Private and foreign investors can enter formerly publicly provided infrastructure services if a given segment is unbundled from the rest of the industry. Unbundling refers to a separation of segments of an industry from each other. Unbundled segments of infrastructure can be owned and/or operated by different enterprises competing with one another.
However, network segments retaining the
characteristics of a natural monopoly regardless
of whether they are publicly or privately owned as
well as interactions between more competitive and
less competitive segments require special attention
(Kessides, 2004; Newbery, 2006; Ure, 2008).
If potentially competitive segments are not unbundled,
or if the service provider is protected from competitive
pressures, it is difficult to create the necessary
incentives for cost control, pricing and enhanced
performance and, ultimately, investments (Joskow,
1996; Berg, 2001).
2. The infrastructure investment gap in developing countries.
The future investment needs of developing
countries for infrastructure development far exceed
the amounts currently planned by governments,
the private sector and other stakeholders.
This has created a significant gap in financing investment in
infrastructure industries. Indeed, such investment
needs are growing with increasing population, rapid
economic growth and urbanization, among others, and
finding the necessary funds remains a major challenge
for most developing countries.
However, accurate estimates of infrastructure investment needs and
financing gaps are difficult to obtain (box III.5). The
World Bank has estimated that, on average, developing
countries actually invest about 3-4% of their GDP on
infrastructure annually, whereas that they should be
spending about 7-9% on new investment projects
and maintenance of existing infrastructure, if broader
economic growth and poverty reduction goals are to
be achieved (World Bank, 2008b; Fay and Morrison,
2007).
Of the amount actually invested in developing
countries, public funding accounts for about 70% of
the total, private financing represents a further 20%
and ODA makes up the remainder. In order to meet
the shortfall, governments need to tap into all sources
of investment funds, including TNCs.