Attracting Foreign Direct Investment into Infrastructure: Why Is It So Difficult (Occasional Paper (Foreign Investment Advisory Service))

339 Pages·1999·1.21 MB·English

by  Frank Sader

Attracting Foreign Direct Investment Into
Infrastructure : Why Is It So Difficult?
title:
Occasional Paper (Foreign Investment
Advisory Service) ; 12
author: Sader, Frank.
publisher: World Bank
isbn10 | asin: 0821346024
print isbn13: 9780821346020
ebook isbn13: 9780585162751
language: English
Investments, Foreign--Developing
subject countries, Infrastructure (Economics)--
Developing countries.
publication date: 2000
lcc: HG5993.S23 2000eb
ddc: 332.67/3221724
Investments, Foreign--Developing
subject: countries, Infrastructure (Economics)--
Developing countries.
Page i
Attracting Foreign Direct Investment Into
Infrastructure
Why Is It So Difficult?
by Frank Sader
Foreign Investment Advisory Service
Occasional Paper 12
Page ii
(c) 2000 The International Finance Corporation
and the World Bank,
1818 H Street, N.W., Washington, D.C. 20433
All rights reserved
Manufactured in the United States of America
1 2 3 4 5 03 02 01 00 99
The International Finance Corporation (IFC), an affiliate of the World
Bank, promotes the economic development of its member countries
through investment in the private sector. It is the world's largest
multilateral organization providing financial assistance directly in the
form of loans and equity to private enterprises in developing
countries.
The World Bank is a multilateral development institution whose
purpose is to assist its developing member countries further their
economic and social progress so that their people may live better and
fuller lives.
The findings, interpretations, and conclusions expressed in this
publication are those of the authors and do not necessarily represent
the views and policies of the International Finance Corporation or the
World Bank or their Boards of Executive Directors or the countries
they represent. The IFC and the World Bank do not guarantee the
accuracy of the data included in this publication and accept no
responsibility whatsoever for any consequences of their use. Some
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The material in this publication is copyrighted. Requests for
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The cover design is based on an antique map by an unknown artist.
Library of Congress Cataloging-in-Publication Data
Sader, Frank.
Attracting foreign direct investment into infrastructure : why is it so
difficult? / Frank Sader.
p. cm. - (Foreign Investment Advisory Service occasional paper ; 12)
ISBN 0-8213-4602-4
1. Investments, Foreign-Developing countries. 2. Infrastructure
(Economics)-Developing countries. I. Title. II. Occasional paper
(Foreign Investment
Advisory Service) ; 12.
HC5993 .S23 1999
332.67'3221724-dc21 99-051877
Page iii
Contents
Abstract vii
Preface ix
Acknowledgment xi
Abbreviations and Acronyms xiii
Executive Summary xv
1. Introduction 1
2. Foreign Direct Investment-The Engine Behind the 6
Private Infrastructure Revolution
3. The Complex Nature of Greenfield Investments in 17
Infrastructure: Incentives and Risks
3.1 19
The Contractual Web of a BOT-Type Project
3.2 23
Governments: Balancing Domestic Interests and
Multiple Objectives
3.3 24
Sponsors: Creating a Viable Project Structure
3.4 26
Commercial Lenders-The Market Test of Bankability

Page iv
4. Risks Investors Face 28
4.1 32
Conflicting Opinions Within Government
4.2 33
Insufficient Coordination
4.3 37
Insufficient Expertise
4.4 41
Direct Negotiations versus Competitive Tenders
4.5 45
Unclear Tendering Rules
4.6 49
Political Interference
4.7 50
Unclear Market Entry Conditions
4.8 52
Lack of an Adequate Legal Framework
4.9 57
Difficulties During Operation
4.10 61
Social Concerns After the Fact
4.11 63
Political Commitment of Successor Governments
5. Handling the Risks 69
5.1 70
The Role of Government Support Arrangements
5.2 79
The Importance of Overall Sectoral Liberalization
6. Designing an Effective Policy Framework 88
6.1 89
The Usefulness of an Institutional Support Structure
6.2 102
Designing an Overarching Legal Framework
6.3 122
Regulating Private Infrastructure: Minimizing Risk and
Abuse
6.4 128
The End Result: Expensive Potentials or Investment
Booms
7. The Impact of the Asian Crisis 132
8. Conclusion 145
Annex 1. Methodology for Estimating FDI Flow 147
Annex II. Summary Data Tables 155
Notes 169
References 171
Page v
Figures
1. Number of Private Infrastructure Transactions in 7
Developing Countries
2. FDI Inflows to Developing Countries from 11
infrastructure Projects
3. FDI in Infrastructure, by Sector 12
4. Different Strategies: Latin America and East Asia 13
Compared
5. Investor Origin, by Sector 15
6. Actual Versus Potential Private Infrastructure Projects 18
7. Structure of a BOT-Type Project 20
Tables
1. FDI Is Key in Private Infrastructure in the Developing 9
World
Boxes
1. What Is a "BOT-Type" Project? 3
2. The Trouble with Traffic Forecasts: The Dulles 29
Greenway
3. Project Preparation Is an Expensive Business 30
4. Fighting State Monopolies: The Story of Econet 34
5. Conflicting Authorities: The Subic Bay Container 36
Terminal
6. How Not to Do It: Mexican Tollroads 38