Strengthening the private sector in IDA countries : status of World Bank Group collaboration (English)
At the International Development Association - IDA14 Replenishment Meeting held in Washington D.C., on October 2004, Deputies welcomed the increased attention being paid to the private sector development in IDA countries. They requested an update on the... See More +
At the International Development Association - IDA14 Replenishment Meeting held in Washington D.C., on October 2004, Deputies welcomed the increased attention being paid to the private sector development in IDA countries. They requested an update on the Bank's efforts to strengthen collaboration among its organizational units. This paper responds to that request. A trend towards private sector solutions and new forms of risk sharing, is clearly visible in the world, and shapes the context in which IDA operates. First, following the debt crisis of the 1980s across developing countries, there has been a gradual shift away from debt finance, to other types of finance that share risks in more appropriate ways, such as equity instruments. The trend is epitomized by the fact that foreign direct investment (FDI) has become the prominent form of cross-border finance to developing countries. Second, finance to emerging markets has shifted from government borrowing, to borrowing by the private sector. Not only is the private sector by far the greatest provider of finance, it is now also the greatest recipient - with roughly double the amount of finance going to private firms compared to public ones. Third, an effort has been made to help the poorest, and most indebted countries position themselves better. Debt relief has been provided, and grant programs have been introduced, including by IDA. Nevertheless, for now the broad trends towards private finance have largely passed most IDA countries by. They continue to depend on government finance, and FDI is often driven by natural resource exploitation, rather than more broad-based economic development. The note reviews the Bank's collaboration in IDA countries, notably their investment climate, and public-private partnerships, providing examples of both the Bank and the International Finance Corporation (IFC) collaboration. The note discusses key collaborative efforts around the following: a) improving diagnostic underpinnings through Investment Climate Assessments, Doing Business reports, as well as other analytical work and policy advice; b) forging public-private partnerships to improve access to better physical, and social infrastructure, and partnering with the private sector through innovative output-based aid (OBA) approaches; and, c) creating joint programs for small and medium scale enterprise (SME) support, particularly in Africa.
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