Long-Term Trends in Private Finance for Infrastructure : Understanding the Role of DFIs (English)

PPI investments in developing countries have remained relatively low since the sharp decline which occurred between 2011-12, with the lowest dip experienced during the Covid-19 pandemic period. We study factors affecting PPI investment trends through exploratory data analysis and econometric analysis in a sample of 137 developing countries over a period of 30 years. The authors find that PPI investment trends and finance sources are markedly different across country groupings. Moreover, the long-term decline in global PPI investment trends observed since 2011 is largely accounted for by five large middle-income economies (the Top 5 - Brazil, India, China, Mexico, and Turkey) that together account for 64 percent of global PPI, reflecting social and economic trends specific to those countries. In contrast, PPI capital flows displayed positive real compound annual growth rates of 2 percent and 8 percent between 2000-19 in Other MICs and LICs respectively. Although LICs attracted barely 1 percent of global PPI flows, this represents a contribution that is twice as large relative to their GDP than PPI in MICs. In fact, PPI in LICs is largely insulated from global market conditions being heavily dependent on DFI support, which provides 90 percent of total debt capital on average, with private investors contributing mainly through equity. While DFI support makes a disproportionate contribution to PPI in LICs, the bulk of DFI resources flow to MICs where the private capital mobilized by each DFI dollar is more than twice as high, indicating efficiency-equity trade-offs in the allocation of DFI resources. Projects with DFI support are on average about 50 percent larger than those without, and there is evidence, at least for MICs, that DFI support is catalytic and can be withdrawn over time as market experience accumulates. Furthermore, countries with highly indebted public sectors tend to report greater PPI investment flows and the availability of alternative sources of finance such as public investment or ODA prove to be complements rather than substitute for PPI. Country governance also remains a strong determinant of PPI investment.