he demands on public spending will increase. This situation will leave less room for discretionary expenditure by developed countries, either on "bail-outs" in their own countries or on direct aid to developing countries. Privatisation has been seen as an important reform measure enabling improvements to be made to service delivery, especially in the field of infrastructure provision. Shifting the burden of funding from the public to the private sector is regarded as the way forward, especially in public utilities; it is only reasonable to expect this process to continue as a popular option for policy makers. On the face of it the water sector should be an attractive prospect. It is an essential service; it is technologically relatively low risk, and if reasonably well managed offers steady though not spectacular returns. However, some recent examples of problems with the involvement of the private sector from South America, South Africa and the Philippines sound a note of caution, as does a growing reluctance in Europe and Australia to adopt outright the "British Model" of privatisation. The involvement of the private sector in the public provision of services such as water is likely to grow in importance, especially given the huge engineering and financial challenges to be faced in the provision of new infrastructure and the maintaining of existing assets. The nature of the relationship between the public and the private sector in this regard will have to evolve from the present models in order to gain greater political and social acceptance, especially in developing countries. Investment With private capital flows likely to be increasingly directed towards the fast-growing developing countries, some are likely to be targeted at financing the necessary infrastructure required to underpin economic growth. In contrast, those countries and areas that are perceived as being insecure for whatever reason are unlikely to attract significant foreign direct investment (FDI) - although the lessons from the history of FDI