Is Foreign Infrastructure Investment Still Risky?

By: Louis T. Wells Jr. and Eric S. Gleason

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Synopsis: Private investment in infrastructure is again the rage among foreign investors and governments in the developing countries of Asia, Latin America, and Africa. Managers should not get carried away, however: A look at a few recent experiences shows that the pitfalls of the past are still present today. The authors review ill-fated foreign investment projects and conclude that foreign investment in infrastructure is dangerous because the hosting nations view it as an obsolescing bargain. In the face of this discouraging evaluation, the authors have some suggestions for minimizing risks. These range from the general, such as taking care to choose the right businesses to invest in, to more specific advice on setting rates and buying insurance. Nevertheless, investors should not expect security in infrastructure investment. Indeed, the paradox of infrastructure projects may be that higher returns cause higher risk, rather than the converse.