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Are Returns to Private Infrastructure in Developing Countries Consistent with Risks since the Asian Crisis

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  • Antonio Estache
  • M.E. Pinglo

Abstract

This paper presents a basic assessment of the financial performance of infrastructure service operators in developing countries. It relies on a new database of 120 companies put together to track the evolution of the cost of capital, the cost of equity and the return to equity for electricity, water and sanitation, railways and port operators in 31 developing countries distributed evenly across low-income, low-middle income and upper-middleincome countries. The paper shows that between 1998 and 2002, the average cost of capital in developing countries varied from less than 9% to over 15% across regions and sectors while the cost of equity varied from around 11% to over 21%. Low-middle-income countries have recovered relatively well from the East Asia crisis, while low-income and upper-middle-income countries have seen their situation deteriorate since the crisis. At the regional level, the main story is that East Asia is recovering quite well from its crisis, and that the financial performance of the operators in Africa and Latin America has deteriorated. Eastern Europe and South Asia are doing relatively better but show a large volatility of returns over time and within sectors. At the sector level, the railways and the water sectors have seen their performance deteriorate significantly over the period, while the energy and port sectors have done relatively better. In all sectors and regions, the average return to equity has been lower than the cost of equity since the Asian crisis.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/44150.

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Date of creation: 2005
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Publication status: Published in: Journal of Network Industries (2005) v.6 n° 1,p.47-71
Handle: RePEc:ulb:ulbeco:2013/44150

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References

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  1. Alexander, Ian & Estache, Antonio & Oliveri, Adele, 1999. "A few things transport regulators should know about risk and the cost of capital," Policy Research Working Paper Series 2151, The World Bank.
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Cited by:
  1. Stephane Straub, 2008. "Infrastructure and Development: A Critical Appraisal of the Macro-level Literature," ESE Discussion Papers 178, Edinburgh School of Economics, University of Edinburgh.
  2. Asian Development Bank & World Bank & Japan Bank for International Cooperation, 2005. "Connecting East Asia : A New Framework for Infrastructure," World Bank Publications, The World Bank, number 7267, October.
  3. Ekholm, Tommi & Ghoddusi, Hamed & Krey, Volker & Riahi, Keywan, 2013. "The effect of financial constraints on energy-climate scenarios," Energy Policy, Elsevier, vol. 59(C), pages 562-572.
  4. Shaun K. Roache, 2006. "Domestic Investment and the Cost of Capital in the Caribbean," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(3).
  5. Tan, Jeff, 2012. "The Pitfalls of Water Privatization: Failure and Reform in Malaysia," World Development, Elsevier, vol. 40(12), pages 2552-2563.
  6. Patricia Clarke Annez & George E. Peterson, 2007. "Financing Cities : Fiscal Responsibility and Urban Infrastructure in Brazil, China, India, Poland and South Africa," World Bank Publications, The World Bank, number 6735, October.
  7. Dethier, Jean-Jacques & Moore, Alexander, 2012. "Infrastructure in developing countries: An overview of some economic issues," Discussion Papers 123305, University of Bonn, Center for Development Research (ZEF).
  8. Anton Eberhard & Orvika Rosnes & Maria Shkaratan & Haakon Vennemo, 2011. "Africa's Power Infrastructure : Investment, Integration, Efficiency," World Bank Publications, The World Bank, number 2290, October.
  9. Antonio Estache, 2006. "PPI Partnerships vs. PPI Divorces in LDCs," Review of Industrial Organization, Springer, vol. 29(1), pages 3-26, September.
  10. Jensen, Olivia & Blanc-Brude, Frederic, 2006. "The handshake : why do governments and firms sign private sector participation deals ? Evidence from the water and sanitation sector in developing countries," Policy Research Working Paper Series 3937, The World Bank.
  11. Rocha, Katia & Camacho, Fernando & Braganca, Gabriel, 2007. "Return on capital of Brazilian electricity distributors: A comparative analysis," Energy Policy, Elsevier, vol. 35(4), pages 2526-2537, April.
  12. Shaun K. Roache, 2006. "Domestic Investment and the Cost of Capital in the Caribbean," IMF Working Papers 06/152, International Monetary Fund.

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