Alan Beattie
Financial Times
September 17, 2003

The World Bank has been trying for years to lose the image painted by many of its critics of a destroyer of the environment and funder grandiose and often a supporter of unsuccessful dams, power stations and building projects across the developing world.

The bank insists that its role is increasingly dominated by financing health and education and improving government performance, helping to re-engineer social sectors rather than concrete.

But in recent months, under pressure from some of its big borrower countries, and with a realisation that private sector investment has been lacking in critical areas, the bank is returning to the infrastructure business. It says it has learnt from its mistakes. But environmentalist critics are less sure

The fashionable view during the 1990s was that the bank should be a facilitator of private sector investment. Using its technical expertise and its frameworks of environmental and social safeguards, the bank – and its private sector arm, the International Finance Corporation – would help to leverage in private money to deliver telecommunications, electricity and water to the poorest countries.

But a combination of over-optimism about the practicalities, and the strains on companies induced by the global economic downturn in 2001, meant it has been somewhat disappointed. Private sector infrastructure investment in developing countries reached $128bn (&euro113bn, œ80bn) in 1997, but slumped to $58bn by 2002.

And though private sector investment in emerging markets in general seems to be recovering, little filters down to infrastructure projects in the poorest countries. Flagship projects such as the Bujagali hydroelectric dam in Uganda, in a country where 97 per cent of the population is withou reliable electricity, have struggled to get going.

AES, the USbased power company, last month pulled out of the Bujagali project, which is backed by World Bank and IFC money. After years of protest from environmentalists it succumbed to a collapsed share price and mountains of debt

Jim Adams, the World Bank’s vice-president for operations policy and its former Uganda country director, says: “You talk to a company like AES and their basic message is: no one is opening up lines of credit for us right now,” he says.

With increased scrutiny of corporations’ activities in developing countries, many executives look at the challenges and conclude it is not worth the risk to their reputation. Private infrastructure investment in the poorest countries remains dominated by traditional extractive industries – oil, gas and mining – and by telecommunications, where the privatisation of state-owned networks can attract private money. There is, the bank says, a shortfall of capital for power, water and roads.

Client countries including China and India – which has complained for years about the bank’s withdrawal from infrastructure lending – banded together with the US, which has a predilection for project-based lending, to demand that the bank fill some of the gap. It is planning to step up its involvement, particularly with regional governments, where it identifies a shortfall.

Mr Adams denies this simply means going back to the bad old days. “I get nervous about the phrase ‘going back’, because I think what we are talking about is a different environment,” he says. Since the bank was last a significant financier of infrastructure in the 1980s, it has adopted a host of environmental, social and anti-corruption or “governance” safeguards to ensure that the benefits from new projects are fairly distributed.

“There are still big problems with the application of safeguard policies, particularly when the bank is dealing with the private sector,” says Carol Welch, director of international programmes at Friends of the Earth.