“Transnational Corporations and the Infrastructure Challenge in Africa”

Session 37Achieving the Millennium

Development Goals in Africa:Should Service Linkages Be

Expanded?17 September 2010Kalman Kalotay

UNCTAD Investment Policies Branch

2

Why investment in infrastructure is important – in all countries

Efficient infrastructure services are crucial for competitiveness and economic growth in all countries, rich and poor Good quality infrastructure is essential for international

trade and integration into the world economy

Access to affordable infrastructure services, such as electricity and drinking water, is an important determinant of living standards The development of infrastructure helps to eliminate

poverty and attain the UN Millennium Development Goals

Low-income countries (in Africa and partly in Asia) have huge infrastructure investment needs but lack the necessary capacity domestically to meet them

3

Share of foreign investors in infrastructure industries of developing and transition economies varies – quite

important in AfricaCommitments in 1996–2006, %

Energy

32.021.1

37.830.0

47.3

11.9 29.3

16.521.4

15.3

56.049.6 45.7 48.5

37.4

0

20

40

60

80

100

Africa Asia Latin America andthe Caribbean

All developingcountries

South-East Europeand CIS

Foreign Domestic private Domestic public

Telecommunications

40.3

19.6

42.835.2

41.2

11.6

31.0

20.0

21.2 5.8

48.1 49.537.1

43.653.0

0

20

40

60

80

100

Africa Asia Latin America andthe Caribbean

All developingcountries

South-East Europeand CIS

Foreign Domestic private Domestic public

Transport

28.417.4 18.8 19.3

29.2

16.5 39.321.8

27.816.7

55.143.3

59.452.9 54.1

0

20

40

60

80

100

Africa Asia Latin America andthe Caribbean

All developingcountries

South-East Europeand CIS

Foreign Domestic private Domestic public

Water and sewage

41.9

21.128.8 25.2

41.4

2.834.1 22.1 27.7

22.8

55.344.8 49.2 47.1

35.7

0

20

40

60

80

100

Africa Asia Latin America andthe Caribbean

All developingcountries

South-East Europeand CIS

Foreign Domestic private Domestic public

4

Regional composition of investment commitments in infrastructure in developing

economiesA shift away from Latin America and the Caribbean; Africa rising from

a low level

Source: UNCTAD, World Investment Report 2008, Transnational Corporations and the Infrastructure Challenge.

All infrastructure1996–2000 2001–2006

RegionValue ($ million)

Share in total of developing economies (%)

Value ($ million)

Share in total of developing economies (%)

Africa 19 691 12.1 25 473 30.4Asia and Oceania 33 332 20.5 31 404 37.4Latin America and the Caribbean 109 383 67.4 27 038 32.2Total for developing economies 162 407 100.0 83 915 100.0

Memorandum items:LDCs 5 778 3.6 7 234 8.6South-East Europe and CIS 9 203 .. 8 478 ..New EU members 23 628 .. 18 424 ..

5

Least developed countries are still marginalized in FDI in

infrastructure Least developed countries (LDCs) attract

little investment from infrastructure TNCs– LDCs had less than 1% of world FDI stocks in

infrastructure in 2006– …only 5% of world FDI inflows in infrastructure in 2006…– …and 5% of the total foreign commitments in

infrastructure in developing and transition economies over the period 1996-2006.

Reasons:– TNCs require sufficient returns on their

investments– Commercial and non-commercial risks– Small local markets (investment in infrastructure is

normally market orientated)– Competition with other (developing) economies

6

The universe of infrastructure TNCs is changing

Chinese and Indian investments in infrastructure in Africa, up to April 2008

Increasing number of private and state-owned TNCs

Important role for TNCs from the South Especially in ports and

telecommunications Significant in LDCs Sometimes investment in

infrastructure and extractive industries is complementary

Rise of new financiers in infrastructure industries Private equity firms Sovereign wealth funds

7

Leveraging TNC participationPolicy challenges and options

Host country Host country national policies national policies and institutionsand institutions

Development Development partner policiespartner policies

Creating strong, transparent and accountable institutional and regulatory frameworks

Sequencing of reform

Assessing options and negotiating with TNCs

Building necessary capabilities to deal with public-private partnerships

Involving TNCs in Involving TNCs in infrastructure places infrastructure places more, rather than less, more, rather than less, responsibility on public responsibility on public officials.officials.

ODA to infrastructure– Better use of available funds– Readiness to take risk

More capacity-building– Evaluating options– Negotiations with TNCs– Role for the UN?

Risk-mitigation targeted to low-income countries

Support to regional projects

Keep all options open

Source of more information

Visit UNCTAD websites:

www.unctad.org/diae

and

www.unctad.org/wir

www.unctad.org/fdistatistics