Official Support for Private Sector Participation in Developing Country Infrastructure

Abstract

The objective of this study is to take stock of support by bilateral and multilateral donors for private sector participation in developing country infrastructure. It tries to draw out trends, opportunities and challenges, collective activities to address them, and possible further actions for the Development Assistance Committee (DAC). The exercise tries to contribute to the aim of using development co-operation more strategically in leveraging other development related flows. The methodology involved research on 22 donor policies and institutions, as well as data analysis of the DAC’s Creditor Reporting System. The results of the study indicate that official development finance (ODF) for infrastructure is increasing, with a sizable proportion disbursed to support the private sector directly, mostly through loans and equity by bilateral and multilateral development finance institutions (DFIs). However, almost 70% is directed to infrastructure in upper middle income countries, where the domestic financial sector might be relatively developed, which raises the question of additionality of official support. In terms of sectors, 60% of support to the private sector goes to energy, particularly to renewables, such as hydro, wind, solar, and geothermal energy. This is followed by transport, telecommunications, and water. Export credit agencies also provide significant amount of financing to developing country infrastructure. Donors further provide about 15% of funding to help improve the enabling environment for investment by building the capacity of partner government ministries, public-private-partnership units, regional organisations, or local administrations. Conclusions include the need for better co-ordination among various agencies or units involved in supporting infrastructure development within donor countries or multilateral institutions as well as the establishment of a transparent monitoring mechanism of DFI activities to ensure additionality and development effectiveness.