AND THE INFRASTRUCTURE
CHALLENGE
INTRODUCTION
Infrastructure - especially electricity,
telecommunications, transport and water -
is important for all economies. They provide
goods and services that are crucial for the
efficiency, competitiveness and growth of
production activity. Furthermore, access to
affordable electricity and drinking water
is an important determinant of the living
standards of a country's population. The
fundamental role of infrastructure has been
brought into sharp relief in recent years,
as a steadily growing number of countries
across the entire developing world have
been drawn into a cycle of growth and a
greater participation in the global economy,
but by doing so are finding further growth
constrained by the quantity and quality of
their infrastructure.
Many low income countries face
huge infrastructure investment needs but
lack the necessary capacity domestically
to meet them. Mobilizing financial and
other resources to respond to these needs,
especially in the least developed countries
(LDCs), are among the main challenges
which beset governments and the
international community. The formidable
gap between these needs and the availability
of necessary resources has been one of the
drivers behind the fundamental change
in the role of the State in the provision of
infrastructure around the world.
Governments in both developed
and developing countries have opened
up infrastructure industries to much
greater involvement by the private sector
including TNCs. This new relationship
between the State and the private sector has
in some cases been facilitated and shaped
by technological changes. These changes
have opened up options for the introduction
of competition in industries that are in the
process of shedding their natural monopoly
characteristics. This has been the case,
especially in telecommunications and in
parts of the electricity industry, such as
power generation. As a result of greater
openness in many countries, TNCs have
come to assume a significant role in the
provision of some infrastructure services.
The internationalization of
infrastructure has taken varying trajectories
in different parts of the world. Developed
countries witnessed the birth of several
large infrastructure TNCs in the 1990s.
They typically arose out of former public
monopolies. Their overseas expansion
contributed to increased FDI and other
forms of TNC participation, such as
concessions and management contracts,
among developed countries as well as in
some developing and transition economies.
In the latter, new investment opportunities
emerged from major privatization
programmes of State owned infrastructure
assets. In addition, the liberalization of
infrastructure industries in developing
countries has contributed to the emergence
in the South of a number of TNCs in these
industries.
Policymakers today have a menu
of options for maintaining and developing
their countries infrastructure. The challenge
is to assess the potential costs and benefits
associated with different options, such as
retaining infrastructure services within
the public sector, offering concessions to
prospective investors and full privatization
to the private sector, including TNCs. Some
countries have experimented with different
solutions for over two decades, and various
lessons have been learned. Other countries
are still in the process of opening up to
foreign involvement. Governments need
to consider many factors when deciding
whether or not to involve TNCs and, if
so, in what way they should promote such
involvement.
Which modes of participation have
the greatest chances of maximizing the
net benefits of TNC entry, for example, in terms of
improved service supply and reduced costs? What does
it take to attract desirable forms of TNC involvement?
The responses to these and other questions depend on
the context. There are no one-size-fits all solutions.
Governments need to determine what kinds of policies
they will put in place in order to secure the desired
outcomes, including helping to eliminate poverty and
attain the Millennium Development Goals (MDGs).
After two decades of experience with TNC
involvement in the infrastructure industries of many
developing countries including its failures as well
as successes an understanding of the nature, extent
and implications of that involvement is just emerging.
Mobilizing and facilitating greater financial flows
to developing countries, and especially to LDCs,
remain a challenge for the international community.
It is against the background of the economic and
social importance of infrastructure that this year's
World Investment Report is devoted to the issue of
Transnational Corporations and the Infrastructure
Challenge.