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Procurement Efficiency for Infrastructure Development and Financial Needs Reassessed

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  • Antonio Estache
  • A. Iimi

Abstract

Infrastructure is the engine for economic growth. The international donor community has spent about 70–100 billion U.S. dollars on infrastructure development in developing countries every year. However, it is arguable whether these financial resources are used efficiently. Without doubt a key is competition in public procurement systems. We analyze procurement data from multi- and bi-lateral official development assistance in three main infrastructure sectors: roads, electricity, and water and sanitation. It is found that the competition effect is underutilized in some areas. To take full advantage of competition, at least seven bidders are needed in the road and water sectors, while three may be enough in the power sector. It is also shown that not only competition but also auction design, especially lot division, is crucial for containing procurement costs. Based on the estimated efficient unit cost of infrastructure procurement, the annual financial needs are estimated at approximately 370 billion U.S. dollars. By promoting competition, the developing world might be able to save at most 7.6 percent of total infrastructure development costs.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number 2008_022.

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Length: 39 p.
Date of creation: Mar 2008
Date of revision:
Publication status: Published by: ECARES, Université Libre de Bruxelles, Bruxelles
Handle: RePEc:eca:wpaper:2008_022

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Keywords: Public procurement; auction theory; infrastructure development; corruption; governance;

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References

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Citations

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Cited by:
  1. Antonio Estache & Atsushi Iimi, 2010. "Bidder Asymmetry in Infrastructure Procurement: Are There any Fringe Bidders?," Review of Industrial Organization, Springer, vol. 36(2), pages 163-187, March.
  2. Estache, Antonio & Iimi, Atsushi, 2009. "(UN)Bundling infrastructure procurement : evidence from water supply and sewage projects," Policy Research Working Paper Series 4854, The World Bank.
  3. İlke Onur & Rasim Özcan & Bedri Taş, 2012. "Public Procurement Auctions and Competition in Turkey," Review of Industrial Organization, Springer, vol. 40(3), pages 207-223, May.
  4. Antonio Estache & A. Iimi, 2009. "Auctions with Endogenous Participation and Quality Thresholds: Evidence from ODA Infrastructure Procurement," Working Papers ECARES 2009_006, ULB -- Universite Libre de Bruxelles.

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