As the World Bank annual meetings drew to a close over the weekend in Washington, D.C., the business community feels private sector engagement finally got more time in the spotlight this year.
President Jim Yong Kim mentioned the issue himself on several occasions, saying that without private sector investment “we will never end poverty.”
The World Bank is working with other development organizations to determine some of the best ways to partner, support and work with the private sector, he said, citing a recent trip by senior bank staff to meet with representatives from the U.K. Department for International Development.
One way to engage business is through public-private partnerships, but there are examples of PPPs that get “stranded,” so Kim said it’s critical to learn from best practices and bring greater expertise to bear in order to ensure that every dollar has an impact.
At a recent management meeting, 18 of those present said they had worked on a PPP before, but most remain “rank amateurs,” so the World Bank chief put forth the question: How can we be more professional in how to put together better PPPs?
One of the conversations at the meeting tried to tackle that issue specifically, though it discussed PPPs largely as a method of procurement, especially for infrastructure projects. Consensus seemed that PPPs make up only a small part of spending, and while they seem promising, they are complex and have not always worked well in the past.
The question is not whether they work, but how they can be effective in perhaps a different way, said João Carlos Ferraz, managing director of the Brazilian Development Bank.
“If we can design institutions that implement a public-private partnership or contract in a way that delivers it will impact the lives of people,” he explained, adding that capacity to both plan and implement PPPs are critical.
Ferraz said that he believes the World Bank can play a key role in actually helping in the project development of PPPs.
Richard Abadie, global leader of capital projects and infrastructure at PwC, thinks PPP contracts are complex. For infrastructure projects, they can involve a host of components including engineering, environmental checks, construction capabilities, multiple types of financing and more, he noted.
“It is unreasonable to expect the public sector to have all the skills,” he said, adding that developing countries do not have to do everything themselves, but they do need to be clear about what they want from project management and specify their desired outcomes.
Meanwhile, helping to develop those capabilities is a role that the World Bank and other organizations can play, said Mike Redican, managing director at Deutsche Bank. From the private sector perspective, that can be through better, more accurate commercial contracts that gives incentives for delivering results or penalizes if it doesn’t, he said.
“PPPs are certainly not the panacea,” Redican explained. “I would encourage multilaterals generally to think about improving some of their political risk products to help facilitate certain types of investors into regions of the world to get pools of [capital] that previously not been possible to do … and the [public] sector [needs] to be disciplined and focused and think for their citizens what they want the actual PPP to achieve.”
While PPPs may be a useful mechanism for attracting private capital, especially in infrastructure-related projects, a theme highlighted last week was that private sector engagement must address inclusive growth.
The consensus that emerged from the meetings is that economic growth is critical to poverty reduction but ensuring inclusive growth will also be critical to achieving development outcomes.
Companies can play a role but it is important that they assess how they can best contribute and how they add value, according to Peter Sands, chief executive officer at Standard Chartered.
His company is working with the International Finance Corp., building local capacity, capitalizing on the nature of businesses to be self-critical and results- and impacts-focused, he said.
In a world often driven by quarterly profits, it is essential for both business and social outcomes that the private sector believes it will be in a market, in a community forever, said Ali Ansari, head of of Pakistani agriculture and energy firm Engro Corp.
Moreover, governments need to play their parts as well in ensuring that growth is inclusive and that there is an appropriate environment for economic growth.
For example, the Ethiopian government believes that peace, security and stability are the most important factors for private sector investment, said Minister of Finance and Economic Development Sufian Ahmed. The investment environment — regulations, customs procedures, corruption policy and human capital — must be improved to attract foreign direct investment.
“We are doing our level best,” he noted, underscoring how the country, which has a rapidly growing economy, has reduced poverty by 50 percent in the past 10 years.
In Ethiopia, and across much of Africa where so many people are farmers access to global markets is critical to emerge from poverty. If providing poor people, poor farmers direct access to market can be further developed and employed, it “will be a transformative part of our effort to end poverty,” Kim said.
To do so, the Bali Trade Facilitation Agreement needs to be implemented, he said. Perhaps in part to build the case for that agreement, the World Bank announced last week that it is partnering with the World Trade Organization to launch a study about the role of trade in reducing extreme poverty.
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