# **ARE  RETURNS TO**

# **PRIVATE INFRASTRUCTURE IN DEVELOPING COUNTRIES CONSISTENT WITH RISKS  SINCE THE ASIAN CRISIS? ***

## Antonio Estache

(The World Bank and ECARES, Universite Libre de Bruxelles) Maria Elena Pinglo (The World Bank)

#### **Abstract**

This paper presents a basic assessment of the financial performance of infrastructure service operators in developing countries. It relies on a new database of 120 companies put together to track the evolution of the cost of capital, the cost of equity and the return to equity for electricity, water and sanitation, railways and port operators in 31 developing countries distributed evenly across low-income, low-middle income and uppermiddle-income countries. The paper shows that between 1998 and 2002, the average cost of capital in developing countries varied from less than 11% to over 15% across regions and sectors while the cost of equity varied from around 13% to over 22%. Low-middle-income countries have recovered relatively well from the East Asia crisis, while low-income and upper-middle-income countries have seen their situation deteriorate since the crisis. At the regional level, the main story is that East Asia is recovering quite well from its crisis, and that the financial performance of the operators in Africa and Latin America has deteriorated. Eastern Europe and South Asia are doing relatively better but show a large volatility of returns over time and within sectors. At the sector level, the railways and the energy sectors have seen their performance deteriorate significantly over the period, while the water and port sectors have done relatively better. In all sectors and regions, the average return to equity has been lower than the cost of equity since the Asian crisis.

### World Bank Policy Research Working Paper 3373, August 2004

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. Policy Research Working Papers are available online at http://econ.worldbank.org._

* This paper was prepared as a background note to a forthcoming report to be published by the World Bank Infrastructure Vice-Presidency on the State of Infrastructure in the Developing World. We are grateful to Ian Alexander, Cecilia Briceno, Phil Burns, Claude Crampes, Luis Correia, Severine Dinghem, Ana Goicoechea, Andres Gomez-Lobo, Emili Grifell, Jose-Luis Guasch, Malick Gueye, Martin Rodriguez-Pardina, Richard Schlirf, Sophie Sirtaine, Moctar Touré, Lee Travers and Lourdes Trujillo as well as to the participants in WBI seminars for infrastructure regulators in Berlin, Dakar and Paris, to the participants in seminars at AFD, GTZ and the OECD and to those at more academic seminars at the Université de Paris I and the Berlin University of Technology for useful discussions and/or comments.