Attracting Foreign Direct Investment into Infrastructure: Why Is It So Difficult (Occasional Paper (Foreign Investment Advisory Service)) PDF
Preview Attracting Foreign Direct Investment into Infrastructure: Why Is It So Difficult (Occasional Paper (Foreign Investment Advisory Service))
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 sources cited in this paper may be informal documents that are not readily available. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the General Manager, Foreign Investment Advisory Service (FIAS), at the address shown in the copyright notice above. FIAS encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to copy portions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910, 222 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A. 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
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