There is a close relationship between infrastructure industries and supplier industries and activities, such as the construction industry (backward linkages), and user industries such as air, road or sea transportation services (forward linkages). Both supplier and user industries fall outside the boundaries of infrastructure as used in this report (table III.), even though they are closely related as providers of inputs or as direct users of services.
In addition, the analysis
of TNCs in this chapter also makes a distinction
between those firms whose primary operations are
in an infrastructure industry (infrastructure TNCs
or firms "rooted" in infrastructure) and those, such
as manufacturing or financial firms, that have
ancillary operations in infrastructure (other TNCs in
infrastructure).
Infrastructure activities are often regarded
by many investors and operators as high risk
undertakings, especially when conducted in
developing or transition economies (Ramamurti and
Doh, 2004). Some of these risks are common to all
kinds of infrastructure projects, while others pertain
to a specific industry. These risks may be accentuated
when investors operate in foreign countries and
investments are undertaken in low income countries.
Risks from the corporate perspective include
uncertainty of returns on investment in infrastructure,
political risk (e.g. governments reneging on contracts,
popular protests against private or foreign firms) and
the ability of users to pay. Moreover, not all political
and other non commercial risks can be covered
through the private insurance market (Berne Union,
2008).
Governments also need to consider the risks
they face from investors, including TNCs reneging
on contracts. The high-risk nature of infrastructure
activities, as well as other aspects of infrastructure
industries that influence investment, derive from
some of the distinctive features of these industries:
. Infrastructure industrics include very capital
intensive and complex activities (boxes III.1-4).
Typically, infrastructure assets last a long time,
involve huge sunk costs and are location-specific.
This makes them formidable undertakings,
especially for developing countries, which often
depend on technology, expertise and financial
resources from overseas.
. Sience infrastructure industrics often involve
(physical) networks, they are frequently
oligopolistic (or monopolistic) in nature. Thus
control or access to the network can be a key
competitive advantage, and requires strict
regulation.
. Many societies regard accessto infrastructure
services as a social and political issue. Such
services may be considered public goods, in the
sense that they should be available to all users, and
some (e.g. water supply) are considered a human
right.4 Other infrastructure industries or services,
such as ports, are considered by many governments
to be of strategic importance.
. Infrastructure industrics are a major determinant
of the competitiveness of an economy as a whole.
Their role as inputs for all other industries means
that the entry and performance of private companies
(including TNCs) in infrastructure activities have
to be evaluated not just in terms of the efficiency
and competitiveness of the services concerned
(based on cost, price and quality, for example) but
also in terms of their impact on industrial users.