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Procurement efficiency for infrastructure development and financial needs reassessed

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  • Estache, Antonio
  • Iimi, Atsushi

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, particularly whether the current infrastructure procurement prices are appropriate. Without doubt a key is competition to curb public procurement costs. This paper analyzes procurement data from multi and bilateral official development projects in three infrastructure sectors: roads, electricity, and water and sanitation. The findings show that the competition effect is underutilized. 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. The paper also shows that not only competition, but also auction design, especially lot division, is crucial for reducing unit costs of infrastructure. Based on the estimated efficient unit costs, the annual financial needs are estimated at approximately 360 billion U.S. dollars. By promoting competition, the developing world might be able to save at most 8.2 percent of total infrastructure development costs.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4662.

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Date of creation: 01 Jul 2008
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Handle: RePEc:wbk:wbrwps:4662

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Keywords: Transport Economics Policy&Planning; Investment and Investment Climate; E-Business; Debt Markets; Infrastructure Economics;

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Citations

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Cited by:
  1. Antonio Estache & A. Iimi, 2009. "(Un)Bundling Infrastructure Procurement: Evidence from Water Supply and Sewage Projects," Working Papers ECARES 2009_007, ULB -- Universite Libre de Bruxelles.
  2. 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.
  3. Estache, Antonio & Iimi, Atsushi, 2008. "Bidder asymmetry in infrastructure procurement : are there any fringe bidders ?," Policy Research Working Paper Series 4660, The World Bank.
  4. Tan, Jeff, 2012. "The Pitfalls of Water Privatization: Failure and Reform in Malaysia," World Development, Elsevier, vol. 40(12), pages 2552-2563.
  5. Arno Van Der Vlist & Sander Hardeman, 2011. "On the Design of Public Infrastructure procurements," ERSA conference papers ersa10p1060, European Regional Science Association.
  6. 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.
  7. Emmanuelle Auriol & Sara Biancini, 2012. "Powering Up Developing Countries through Integration?," CESifo Working Paper Series 3872, CESifo Group Munich.

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