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Critically constrained public resources on the one hand, and huge existing infrastructure needs for basic services on the other, make private participation in emerging markets and developing economies (EMDEs) not just critical, but in fact, imperative. Crowding in private finance is essential to spur economic development and meet the twin goals of shared prosperity and elimination of extreme poverty, as well as to achieve the Sustainable Development Goals.
The Private Participation in Infrastructure (PPI) Database, with data spanning over almost 27 years, has become a powerful tool and measure for gauging the level of private investment in infrastructure in EMDEs.
private participation in infrastructure
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As the only global facility specifically dedicated to reinforcing the legal, institutional and policy underpinnings of private sector participation in infrastructure—which we call the critical upstream—we at the Public-Private Infrastructure Advisory Facility (PPIAF) realize we have a key responsibility to developing countries.
That responsibility is to help client governments unlock their potential by de-risking investments and creating an enabling environment for private sector participation, itself a condition to achieving the Sustainable Development Goals and climate-smart objectives. As such, PPIAF fits neatly into the new Maximizing Financing for Development (MFD) approach to crowd in the private sector, an initiative launched by the World Bank Group and other multilateral development banks last year.
With the World Bank Group focusing on maximizing finance for development, understanding the role of private participation in infrastructure is drawing a lot more attention.
In emerging markets and developing countries, the largest source of infrastructure investment is still domestic public spending. However, government budgets are tight, so crowding in private finance is necessary to meet large infrastructure needs. The World Bank has a tool to help understand private investments in infrastructure in the developing world: the Private Participation in Infrastructure (PPI) Database. With 27 years of data on PPI investments in emerging markets,
Whilst the enthusiasm for private sector participation in infrastructure gains pace, it is also important to look at the trajectory of PPI over the past decades. The numbers are, in fact, quite sobering.
First, the numbers
The newest PPI Database results show that investment commitments to infrastructure projects with private participation investment in IDA countries from 2009 to 2014 totaled US$72.8 billion. This is significant because it accounts for just seven percent of the total recorded over this period for all emerging markets and developing economies covered in the database. This is not that surprising, but does show that we have a long way to go.
The number of projects with private participation in IDA countries is also only 10 percent of the total — a little better, and indicating that, unsurprisingly, projects are smaller on average in IDA countries. (For more information on IDA countries and detailed information on the IDA’s mission, please see: http://www.worldbank.org/ida/what-is-ida.html.)
But what does it mean?
Examining these figures in terms of sector activity reveals some especially useful facts for development initiatives — both those underway and those still in the incubation phase. Activity in IDA countries is heavily focused on telecommunications; even energy projects, which remain well represented, take a back seat to telecom. Fully 57 percent of investment commitments in IDA countries were in telecommunications and 31 percent in energy, compared to 32 percent and 41 percent respectively in other (non-IDA) countries. In contrast, only 12 percent of investment in IDA countries was in transport, compared to 25 percent in other countries. As we’ve seen before, telecommunications is the most commercially viable sector. IDA countries specifically are facing greater difficulties in attracting projects in energy, transport and water.
The PPI Database’s 2014 full year update for these sectors has just been released, and it confirms the trends we began tracking for the first six months. Total investment in infrastructure commitments for projects with private participation in the energy, transport, and water and sanitation sectors increased six percent to $107.5 billion in 2014 from levels in the previous year. The total for 2014 is 91 percent of the five-year average for the period 2009-13, which is the fourth-highest level of investment commitment recorded – exceeded only by levels seen from 2010 through 2012.
This increase over 2013 was driven largely by activity in Brazil. Without Brazil, total investment commitments would have fallen by 18 percent, from $77.2 billion in 2013 to $63.4 billion in 2014. Although this is lower than H1 2014 (57%), Brazil’s large stake is a continuation of a recent trend.
The Latin America and the Caribbean (LAC) region saw $69 billion of investment commitments, or nearly 70 percent of the total for 2014. Three of the top five countries by investment commitments in 2014 were from LAC. The top five, in order, were Brazil, Turkey, Peru, Colombia, and India.
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