6

# **3** . **Financing for Infrastructure**

The literature on financing issues in infrastructure can be classified in four main groups —even though, in practice, they tend to be closely correlated:

- What are the financing needs of infrastructure?

- How much scope is there for private participation in infrastructure financing?

- How much fiscal space do governments have to meet infrastructure financing needs?

- What should drive the new wave of financing mechanisms?

## **Financing needs**

Considerable financing is required to meet the demand for infrastructure services in developing countries. But no one really knows how much is needed. There are many “back of the envelope” estimates in political documents, but there is no detailed assessment of global needs from a single source. The best available data are rough estimates of investment needs and operations and maintenance costs for various sectors based on trends or rough demand functions.

The water and energy sectors are probably better off than other sectors. Still, for water the World Health Organization has produced figures (about $50 billion a year) that are widely questioned by the academic community because they are based on access rates, unadjusted for differences in quality. For energy the International Energy Agency recently provided estimates for various regions, but these are based on extrapolations from the largest countries. For telecommunications the International Telecommunication Union regularly issues global projections of investment needs, but these inspire enormous debate among specialists. The UN’s Habitat generates data on housing and urban service needs, but there is considerable overlap with other estimates, and it is almost impossible to determine the investment needs of various sectors without getting into double-counting problems. To my knowledge, no equivalent data have been generated for the transport sector.

To advance data on financing needs, the World Bank and the UN are working on crosssectoral estimates. Fay and Yepes (2002), expanded in Briceno and others (2004), provide benchmarks for regions and country groups for investment and operations and maintenance needs against which country-specific estimates can be assessed, to inform national debates on resource allocations. Ongoing work by Jeffrey Sachs’s UN team is providing a useful reality check for the poorest countries. The estimates that emerge from such work are high. In Sub-Saharan Africa infrastructure investment and operations and maintenance needs are at least 12 cents a day per person, or $44 a year—a lot given that more than half of the region lives on less than $1 a day.

But this number game is not over, and new country- and region-specific estimates will emerge over the next year or so. Indeed, some regional banks (ADB and IDB) are generating their own estimates as part of the monitoring of the MDGs or as part of a larger debate on the engine of growth and competitiveness. But most of these data have not yet been published.

For illustration purposes, I report here the investment needs estimates of Briceno and others (2004). Electricity, mobile phones, and roads account for four-fifths of projected investment needs in 2005–10 (table 1). These estimates do not account for investment needs in related businesses such as gas transport and distribution or other transport infrastructure such as canals,