Overview

  • Rapid, private sector-led growth is essential for ending extreme poverty and boosting shared prosperity, the World Bank Group’s Twin Goals. For the past three decades, economic growth centered on strong contributions from the private sector has been the main driver of poverty reduction around the world.

    The experience of high-growth economies such as China and Vietnam demonstrates how integration with global markets and enhanced private sector competitiveness led to unprecedented reductions in poverty. These economies created more and better-paying jobs. They made efficiency gains as workers improved what they did and as more productive jobs replaced less productive ones. Over time, productivity gains helped sustain growth and promote convergence with more advanced economies.

    But growth by itself is not enough. Patterns of growth and trends in income inequality also matter if poor are to benefit. In countries afflicted by slow growth and pervasive poverty, for instance, poverty declines when growth patterns become more labor intensive and when poor people’s work becomes more productive. Also critical to poverty reduction is reduced income inequality.

    Achieving the Twin Goals will require unparalleled efforts by developing countries to expand market opportunities, enable private initiative, and develop dynamic economies. By most estimates, achieving the goal of reducing extreme poverty to no more than 3 percent by 2030 requires national growth rates well above historical precedents. The private sectors in lower- and middle-income countries and in fragile and conflict-affected states will need to be more dynamic in identifying opportunities, competing and innovating, and creating jobs. They cannot do it alone. Governments will need to ensure economy-wide incentive frameworks for broad-based growth, and aggressively work to improve the business climate and human capital. This, in turn, depends on coordinated global actions to ensure an open multilateral trading system.

    Last Updated: Jan 11, 2018

  • Well-functioning product markets are vital to economy-wide efforts to spur growth, productivity, and job creation. Their policy and institutional underpinnings include open trade regimes, competitive markets, favorable investment climates, and national innovation capacities. These facilitate integration with global value chains (GVCs), increase investment volumes and returns, lower business costs, and encourage business formation.

    The World Bank Group’s Finance, Competitiveness, and Innovation Global Practice includes three core competencies that fall under private sector development: “industry solutions,” “innovation and entrepreneurship,” and “investment climate.”  Industry solutions work focuses on sector or industry-specific policies and growth, as well as spatial growth and investment strategies. Under innovation and entrepreneurship, the practice helps strengthen innovation and technology policies, strategies, and financing. It also promotes entrepreneurship and small business development. Investment climate covers business environment reform as well as investment policies. 

  • The following are examples of projects in each of the Finance, Competitiveness, and Innovation Global Practice core competencies that fall under private sector development.

    Industry solutions

    Governments and the private sector around the world are actively seeking more effective ways of improving competitiveness in sectors—one of key elements of successful growth strategies. Part of the World Bank Group’s competitive sectors work focuses on sector- or industry-specific policies and growth, including agribusiness, tourism, and manufacturing. It also addresses spatial growth and investment strategies, such as supporting the development and management of special economic zones, fostering growth poles, clusters, linkages from anchor investments, and supporting city competitiveness strategies.

    • A food safety and regulatory reform advisory project in Ukraine supported the government’s reform of inspections and registration requirements across the agribusiness sector, resulting in estimated private sector savings of $15 million annually. Similar support to the grains value chain through certification reform yielded an estimated $63.3 million in annual cost savings and leaner, more competitive value chains.

    • Efforts to increase foreign direct investment in manufacturing within the Northeast Frontier States of Brazil were accelerated by Bank Group assistance. A partnership with the national investment promotion agency, APEX, resulted in over $900 million in new investments in the states of Para & Pernambuco. Bank Group support included identification of subsectors with high FDI potential, state-level institutional strengthening on investor outreach and support, and identification of the best locations for operations based on serviced land, access to skills, and trade logistics.

    • In India, the World Bank Group is working with state and central governments to transform the popular “Buddhist Circuit” from a series of disconnected sites to a holistic tourism experience that appeals to various traveler segments. Increased revenue and jobs will contribute significantly to improving the quality of host communities around these sites.

    Innovation and Entrepreneurship

    Innovation and entrepreneurship are recognized as key building blocks of competitive and dynamic economies. Countries and regions with vibrant innovation and entrepreneurship ecosystems tend to witness higher productivity rates, leading to increased economic growth and more robust job creation, the main pathways through which the poor can escape poverty. As a key driver for firm growth, innovation fosters shared prosperity by stimulating formal employment and increasing wages.

    • In Malaysia, the World Bank Group supported the development of the national master plan for SMEs. The plan helps analyze Malaysia’s entrepreneurial performance and its impact on growth and productivity. A stock-taking of existing initiatives was completed, along with an overarching results-based strategy which included six initiatives targeting particular gaps in the entrepreneurship eco-system.

    • Since 2010, through a mobile hub supported by the World Bank Group in Nepal, many skilled mobile app developers have formed a strong local community that has created a dozen successful startups focused on both local and global markets. The work of these developers has resulted in the introduction of a mobile money payment gateway, created learning partnerships with global IT corporations, and raised seed investment funds for new ventures.

    • In the Caribbean, the World Bank Group supported the development of the women innovators network Caribbean (winC) to connect growth-oriented women entrepreneurs and help them scale their businesses through mentoring, training, and peer-to-peer learning. Led by women in the region, the network has engaged hundreds of women online and provided a platform from which they can receive access to mentorship and participate in focus groups and workshops. The World Bank Group has also provided training programs for women entrepreneurs.

    Investment Climate

    Private sector firms can more easily thrive in a regulatory environment that creates a level playing field for businesses while providing strong property rights and investor protections. Global benchmarking products, such as the Doing Business project, have put business regulatory reform at the forefront of policy-maker agendas and created strong demand for Bank Group support. Encouraging new firm formation depends on business entry regulations and related factors, including land regulation, taxation, and labor regulations. Government regulations play a decisive role in creating a predictable, safe enabling framework for firms while efficiently protecting consumers, public health, and safety.

    • Costa Rica was a top 10 reformer in Doing Business 2013, with reforms delivered through partnership with the World Bank Group including the launch of an online one-stop shop for starting a business and electronic platform for construction, and establishment of a new secured transactions law to facilitate access to credit.

    • Côte d’Ivoire has been ranked as a top 10 reformer in Doing Business for two consecutive years. Working with the World Bank Group, the government has implemented 16 reforms in business start-up, registering property, enforcing contracts, and other areas. It also has adopted regulations to reduce explicit or implicit discrimination against female entrepreneurs.

    • The World Bank Group has worked with the state of Rajasthan, India, to streamline business regulations and simplify regulatory requirements for businesses in the region. On the basis of recommendations presented to the government, new regulations were adopted providing for self-certification for annual inspections, extending the expiration of business licenses from five to ten years, and eliminating mandatory annual license renewals.

    • Productive private sector investment is an important component of competitiveness and growth strategies for developing countries. Attracting foreign direct investment (FDI), in particular, helps to link a country’s domestic economy to global value chains in key sectors. FDI brings not only investment and jobs, but also increased exports, supply chain spillovers, and new technologies and business practices.

    • In Turkey, reform of FDI policy and legislation led to the removal of minimum investment requirements and elimination of screening for FDI approvals. A simple registration system was established instead. Three years after the reform FDI inflows increased by a factor of 10.

    • In Mongolia, development of a new investment law eliminated screening for FDI approvals. The introduction of good practices in investor protection boosted investor confidence by protecting more than $10 billion of existing FDI stock from expropriation.

    • In the East African Community (EAC), a scorecard assessing compliance with regional obligations boosted national reform efforts. For example, in Tanzania the scorecard triggered the liberalization of regulations that had restricted the movement of capital.
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