Corporate Debt Markets and Infrastructure Development: An Empirical Evidence From Waemu

Financing tools can play a crucial role in addressing infrastructural deficits. While existing literature has largely focused on the relationship between the development of public bond markets and economic growth, there has been limited exploration of how the development of corporate bond markets affects the infrastructure financing gap. This article investigates the relationship between corporate debt markets and the infrastructure gap in the countries of the West African Economic and Monetary Union (WAEMU). Due to the small size of the sample (eight countries) and the duration of the study we estimated a generalized least square on data from the 8 WAEMU countries covering the period 2005-2022. We utilized annual data on four categories of infrastructure — electricity, water and sanitation, transport, and information and communication technologies (ICT). Findings indicate that corporate debt markets are key in infrastructure financing. Indeed, corporate debt has proven to be an effective mechanism for mitigating the overall infrastructure deficit, particularly in the areas of transport, ICT, electricity and water infrastructure. Several factors contribute to this outcome. The private sector offers financial resources, managerial expertise, and enhanced efficiency in infrastructure projects through Public-Private Partnership (PPP) agreements. In addition, PPP infrastructure projects are regarded as more effective in controlling cost and time overruns compared to government-funded projects. The results also show that governance variables have negative effect on infrastructure deficit in WAEMU. This research suggests promoting the deepening of corporate bond in financing infrastructure in WAEMU. In that sense, governments should create transparent and enforceable legal systems that protect investor rights, ensure contract enforcement, and resolve disputes efficiently. In addition, they should establish or improve credit rating agencies that can help provide investors with reliable information on the creditworthiness of corporate debt issuers. In the same vein, regulatory bodies should facilitate corporate bond issuance by simplifying procedures and allowing flexibility in the types of debt instruments issued. Moreover, developing active and efficient secondary markets may allow for better liquidity, making corporate bonds more attractive to investors. These policy initiatives would help reduce the current overreliance on tax revenues and official development assistance, which have experienced a decline in recent years.