Overall impact of TNC involvement on infrastructure investment in developing countries. Not all financial resources mobilized by TNCs constitute investment or an addition to productive assets for a host industry or country. One reason is that a proportion of FDI by TNCs is used to purchase privatized enterprises, which represents a transfer of ownership, but not new capital stock.
But at the same time other forms of TNC participation also include investment. This is especially true of concessions, which involve large amounts of investment to build new or improve existing infrastructure.5 During the period 1996-2006, according to data on the breakdown of foreign investment commitments (referred to in the discussion below as TNC commitments), 52% of TNC participation, by value, in the infrastructure industries of developing countries was in the form of FDI, while the remaining 48% was in the form of concessions.
This nearly equal ratio of concessions to FDI implies a possibly greater overall impact on investment in infrastructure industries than that suggested by data on the stock of FDI (even allowing for some financial resources being used for purposes other than investment). Because some relevant data are not available, it is not possible to give a precise figure for the impact of TNCs, but it is certainly appreciable and likely to be higher than that suggested by FDI data alone.
The value of new TNC commitments in infrastructure projects in developing countries were lower in 2001-2006 than in 1996-2000 but this was largely a reflection of a more general downturn in infrastructure investments in developing countries and globally.
TNC infrastructure investment commitments in Latin America and the Caribbean fell from $109.4 billion to $21.7 billion between 1996-2000 and 2001-2006 (table III.7). On the other hand, TNC commitments increased in Africa between the two periods, and fell only slightly in Asia (table III.7).
The fall in TNC infrastructure investment commitments between the two periods was concentrated in a few large countries in Latin America8 and Asia, in particular Argentina, Brazil, Colombia, India, Indonesia and Peru. But, according to the PPI database, in most developing countries those commitments rose between 1996-2000 and 2001–2006. Some of the larger countries in which they rose sharply were Bangladesh, Chile, Egypt, Nigeria, Jordan, Pakistan and the United Republic of Tanzania.
A number of factors influence the level of TNC investment, including the budgetary situation of prospective host countries. For example, trade surpluses from rising commodity prices and sales of goods and services have improved the budgetary situation in a number of countries, especially in Africa, Latin America and the Caribbean and West Asia. This allows them more options for infrastructure investment, including a greater reliance on domestic enterprises.
However, since a number of developing countries, especially least developed countries (LDCs), have insufficient institutional and enterprise capabilities to build and operate infrastructure facilities effectively, they are unable to readily convert an influx of funds into investments in this sector.
Countries in this position are exploring a number of approaches to address this institutional gap, which poses a constraint to infrastructure development. Some of these approaches entail significant participation by TNCs, an example of which is the Angola China partnership in infrastructure investment (box IV.1).