SESRIC




Private Participation in Infrastructure in OIC Countries
Date : 30 May 2013

A well-functioning and efficient infrastructure is highly instrumental for economic and social development. It increases living standards, attracts more businesses, and supports the production process of agricultural and manufactured goods by reducing costs. It also helps economic integration and facilitates trade as it eases the access to goods and services. Better transport and communication links make it easier for many countries to access international markets, which is particularly of significant importance for landlocked countries. Infrastructure projects also have a stimulus effect in the economy and they are very likely to increase employment, not just for short term construction purposes but also for the longer term, as infrastructure facilities are believed to draw more companies in their areas. Following a demand-side approach, it can also be said that infrastructure projects create a demand for skilled labour and intermediary materials to be used as inputs. Responding to this demand, initiatives such as labour training or local production of intermediary materials can be undertaken, which will further benefit the economy in the long term.

Bearing the above mentioned advantages in mind, today’s developed nations had been investing in infrastructure for many years. However, lack of infrastructure still remains a major challenge in developing and least developed countries. Some of the biggest challenges to investment in infrastructure in these countries include lack of government resources, inefficiency of state owned enterprises, unskilled labour and low levels of technology. To remedy this problem, private companies are increasingly given infrastructure projects by different contract types, varying according to the necessities of the particular project and country.

Using the World Bank Private Participation in Infrastructure (PPI) Database, this report analyses the tendency of private participation in infrastructure in 49 OIC member countries between 1990 and 2011 and compares the position of OIC countries with non-OIC developing countries to make assessments on the number of projects, total investments and deal types. However, the average performance of non-OIC developing countries are highly influenced by four leading emerging economics, namely Brazil, Russia, India, and China (BRIC countries). High infrastructure investment in these countries induces marked differences in the amount of private participation in infrastructure and number of projects. For that reason, the average performance of OIC countries is compared with non-OIC developing countries as well as non-OIC developing countries excluding BRIC (henceforth non-OIC/non-BRIC).

According to the database, there are four major areas for infrastructure investment, which are also accordingly considered in this report. These are energy, transport, telecom and water and sewage. These infrastructure investments are also classified under four contract types, including management and lease contracts, concessions, Greenfield projects, and divestitures. Management and lease contracts leave the operation and management of a state owned facility to a private entity while the state still remains the decision maker. Concessions also leave the management to a private entity; however the private entity bears an important part of investment risk. Greenfield projects take place when a private entity or a public-private joint venture builds a new project and then operates it for a fixed period. Divestitures on the other hand are privatization projects, they occur when private companies buy shares of a state owned enterprise (see World Bank 2013a for detailed definitions).

Finally, a statistical appendix is attached to the report. It includes the dataset covering the amount of total investment and number of projects by deal types between 1990 and 2011 through private participation in energy, telecom, transport and water and sewage infrastructure in developing OIC member countries.

Online Electronic Version

Private Participation in Infrastructure in OIC Countries (English)