To varying degrees, TNCs from the South are playing a more prominent role in the infrastructure industries of developing countries, though they do not invest as much as their developedcountry counterparts. In Asia and Oceania, TNC involvement from other developing economies, especially intraregional investment, is particularly pronounced.
In 1996-2006 almost half of foreign
investment commitments in infrastructure in Asia
and Oceania originated in developing countries,
and in two industries (telecommunications and
transport), TNCs from the South accounted for the
largest share of foreign commitments. In Africa,
developing-country investors have been dominant in
telecommunications (58% of all commitments), but
are less important in other infrastructure industries.
On average, developing-country firms account for
40% of all commitments in Africa. Finally, in Latin
America and the Caribbean the role of developingcountry
investors has been more limited (16% of
private commitments). (Note that "all commitments"
include any made by the State or SOEs where they
have a share in PPI projects. However, investments
in infrastructure made solely by the State or SOEs are
excluded.)
TNCs in infrastructure derive their
competitive advantages from a variety
of sources and invest abroad mostly to
access markets.
Competitive or ownership advantages of
infrastructure TNCs are primarily related to specialist
expertise or capabilities, such as network design and
operation, engineering skills, environmental knowhow,
project management capabilities and tacit,
hands on skills. Specialized business models and
financial prowess are important in some industries
and segments, such as telecommunications.
The majority of infrastructure TNCs invest
abroad in order to access the markets of host economies.
They aim at benefiting from market opportunities
arising from a number of sources, including the
liberalization and deregulation in host economies,
invitations to tenders for infrastructure projects, and the
opening up of host countries to foreign acquisition of
local firms (including privatization and acquisition of
private firms). Additional motivations for investment
can include following clients in the infrastructure
business, searching for economies of scale and
taking advantage of regional growth opportunities.
The primacy of the host country market as a motive
for infrastructure TNC involvement in developing
economies places LDCs at a disadvantage in attracting
them, as they have small markets in general and in
infrastructure industries more specifically.
TNCs mobilization of financial
resources for infrastructure
investment is rising, but a vast gap
remains.
Financial constraints faced by governments
were a major reason for an increasing number of
developing countries to open up to FDI and TNC
participation in infrastructure industries in the 1990s.
TNC participation in infrastructure in developing
countries has resulted in the inflow of substantial
financial resources. The stock of infrastructure FDI
in developing countries, an indicator of the extent
to which TNC participation mobilizes financial
resources, surged after 1990, as mentioned above.
The $246 billion foreign investment
commitments in infrastructure in developing
countries during 1996-2006 (also mentioned earlier)
represented an average of 29% of all PPI investment
commitments. This reflects the importance of
TNCs contribution to these industries in developing
countries, with the highest share in Africa (36%).
Despite significant levels of TNC investment
in developing-country infrastructure, more of it is
required to bridge the vast financing gap: there is need
for substantial amounts of additional investment,
irrespective of source. For instance, in Africa, total
TNC investment commitments in infrastructure
during the decade spanning 1996-2006 were $45
billion - an amount that is barely equivalent to the
region's current annual infrastructure investment
needs of $40 billion.
In a similar vein, investment in infrastructure
by foreign companies in the 1990s was connected
with a decline in public investment in the sector
across much of Latin America. In expectation of a
large scale increase in private sector investment,
many countries cut back on public expenditure in
infrastructure, but the increase in investment by
TNCs (and the domestic private sector) did not fully
compensate for this decline.
An important lesson
from this experience is that TNC participation should
not be considered sufficient to provide for a country's
investment needs in infrastructure industries; rather,
it should be viewed as an important supplement and
complement to domestic investments.