Financing Infrastructure Development: The Dilemma of Developing Countries

This study explores different infrastructure financing arrangement being adopted by developing countries. A number of cases and reports from developing countries were reviewed to ascertain the success or otherwise of such mechanisms. It was found that infrastructure financing involves multiple actors who play varied roles ranging from policy formulation, resource mobilization, risk management and regulation. The study also identified that infrastructure are financed through two main mechanisms: public finance and, through the markets. The public finance has been conventional approach adopted by many countries in early years of their development. The rational for the public dominance was to improve infrastructural facilities in order to accelerate development. It was found that the government secures resources from different sources such as generation taxation loans and grants from donors. It came up that Developing countries are unable to raise enough revenue from taxes due to their small economies whilst not much is also generated from the loans and official development assistance. In spite of this it still forms the bulk of funds for infrastructure investments contributing about 70% of total infrastructure investment in developing countries. It was ascertained however that infrastructure provision is beyond the capacity of one actor. Therefore other actors like the private sector need to get on board The private sector has the capacity to contribute effectively to infrastructure financing in developing countries. It has the funding, managerial acumen and technological innovation which are not fully tapped. Besides the private other institutional investor are also making the resources available but this is not fully tapped in many developing countries due to their underdevelopment. It therefore recommends that countries attach importance to them as they have the potential to contribute meaning fully to infrastructure investment in developing countries.