As for the impact on the investment climate and the associated growth effects, the evidence is also quite strong. The consultation of foreign and domestic investors organized in preparation of the 2004 World Bank World Development Report on the Investment Climate identifies lack of infrastructure as one of the main sources of disincentives to investment. But there are many more ways of looking at the problem. For instance, Easterly and Serven (2003) estimate for Latin America that inadequate investment in infrastructure during the 1990s reduced long-term growth by 1–3 percentage points, depending on the country. To get a sense of the potential payoff, it is useful to compare East Asia where the investment gap has been addressed more effectively (mostly through government financing) with the Latin America. Easterly and Serven (2003) argue that about one-third of the difference in output per worker between Latin America and East Asia is explained by differences in infrastructure investment policies. A similar story holds for Africa. Indeed, Ramirez and Esfahani (2000) find that if Africa had enjoyed growth rates in telecommunications and power generation infrastructure comparable to those in East Asia in the 1980s and 1990s, its annual growth rate would have been 1.3 percentage points higher.

With respect to the promise of improved affordability, the results are also mixed. In most countries, the initial tariff rebalancing was quite good from an efficiency viewpoint but was often quite regressive in many countries. The reformers did often not pay enough attention to the redesign of tariff structures and the efficiency gains were achieved at the cost of an increase in the burden imposed on the lowest income groups connected. Moreover few countries have already organized the much anticipated tariff revisions needed to pass though some of the efficiency gains to the users and few if any of the unscheduled tariff revisions organized in the context of contract renegotiations have managed to do so effectively. This is well documented for Latin America (Estache, Foster and Wodon (2001) or Ugaz and Waddams-Price (2003)) and there is increasing evidence that this was also an issue in the context of reforms in Africa (Estache (2004)) and to some extent in Eastern Europe (Estache and Gassner (2004)). The adjustment adopted by many countries has been the decision to continue or scale up the subsidies to large segments of the population. This in turn feeds back to the fiscal impact of the reforms. This is a clear major problem. From a more social viewpoint, the major issue is that many of the subsidies are still not that progressive. As mentioned earlier, historically subsidies have tended to favor the middle and upper income classes simply because they were connected and the real poor were not. In the poorest regions of the world, including countries which have reformed, this continues to be the case. Increases in access rates hardly keep up with population growth rates.

The last promise of the reforms was the improvement in the governance structure of the sectors. This implied that countries would increase the independence of their regulators and that this, in turn, would allow a more effective regulation of the sector (i.e. it would speed up increases in access rates, reduce costs, improve cost recovery and quality) and reduce the corruption levels of the sector. On the first promise, there is cross sectoral information available. However, Table 2 shows that, for electricity and telecoms, many government have indeed created autonomous regulatory agencies, including governments which have, willingly or unwillingly, not opened up to private capital. In 53% and 60% of the countries, respectively for electricity distribution and telecoms, autonomous agencies have been created. There are 10 times as many countries with agencies in 2002 than there were in 1990. Of course, this does not mean that agencies are really independent, but the signal is in the right 10