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Private Sector Development in IDA Countries

An Integrated World Bank Group Approach

The world’s poorest countries face enormous demands for development finance that simply cannot be met through public resources.

The World Bank Group believes that broad, inclusive growth, underpinned by a thriving private sector, is central to ending poverty. Achieving the results that are important to the poorest countries – from filling large infrastructure gaps, to expanding access to basic services and meeting the jobs agenda – demands
a dynamic private sector and effective, complementary action across the public and
private sectors.

At the same time, emerging patterns of global economic growth—sparked by new sources of finance, knowledge, partnerships, and innovation—are opening new opportunities for the poorest countries.
Helping them seize these opportunities and confront complex challenges also demands comprehensive and
coordinated development support.

“4 for 1”—Enhancing World Bank Group Synergies

The International Development Association (IDA), the World Bank’s fund for the poorest, is working to
leverage and maximize the benefits of public and private sector synergies in a more systematic way
to address this need.

IDA is working to optimize the World Bank Group’s “4 for 1” value proposition—that is, tap the combined strengths and comparative advantages of IDA, the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA)—to enable IDA countries to have better access to a comprehensive package of support.

World Bank Group synergies are being enhanced by:

  • Creating joint business plans and focusing on private sector development, especially in fragile and conflict- affected states.
  • Expanding the range of IDA guarantee instruments to attract and leverage private resources.
  • Catalyzing transformational investments to address bottlenecks to sustainable growth.

More Bang for the Buck with IDA

IDA has a unique capacity to leverage public and private resources and knowledge.

It’s estimated that IDA has the potential to leverage up to $9 for each dollar invested, depending on the type of IDA instrument, sector and country.

Over the past decade, IDA’s partial risk guarantees have leveraged almost $6 of private capital and $9 of total project financing for every $1 committed by IDA. In transport, each $1 committed by IDA from FY00 through FY12 leveraged $6 in private transport investment. By working closely with its World Bank Group partners, IDA can further catalyze private sector-led growth to deliver deeper and more lasting results than ever.

The World Bank Group’s new change agenda will reinforce these synergies by stepping up teamwork, information- sharing and joint activities for more integrated client support. This will further enable IDA to provide increasingly customized, integrated development solutions.

This emphasis builds on many years of World Bank Group collaboration that has yielded extensive results in many countries across a range of sectors.

Examples of the World Bank Group at Work in IDA Countries

Collaboration across IDA, IBRD, IFC and MIGA has grown over time and spans a range of activities at the regional, country, sector and thematic levels. This includes the preparation of joint Country Assistance Strategies, joint investment projects, notably for infrastructure and the financial sector, and on advisory services and investment climate.

  • In Afghanistan: IDA, IFC and MIGA have helped turn around a barely functioning telecom sector following decades of conflict. By 2012, 18 million people had access to a phone compared with only 57,000 functioning phone lines in 2002. The Bank Group came together to create an environment where change could flourish and then encouraged the private sector to jumpstart investment. IDA financed the digital transmission network, the World Bank/IFC helped the government reform the policies and regulations needed to attract private investment, and MIGA came in with a guarantee to support the mobile operator against noncommercial risks.
  • IDA Results on the Ground

  • In Africa: Approximately 80 percent of Africa ’s people still lack access to electricity , and the average cost of electricity is prohibitively high ($0.20/kWh, twice that in OECD countries). IFC, IDA, and MIGA are using a range of innovative tools to boost private sector participation in electricity generation projects.
  • In Burundi: IDA and IFC provided technical assistance to reduce the compliance time and costs of paying business taxes by 10 percent; simplify the SME tax regime; expand the tax base; and align the tax-incentives regime with East African Community standards. The reforms included the establishment of a One-Stop-Shop for facilitating business in 2012, and reduction in the time required for business registration from 14 to 8 days. Costs dropped from 117 to 18 percent of GDP per capita and the annual number of registered companies more than doubled from 700 in 2010 to 1,500 in 2012.
  • In Côte d’Ivoire: The World Bank Group is working together to support the government’s efforts to boost electricity output by around 80 percent over the next six years. With financing from IFC, an IDA partial risk guarantee, and a MIGA political risk guarantee, the Azito thermal power plant provides the state power utility with more than a third of its electricity.
  • In the Democratic Republic of Congo: IDA’s first intervention in the financial sector of the Democratic Republic of Congo more than 40 years ago helped kickstart domestic private sector growth with the creation of a development finance corporation. The Bank Group’s work in the country’s financial sector continues today.
  • In Kenya: The Bank Group supported the private sector and the Kenyan government to work together on ways to increase much needed access to electricity in the country through support from a unique package of IDA- supported partial risk guarantees, paired with long-term debt and political risk guarantees from the IFC and MIGA.
  • IDA Results on the Ground

  • In Uganda: The privately sponsored Bujagali hydropower project has transformed Uganda’s power sector. Inaugurated in 2012, the project is already meeting almost 50 percent of the country’s electricity needs, selling power for about a third the previous cost. Sponsored by a consortium of Sithe Global Power of the US and the Aga Khan Development Network, the 250 MW plant on the White Nile received $130 million in IFC loans, a $115 million IDA guarantee, and $115 million in MIGA insurance. The Bank Group supported the work that laid the foundation for the project through challenging conditions for nearly 10 years before bringing the financing agreements to a close, beginning its efforts at a time when less than 10 percent of Uganda’s population had access to power.

Strengthening Joint Approaches across IDA, IBRD, IFC and MIGA

The Bank Group is taking a number of important steps to optimize its value proposition and to further mobilize private sector involvement in IDA countries.

  • Joint business plans : The Bank Group plans to develop joint (IDA-IFC-MIGA) plans in about 20 IDA countries during the IDA17 period (July 1, 2014–June 30, 2017), covering a range of interventions—from support for women’s economic empowerment, sustainable cities/ green buildings, climate change adaptation (including the planned expansion of the World Bank-IFC “Lighting Africa Program” across the African continent and into India), agribusiness, and the food supply chain, to private sector engagement in the delivery of education and health care.
  • Joint approaches to private sector development in fragile and conflict-affected states: About 10 joint business plans will be prepared during IDA17 , several of which are already underway. For example, in Nepal, IDA- IFC-MIGA are working together in support of the energy sector along with critical banking sector reforms to increase business activity. Efforts will emphasize reducing barriers to business growth related to access to power, finance, and markets, promoting an enabling environment for business along with transparency and the rule of law, and using risk tools to facilitate increased private investment.
  • IDA is also expanding its range of guarantee instruments —with the introduction of Partial Credit Guarantees and Policy Based Guarantees—to attract and leverage private resources, particularly long-term private financing for infrastructure.
  • The alignment of environmental and social safeguards for private sector projects among WBG institutions was approved by the Bank’s Board in June last year.

The World Bank Group will also work together to catalyze transformational investments for inclusive and sustainable growth, with a sharpened focus on regional solutions.

The World Bank Group and IDA at-a-Glance

IDA, IFC, and MIGA each offer distinct competencies that together create a holistic framework for catalyzing financing and collaboration in countries that often fail to attract private investment.

IDA’s support for private sector development: Roughly one-quarter of IDA commitments in recent years has focused on strengthening the enabling environment for private investment, including the regulatory framework and institutions, thus helping catalyze private sector investment and growth.

IDA countries are also a critical priority for the IFC: IFC’s investments in IDA countries have grown six-fold since fiscal year 2005, now reaching more than $6 billion a year. IFC helps create an “enabling” business environment through firm-level interventions, promotion of global collective action, governance and standard-setting. Over the next three years, the aim is for about half of all IFC investment projects and about 60 percent of all advisory services projects to target IDA countries, with an increasing focus on fragile and conflict-affected states and other challenging locations.

One of MIGA’s top strategic priorities is to support investment in IDA countries: MIGA mobilizes private sector participation through political risk guarantees for investments in a broad range of sectors, helping to boost investment and keep revenues flowing. In FY12, MIGA supported 25 projects in IDA countries with $1.1 billion in investment guarantees—41 percent of the gross portfolio. By mid-May, MIGA had more than doubled the guarantees over FY11, from 20 percent of the portfolio supporting private investment in IDA countries to 47 percent of the gross portfolio.

The IBRD works in middle-income countries and creditworthy poorer countries by promoting sustainable development through loans, guarantees, risk management products, and analytical and advisory services. IDA and IBRD countries partner though knowledge exchange, innovation, South-South learning, and finance.

As an integral part of the new integrated World Bank Group strategy, IDA will strengthen its ability to catalyze private resources, promote foreign and domestic private investment, and maximize the positive spillovers of private investment for IDA countries.

The International Development Association

The International Development Association (IDA) is a game-changer in the field of development, paving the way for others in the most difficult and complex situations to help hundreds of millions of people escape the cycle of abject poverty.

  • IDA provides leadership on global challenges. From its support for climate resilience to the creation of jobs to get combatants back into society, IDA rallies others on tough issues for the common good and helps make the world more secure.
  • IDA is transformational. IDA helps countries develop solutions that have literally reshaped the development landscape— from its history-changing agriculture solutions for millions of South Asians who faced starvation in the 1970s to its pioneering work in the areas of debt relief and the phase-out of leaded gasoline.
  • IDA is there for the long haul. IDA stays in a country after the cameras leave, emphasizing long-term growth and capability to make sure results are sustained.
  • When the poorest are ignored because they’re not profitable, IDA delivers. IDA provides dignity and quality of life, bringing clean water, electricity, and toilets to hundreds of millions of poor people.
  • IDA makes the world a better place for girls and women. IDA works to reverse millennia of gender discrimination by getting girls to school, helping women access financing to start small businesses, and ultimately helping to improve the economic prospects of families and communities.
  • Working with the World Bank Group, IDA brings an integrated approach to development. IDA helps create environments where change can flourish and where the private sector can jump-start investment.