdi said, "Investment in infrastructure is part of the unfinished agenda of development: this is apparent in the daily power outages that stifle economic growth in Africa and in the lack of access to drinking water for millions in Africa and Asia.

TNC investment in infrastructure could therefore help meet some urgent development goals." Supachai said that TNCs from the North and South could support government infrastructure strategies by providing finance, technology and expertise. Governments and the international community, he said, must help create political, economic and institutional conditions so that developing nations can maximise the benefits of infrastructure investment, whatever the source.

Important role

Infrastructure plays an increasingly important role in international trade and investment. Developing countries cannot link into the global economy and export products at competitive prices without sufficient and good quality electricity, telecommunications and transport networks and without other basics such as widespread access to drinking water.

The report said that because massive infrastructure improvements are required in such countries, it is important to enhance the contributions of TNCs, but in a way that fits in with national development plans.

Foreign Direct Investment (FDI) in infrastructure has increased rapidly. From 1990-2006, global FDI committed to infrastructure increased 31-fold to US$ 786 billion.

The amount directed to developing countries increased 29-fold to an estimated $199 billion. Apart from FDI, TNC involvement also increased in concessions such as "build-own-operate" activities or management contracts.

During the 1990s, the growth of FDI in this sector among developing countries was the fastest in Latin America and the Caribbean, reflecting the large-scale privatisation of utilities in many countries of that region.

Since the turn of the century, however, FDI aimed at infrastructure has grown relatively faster in Africa and Asia. From 1996-2006, about four-fifths of all foreign investment commitments (including FDI, but also concessions) in infrastructure in developing and transition economies was undertaken in two industries: telecommunications and energy (primarily electricity), according to World Bank data. Less went into transportation (17%) andwater and sewage (4%).

Huge needs

Despite their huge needs for infrastructure improvements, Least Developed Countries (LDCs) remain marginal recipients of such TNC participation. Among all developing economies, their share of foreign investment commitments for infrastructure was a little over 5% for the period 1996-2006, with less than 0.5% of that intended for water projects.

The universe of the largest TNCs investing in infrastructure industries is evolving.

Although developed-country TNCs still dominate, there has been a marked rise in international activities by TNCs from the South.

As many as 22 from developing countries featured in UNCTAD's list of the world's top 100 infrastructure TNCs in 2006. Most were headquartered in Hong Kong (China), Malaysia and Singapore.

Some have emerged as major players in telecommunications; and others have become world leaders in port infrastructure.

Moreover, new types of international investors in infrastructure have appeared, including private equity funds (mainly from developed countries) and government-owned sovereign wealth funds (mainly from developing economies).

These newcomers have enlarged the range of sources developing-country governments can tap into when seeking investment in infrastructure.