Region: Global
Country: Global / Non-Specific
Topic: Legal Framework
Keywords: Knowledge Lab, Legal Framework
Document(s):
Document Summary:
This guide identifies 10 principles needed to establish a sound governance structure for an infrastructure regulator, and how they can be addressed in fragile contexts. A key risk in recently reformed sectors is that disappointing regulatory performance leads to frequent changes in the institutional architecture. The guide's country-level case studies show examples of successful and unsuccessful-outcomes to share learning from both.
Document Details:
Countries exiting situations of fragility face many urgent priorities and almost invariably suffer from substantial infrastructure deficits. During periods of fra- gility and conflict there is typically very little infrastructure investment, while existing installations are often damaged or destroyed. Immediately after the conflict, especially in poor, rural or peri-urban areas, small-scale providers often emerge to respond to pent-up demand for infrastructure services. While the services they offer, are often expensive and of uncertain quality, they fill a gap because private investment in infrastructure is limited at such times (Schwartz, Hahn, and Bannon 2004).
Building or rebuilding infrastructure on a larger scale that provides high qual- ity services to greater numbers of people at a more affordable rate, requires that countries exiting fragility raise capital to finance the projects; yet they have lim- ited ability to do so. As a result, there is a strong need for private investment. The limited presence of local investors and capital suggests that much of this funding needs to come from foreign sources. Attracting this investment requires that governments ensure an investment climate sufficiently appealing to attract pri- vate and foreign investors, who require returns on their capital commensurate with the risks—invariably high in fragile environments. Indeed, research points to a significant correlation between the risk rating of conflict-affected countries and their success in attracting investment in private infrastructure projects (Schwartz, Hahn, and Bannon 2004).
Building a favorable investment climate entails a wide range of factors, with some of the most basic including secure property rights, the enforceability of contracts by an impartial legal system and the free movement of capital. The quality of the regulatory system is also widely recognized as a fundamental ele- ment in this equation: research has found that limited regulatory capacity has an adverse impact on economic growth and, in turn, on a range of social issues (see, for example, Chisari, Estache, and Romero 1999; Estache and Rossi 2005; Jalilian, Kirkpatrick, and Parker 2007; Zhang, Parker, and Kirkpatrick 2005). Thus, while fragile states face an immediate need to focus on reconstruction in post-conflict situations, it is just as important for them to address the medium- and long-term objectives of creating an institutional, legal and regulatory environment to attract private investment (Bray 2004).
Appendix B summarizes the literature on the links between regulatory capac- ity and economic performance, as well as on the more limited, but rapidly grow- ing, research on the connections between regulatory governance (including the governance of regulators) and economic outcomes.
A wide body of literature devoted to infrastructure regulation exists and has helped guide the development of this manual. For example, the reader is encour- aged to examine the World Bank’s Body of Knowledge on Infrastructure Regulation.1 This provides an excellent summary of most of the literature, as well as links to key texts and documents.
Updated: April 12, 2022