WASHINGTON, D.C., September 29 -- Infrastructure is key to raising living standards in developing countries. A new paper by the International Finance Corporation (IFC) titled, Financing Private Infrastructure, puts together the Corporation's unique experience in this sector.
The paper states that, in the two years since IFC's first infrastructure report was issued in September 1994, there has been a sharp increase in funds mobilized for private infrastructure projects in developing countries as well as an opening of new sectors, new financing sources, and opportunities in new countries. Countries becoming accessible in this period include China, Côte d'Ivoire, Dominican Republic, Honduras, Jordan, Latvia, Panama, Pakistan, Tanzania, Uruguay, and Vietnam.
The figures are impressive. The total estimated financing of new projects in developing countries has doubled between 1993 and 1995, from about US$17 billion to over US$35 billion. Cumulative IFC support through June 1996 amounted to US$3.1 billion of financing to 148 projects worth US$29 billion in 40 developing countries. Almost half of IFC's financing commitments were made in the last two years.
In addition to its financing activities in infrastructure, IFC has also been involved with advisory work for governments, which includes assistance with the privatization of state-owned utilities and reforms of the policy and regulatory framework. IFC's advisory work has grown. Between 1993 and 1995, the Corporation began nine advisory mandates. By June 1996, eight more mandates were signed.
Releasing Financing Private Infrastructure in Washington, D.C. at the 1996 Bank-Fund Annual Meetings, Mr. Wilfried E. Kaffenberger, IFC's Vice President, Operations, who oversees infrastructure investments, said the paper's findings confirm that private infrastructure has become a "major force for change".
He added, "IFC's basic strategy has been to help with the initial projects, to show that investments can be made, and to demonstrate that the efficiency gains from private investment and management will pay off in better and more affordable services to customers. There is strong investor interest in infrastructure and our aim is to help turn this interest into viable projects for the benefit of our member countries."
The Corporation's infrastructure financings represent the biggest pool of experience in the developing world and its catalytic role has been most evident in countries that are seeking to launch their first private infrastructure projects or where new sources of finance are being tapped.
The paper notes three positive trends. New sectors and new countries are attracting private investment. There is more privatization of existing assets (in 1994, governments sold US$10.1 billion worth of assets in 75 companies in 30 countries). And there are new financing sources such as insurance companies and export credit agencies.
However, the paper also notes that progress is uneven, and that much of the activity has been concentrated in about a dozen countries (Argentina, Colombia, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Philippines, Thailand, and Turkey) where market conditions are conducive to attracting private investment. About 100 countries have yet to begin the process of deregulation and privatization in shaping local regulatory environments, and in overcoming political and economic barriers. Although IFC is committed to advancing private infrastructure in these countries, the initiative needs to come from governments and private developers.
Countries that financed projects two or three years ago are experiencing more liberalized infrastructure services, says the paper. The dependence on financing from foreign sources is likely to continue, given that domestic long-term finance is limited in many developing countries.
In order to get strong investor response, the paper advocates that governments adopt clear and more transparent procedures for awarding and operating concessions. Looking to the future, the paper sees three main trends -- increased competition within infrastructure markets; more projects at the municipal and provincial (rather than the national) level; and a bigger role for domestic savings as a future source of financing.
Financing Private Infrastructure was prepared in IFC's Corporate Planning Department in collaboration with the Infrastructure Department, which was set up in 1992 to finance private infrastructure projects. The principal authors are IFC analysts Gary Bond and Laurence Carter. The publication is the third that the Corporation is issuing this year in its new Lessons of Experience series. The earlier two papers featured IFC's experience with leasing in emerging markets and investment funds.
IFC, a member of the World Bank Group, is the largest multilateral source of equity and loan financing for private sector projects in developing countries.