# **5.7. Local** **_vs._ global competition issues**

In spite of all the efforts made by reforming governments, it seems that competition for the market is not working that well in most developing countries at least. Typically the number of serious bidders for a concession or a greenfield project in transport infrastructure is not much higher than 2-3 — there are of course examples with more players but a large number of players is not the norm in infrastructure concessions. Technically, this is competition of course but it is not impressively strong competition. The fact is that if it were not for the foreign bidders, it would often be the case that the sector would remain in the control of a very limited number of local players. Most typically these players are local construction companies which have historically been winning all the procurement contracts offered by the public monopolies to implement their investment programs. The opening of the sector is at least ensuring that even if foreign specialized operators are not interested, foreign construction companies will be able to compete with the local construction firms in putting together bids for these contracts.

The simple fact is that the transport sector is a highly concentrated sector internationally as well. This issue has been raised for quite a while now in maritime transport where shipping companies are increasingly integrating vertically to take over the container terminal business. There is indeed casual evidence of increases in dedicated terminals in which one shipping company monopolizes at least part of the port infrastructure. This is the case in Antwerp wit MSC and Rotterdam with Maersk but also in Santo Domingo and in Buenos Aires. Sometimes there are good reasons to reduce the number of terminals, including the increased cost of capital in emerging economies which make mergers an effective risk management instrument as mentioned earlier. But with the ongoing wave of mergers or alliances between maritime companies there is a reason to wonder about the risk of effective inter-port or inter-terminal competition that results from the reduction in the number of suppliers of maritime services. Similar issues arise in the airport management business where the same 5-10 usual actors seem to be present at all bids<sup>23</sup> .

The least recognized indicator of concentration at the global level may be in the construction sector which is at the core of all new infrastructure projects. Working with statistics published by Public Works Financing, the construction deals on all of infrastructure (transport + utilities) are highly concentrated in very few hands. Indeed, 6 companies share 50% of the market and 16 companies share 90% of the market. Spanish companies (Dragados, Ferrovial, Abertis, OHL, FCC, Acciona and Sacyr), accounted for 52% of all new concessions and PPP projects over US$50 million under construction and signed between 1985 and 2003. British companies (John Laing, AMEC, Balfour Beatty and Alfred McALpine) accounted for 14% as well as French Companies (Vinci-Cofiroute, EGIS, Bouygues, Alstom) while Australia accounted for 9% (Macquarie). In sum, 10 companies share about 90% of the market! The concentration is quite impressive since many of these companies have a certain degree of regional specialization.

The point is that effective ex-ante competition tends to be modest even in some of the best organized auctions and that the opening of trade in services is not changing much the picture. But there is more to be squeezed out of the experience. In particular, it is interesting to look into the specific nature of the bidding companies. In many cases, the bids are made by consortia combining local and foreign companies. There are of course gains in terms of transfer of know how and reductions of overall risks associated with these strategies. But the gains may some time have to be weighted against the cost induced by lesser competition.

> 23. For more details and examples, see Estache (2001).

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