Development Through the Private Sector

Development Through the Private Sector

A joint report of 31 multilateral and bilateral development finance institutions

? International Finance Corporation 2011. All rights reserved. 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 Internet:

The opinions and analysis presented in this report do not necessarily reflect the official views of each of the contributing IFIs and should not be attributed to their respective Executive Directors or the countries they represent.

IFC does not guarantee the accuracy, reliability or completeness of the content included in this work, or for the conclusions or judgments described herein, and accepts no responsibility or liability for any omissions or errors (including, without limitation, typographical errors and technical errors) in the content whatsoever or for reliance thereon.

IFC encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly, and when the reproduction is for educational and noncommercial purposes, without a fee, subject to such attributions and notices as we may reasonably require.

International Finance Institutions and Development Through the Private Sector

i

Table of Contents

Preface

iii

Executive Summary

1

Chapter 1: Role of the Private Sector in Development

3

Development Challenges

4

Broad Development Challenges

4

Millennium Development Goals

5

Role of the Private Sector in Addressing the Development Challenges

7

Growth

7

Jobs

8

Poverty Reduction and Inclusive Growth

8

Service Delivery

11

Addressing Food Security, Climate Change, and Environmental Sustainability

12

Taxes

12

Role of Government

12

Conclusion

14

Chapter 2: Role of the IFIs in Private Sector Development

15

Private Sector Challenges

16

IFIs' Role in Addressing Private Sector Challenges

18

The Three Channels of Development Assistance

18

Overview: Role of Private Sector-Oriented IFIs in Addressing Private Sector Challenges 20

Finding High Development Impact Investment Areas and Approaches

22

Special Role/Additionality

26

Partnerships

30

Lessons from Experience

33

Conclusion

34

Chapter 3: Results and Case Studies

35

Overview

36

Commitment Volumes

36

Development Outcome or Transition Success Rates

36

Reach Indicators

38

Demonstration Effects

38

IFI Role in Specific Sectors

38

Private Infrastructure and Public-Private Partnerships

38

SMEs and Microenterprises

42

Financial Sector

45

Agribusiness

47

Inclusive Business Models

49

Investment Climate Reform

51

Climate Change

53

Innovation

54

Results and Case Studies Summary

56

Chapter 4: Conclusion

57

Annex: Profiles of International Finance Institutions with Private Sector Operations

60

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International Finance Institutions and Development Through the Private Sector

International Finance Institutions and Development Through the Private Sector

iii

Preface

The private sector is recognized as a critical stakeholder and partner in economic development, a provider of income, jobs, goods, and services to enhance people's lives and help them escape poverty. Multilateral development banks and bilateral development finance institutions (together in this report called International Finance Institutions, or IFIs, see box 1) play a significant role in supporting the private sector in developing countries. They provide critical capital, knowledge, and partnerships; help manage risks; and catalyze the participation of others. They support the kind of entrepreneurial initiatives that help developing countries achieve sustainable economic growth. This role is becoming increasingly important for development institutions, along with more traditional aid and loan programs to governments.

Yet the important development contributions that IFIs make when engaging with the private sector in developing economies are often not

clear or adequately communicated to stakeholders and the public. It is the aim of this report to help bridge that gap--to increase the information and understanding about both the value of the private sector in development, and the role of international development finance institutions in supporting development through the private sector.

The report is a joint effort of 31 multilateral and bilateral development institutions that have significant programs to promote private sector investment and assistance. The content benefited from an extensive interchange of ideas and materials among all participating institutions. This report was initiated under the sponsorship of the Private Sector Development Institutions Roundtable, which is an annual meeting of the heads of IFIs focusing on private sector development, and was coordinated by the International Finance Corporation (IFC).

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