Private participation in infrastructure (PPI) patterns in the “riskiest” of countries—those that are emerging from conflict—show that affected nations typically require six or seven years to attract significant levels or forms of investments in infrastructure from the day that the conflict is officially resolved. The first infrastructure investments to arrive in conflict-affected countries are in sectors where commercial risk is relatively low, primarily in mobile telephony. Private investments in sectors where assets are harder to secure—such as water, power distribution, or roads—are slower to appear or simply never materialize.

Recent World Bank research confirms the causal relationship between sovereign risk and levels of investment in public-private partnerships (PPPs) in infrastructure for developing countries. Understanding that link is vital because it raises the stakes for investment success or failure above the level of the PPP itself. The message is that for governments to benefit from competitive participation of the private sector and the resulting efficiencies, all hands must be on the wheel. This includes not just utilities and line agencies, but ministries of finance, economy, and planning as well as legislators—all the way up to the office of the president.

Decisions on national debt restructuring, rules governing repatriation of capital, or expropriation practices, which previously may have seemed removed from the considerations of market interest in a single investment opportunity, are in fact good predictors of the levels of investment. By contrast, sovereign risk ratings are not a powerful predictor for overall levels of Foreign Direct Investment. In other words, investors in industries like oil and gas, minerals, or forestry will find returns commensurate with the challenges associated with investments in high risk countries. Infrastructure investors—in both greenfield and in existing assets—are much more sensitive to sovereign risk.

In short, country risk ratings—which aggregate several political, economic, credit and financial conditions, and behaviors at the sovereign level—can be used to explain a significant part of the differences among countries trying to attract investment in infrastructure.

Conflict is THE criteria

Embedded within country risk are multiple traits that are affected by political and economic stability. For this reason, few investments can be considered higher risk than those that require long-term periods of return and that go into conflict-affected countries. As the graph below illustrates, conflict-affected countries are poorer than other developing countries, have smaller economies, and attract less private participation in infrastructure, both in absolute terms and as a share of their population. Not surprisingly, levels are lower still in those countries characterized as having weak or non-functioning governments. Whereas a developing country that has not suffered from recent conflict will attract, on average, $22 of the PPI per capita, conflict-affected countries with functioning governments will attract about $14 per capita of PPI, and governments with non-functioning governments will attract about $9 per capita—most of which is coming from the mobile telephony sub-sector. The countries that need the most typically get the least.

GDP and PPI per capita in developing countries, conflict-affected countries, and conflict-affected countries with weak or non-functioning governments (1990-2010).

How long, then, does it take for investments in the form of private infrastructure commitments to return to conflict-affected countries? What sectors are more likely to attract private partners or investors and to close transactions? By zeroing out end-dates of conflicts for a set of 31 countries that have suffered from conflict over the last 20 years, we can establish a fixed point from which to consider investment trends. That is, “Year 0 (Zero)” is the year at which a conflict is considered to have terminated in a country so that conflicts which ended 15 years apart can be put on the same timeline. By creating this normalized timeline, we can see that investments trickle in over the first five years and then begin to increase after year five, finding their peak at the seventh year.

Sector matters

When the data are viewed by sector, however, the story becomes more intriguing. In the first four years, with only a few exceptions, only telecom investments have found their way into countries that have just emerged from conflict. These are almost entirely from mobile licenses and related investments. This single sector concentration may be because the cost recovery period for mobile investments is extremely low, the technology sufficiently diffused, and the price elasticity of demand sufficiently high for mobile operators to accept higher levels of country risk. Mobile investors have been active in countries like Somalia during a time when there is little government structure, for example, and in Iraq just a matter of weeks after the country was last invaded.

Number of private infrastructure investments and PPPs in post-conflict countries, with sector breakdown

Other sectors with larger investment requirements, longer cost-recovery periods, and greater sensitivity to user willingness to pay—such as toll roads, electricity, and water utilities—have longer lag times. With only a few exceptions, private investors in those sectors do not enter conflict-affected countries until six years have passed.

By focusing on a sector that has longer-term cost recovery periods, it is easier to see the effects of conflict on investment. In energy, among the 31 countries studied, there is only one case of a private investment in the first five years post-conflict. Disaggregating the sub-sectors of energy, it is clear that more than half of the investments are in power generation. In these cases, off-take agreements for power purchasing can minimize exposure to commercial risk—as can other credit enhancements, including political risk insurance.

This is consistent with regressions run on the effects of country risk to greenfield projects versus concessions. Greenfield investments have a much wider range of reaction to sovereign risk than investments in existing assets. This suggests that guarantees, credit enhancements, and off-take agreements typical of power generation, water, and wastewater treatment plants can cover for a larger part of sovereign risk. In addition, the assets can be physically protected and secured more easily than distribution networks. Out of 28 total energy projects in these 31 countries, 19—or two-thirds of the total—are in electricity generation. Only one electricity distribution investment was made in the first six years from the time the conflict ended. The only gas distribution investment came eight years after conflict ended.


For conflict-affected countries, data on numbers of PPI transactions successfully carried out within nine years of a conflict ending illustrates how difficult it is for these countries to attract private infrastructure investments. Very few investments took place in the first five years after conflict ended, and nearly all of those investments were in the telecommunications sector—primarily in mobile telephony. Energy investments took six or seven years to mobilize and came primarily in electricity generation—investments that are often characterized by sovereign-backed off-take payments, dollar denominated transfers, and an asset footprint that is much easier to protect from attack than a distribution network.



Graph sources: PPI Database, World Development Indicators, and authors’ calculations.