Massive Investment Requirements in Favor of Commercialization

Developing countries have to make massive investments of financial,
human & managerial resources in infrastructure.
Estimates vary substantially depending on definitions, methodology &
source of information as well as assumptions of what needs can & should
reasonably meet.
A recent World Bank study has estimated that developing countries as a
whole invest about $ 200 billion per year in physical infrastructure
facilities. This is about 4 % of their GDP.
4/5th of $ 200 billion $ 160 billion is financed through Domestic public resources
1/6th of $ 200 billion $ 25 billion is financed through International development assistance
$ 15 billion is financed through Private capital
Future investment needs are expected to be much higher because of
demand created by economic growth, rising population, rapid urbanization
as well as the need to reconstruct some economies and make up for lack
of adequate investment in other in the recent past.
The World Bank estimates that East Asian economies have steadily
increased infrastructure investment in absolute terms as the proportion of
GDP. Total investment rose as following…
1970 3.6 %
1980 4.6 %
1993 5 – 5.5 %
East Asian economies are expected to grow at an annual rate of 7-8 %.
As a result, infrastructure investments may have to increase from about 5
% of GDP to about 6
private sector
A wave of privatizatio.5 – 7% in the next 10 years.

Current situation in Favor of Commercialization and participation of then & deregulation has been sweeping infrastructure
sectors and the planet. These bold new approaches promise improved
efficiency and service quality.
The new wage …
In the 1970s US started deregulating natural gas, power & airlines.
During 1980s Chile, New Zealand & UK implemented far reaching
deregulation & privatization of almost all infrastructure sectors.
Since the late
1980s
At least 145 companies in 30 countries have been privatized &
at least 146 new projects in 34 countries significant private
participation started in power, natural gas, telecommunications,
roads and water.
The key driver is technological change, which has always influenced the
degree of competition possible.
Today, telecommunications is particularly affected as new transmission &
compression techniques allow private competition where monopoly once
reigned.
There are five basic pragmatic & non ideology related factors leading
countries across the world to consider enhanced commercialization of
infrastructure provision.
1. Massive investment needs
2. Managerial Constraints in the Public Sector
3. Changes in Technology
4. Globalization
5. New Dynamism in World Capital Markets
 Massive Investment Needs
Future investment needs are projected to be much higher because of
demands created by rapid urbanization, and the need to make up for past
inadequate investment and most importantly, because of the high
economic growth rates.
The quest is to install more modern transport systems for the 21st century
using the latest technology. Such infrastructure is extremely capital
intensive; the only choice then is to go for increasing commercialization.
 Managerial Constraints in the Public Sector
While there are well performing public utilities in some countries, the
quantity, quality & cost effectiveness of infrastructure services overall
have not kept up with the needs of either the general public or the
business community in most countries.
 Change in Technology
Changes in technology, particularly in telecommunications, computers &
electronics now make it easier to change for marginal usage of services.
It has been possible to introduce competition particularly in log distance
services, whereas earlier, telecommunications was regarded as a natural
monopoly and therefore, suitable for public sector provision.
Similarly, smart cards, electronic billing, etc are making it possible to
potentially charge for road usage on a marginal basis without disruption
caused to traffic by toll booths.
Technology changes have made it possible to unbundled infrastructure
services. Different firms can provide different telecommunication services
such as international, domestic, long distance, local services, and other
value added services.
In power, it is now quite easy to separate generators from transmission
providers and distributors.
 Globalization
Many surveys of transnational corporations have indicated that the quality
and cost of infrastructure is one of the primary considerations in their
decisions as to where new investments should be located.
Adequate quantity & reliability of infrastructure are key factors in the ability
of countries to compete in international trade.
In India, the fright rates of container traffic and transit times through ports
exceed those of Asian competitors by large margins, which seriously
constrain the country’s export promotion goals. The main reason for this
poor performance lies in excessive regulation of trade and transport,
administrative practices & inefficient management by public transport
entities.
 New Dynamism in World Capital Markets
The First World War, the Russian Revolution & the ensuring Soviet default
on Russia’s foreign debt, the Wall Street Crash of 1929, the resultant
Great Depression in the capitalist world, the bond failures of the 1930s
and the Second World War, all occurred in rapid succession within a
period of about 30 years.
There are many reasons for the increased flow of private resources from
the developed to the developing world. As the population of the OECD
countries has aged, contractual savings in the form of life insurance,
pension funds and the like have expanded very considerably.
In India, the government has now run a revenue deficit for many years.
GOI is borrowing from the market to finance even current expenditures.
Thus all government infrastructure expenditures are now being financed
by market borrowings.