Capital Flows to Infrastructure Reunión Latinoamericana sobre el Financiamiento de la Infraestructura

Transcription

1 Capital Flows to Infrastructure Reunión Latinoamericana sobre el Financiamiento de la Infraestructura Mansoor Dailami World Bank Buenos Aires April 2004

2 Overview Recovery in private capital to developing countries Steady decline in private capital flows to infrastructure Emerging frontiers in infrastructure finance - local-foreign blend, bond financing and scalingup of multilateral role

3 Private capital flows recovered in 2003 but remain well below 1997 peak $ billion Net private flows $286 in 1997 $200 in *

4 Over longer-term, rotation from debt to equity $ billion Net debt flows Net equity flows

5 Drivers of private capital flow recovery Improved credit quality Economic fundamentals, creditworthiness, external liability position sound progress subject to sudden shift cyclical in nature Investor preference, Narrowing of bond market spreads Easing of monetary policy, low interest rates, global economic recovery Increased investors risk appetite Favorable external market conditions

6 External financing environment and domestic conditions led to spreads rally Developing country spreads Basis points Basis points Brazil Developing countries

7 Overview Recovery in private capital to developing countries Steady decline in private capital flows to infrastructure Emerging frontiers in infrastructure finance - local-foreign blend, bond financing and scalingup of multilateral role

8 International investment in developingcountry infrastructure has declined since 1997 $ billion Total international investment in developing country infrastructure Latin America East Asia

9 Due to domestic macroeconomic shocks, beginning with East Asian crisis Average regional credit quality, Credit rating (Moody s) Baa1 Baa2 Baa3 East Asia and Pacific Ba1 Ba2 Ba3 Latin America and Caribbean B1 Dec-1996 Dec-1998 Dec-2000 Dec-2002

10 Since 2000, global industry shocks in telecoms and electricity Volatility (standard deviation) in stock market price indices, Stock market index US electricity Telecommunications Electricity

11 Increase in systemic risk of investing in telecoms and electricity (March 1, 2000 to March 1, 2003 Return on a particular sector index = a + b*return on world index + c*dummy + d*(dummy)*(return on world index) + error term, using daily observations (January 1, 1995 to November 11, 2003) Telecom US elect. Elect. Constant (a) (1.40) (0.19) (0.09) Return world index (b) 0.94* 0.37* 0.50* (34.68) (8.78) (20.76) Dummy (c) 0.00* (-3.11) (-0.96) (-1.25) Dummy*return world index (d) 0.23* 0.35* 0.08 (6.21) (5.96) (2.29)

12 Overview Recovery in private capital to developing countries Steady decline in private capital flows to infrastructure Emerging frontiers in infrastructure finance - local-foreign blend, bond financing and scalingup of multilateral role

13 Phases in infrastructure finance historical perspective Until mid-1980s public-sector financing and vertically integrated utility model in the US provided stability to infrastructure finance Late-1980s and 90s deregulation and competition in mature markets and liberalization in the developing world. Prior stability lost.

14 Looking into the future - frontiers in infrastructure finance Increasing trend towards blending of local and foreign financing. Local banks participating in loan syndicates, increased local bond market financing Driven by structural change in international banking industry Development of local capital markets and local banks expertise and capability Example BLCP power project in Thailand Example Autopista Central toll road in Chile

15 Structural change in international bank lending - cross-border lending has stagnated, local operations have increased Lending of BIS-reporting banks to developing countries $ billion Total claims International claims Local claims

16 Project bond financing has emerged, concentrated in telecommunications Bond financing for developing-country infrastructure, $ billion 7 6 Since 1996, average issuance = $4.9 bn Telecoms Other sectors

17 Spreads on project bonds are lower than on sovereign bonds Comparison between EMBI and sample of 150 project-bonds Basis points Emerging-market sovereign bonds Project-bonds

18 As proportion of total external financing, bond issuance has risen Gross private debt flows to developing countries $ billion Banks Bonds

19 Investment grade issuers accounted for a bulk of bond issuance in 2003 $ billion 20 Investment grade ($49bn) Non-investment grade ($37bn) Including Mys, Ind, Tha Including Rom, Dom, Mor 0 Mex Rus Pol Cze Saf Chn Hun Chl Oth Bra Tur Phl Ven Idn Col Per Uke Oth

20 Multilateral commitments to infrastructure decline in 90s but evidence of pick-up Multilateral development bank commitments to infrastructure sectors, Billions of US dollars Decline concentrated in energy sector

21 Scaling-up by multilaterals is needed World Bank launched Infrastructure Action Plan Development of instruments to address political, currency, contractual and regulatory risks Increasing focus on sub-sovereign public utilities (such as municipal utilities)

22 Concluding messages International capital markets are not being sufficiently tapped (even at 1997 peak total private flows to developing-country infrastructure were 3.6% of int. issuance) Need a strong institutional framework, to protect investors Strengthen local capacity of local capital markets Multilaterals have important role to play