for Brazil. These shares are published for two different periods, 1980-85 and 1996-2001. For the period 1996-2001, the share of PPI in total infrastructure investment is over 57 percent, up from 30 percent in 1980-85. In spite of this dramatic increase in the share of PPI in total investment, PPI in Brazil as a percent of GDP stays roughly the same, declining somewhat from 1.5 percent to 1.4 percent. Thus the increased share of PPI results from a dramatic reduction in public sector spending, declining from 3.6 percent of GDP to 1.0 percent. Thus the increase in the private investment share is largely as a result of the decline in public sector activity, not a major increase in PPI. Turning our focus to urban infrastructure, we note that PPI investment is dominated in both periods by both telecommunications and power, accounting for three quarters of the PPI in the early 1980’s and over 90% from 1996-2001. Based on our estimates of urban PPI from 19962001 from the PPI database, urban PPI accounts for about 0.07% of GDP or 3 percent of total infrastructure investment. While we have no precise estimate of what the urban infrastructure spending is in relation to total<sup>8</sup> , it seems quite likely that 3 percent of total covers only a fraction of urban infrastructure needs. World Bank (2001: ii) cites a government estimate of about R$7 billion per annum for municipal infrastructure investment needs or about $3.5 billion at today’s exchange rate. Average annual urban PPI over this period was roughly $465 million per annum, and hence covers only a fraction of these estimated needs. Considering that most of those transactions took place prior to 2001, the potential appears even less promising. Thus, while Brazil mobilized a good deal of PPI, and its share in total infrastructure investment has been significant, in aggregate, PPI did not fully substitute for public spending on infrastructure; instead it only attenuated a dramatic decline. Moreover, the information available indicates that the role of PPI in financing urban infrastructure is even less important, in spite of the considerable financial constraints placed on cities in the wake of the sub-national financing crisis and the implementation of the Fiscal Responsibility Law.

China has experienced trends in infrastructure investment that are quite different from those of Brazil, with rapid increases in infrastructure spending attracting attention worldwide. The indicators of service increases give a flavor of the massive investment flows involved. Between 1991 and 1999, city based domestic water use has increased by over 75%, and municipal waste water treatment capacity by nearly 250%, and city sewer network lengths by nearly 225%.(Bellier and Zhou (2003: 60) Interestingly, however, PPI has not as yet played a major role. According to Bellier and Zhou, between 1992 and 1998, less than 4% of total investment in water supply and sanitation has been financed by PPI. The share of PPI in the total fell from 7.5% to only 3% in 2002. According to the PPI database, the total PPI in urban water and sanitation in China for the entire 25 years covered by the database amounts to about $2 billion, close to about the amount of total annual estimated investment by the state owned enterprises (SOE’s) in the water and sanitation sector in 2002. (Asian Development Bank et alia: 2005). The authors of this study note that SOEs account for only a small share of total water investment, since most of this investment is handled by local governments, for which they were not able to locate

> 8 Bremacker (1997) cited in World Bank (2001) estimates municipal expenditures on housing and urban at 82% of public expenditures in these sectors. If investment follows the pattern of total spending, then municipalities account for the bulk of urban infrastructure investment. Bremacker’s study covers the period prior to the sub-national fiscal contraction, and these ratios may also have changed since that time.

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