| Session Title: Evaluating Private Sector Development in Developing Countries: Factoring in Risk and Multilateral Development Bank 'Additionality' |
| Multipaper Session 118 to be held in Room 108 in the Convention Center on Wednesday, Nov 5, 4:30 PM to 6:00 PM |
| Sponsored by the International and Cross-cultural Evaluation TIG |
| Chair(s): |
| Linda Morra-Imas, World Bank Group, lmorra@ifc.org |
| Discussant(s): |
| Theodore Moran, Georgetown University, morant@georgetown.edu |
| Marvin Taylor-Dormond, World Bank Group, mtaylordormond@ifc.org |
| Abstract: As part of the World Bank Group, the mission of the International Finance Corporation (IFC) is to promote sustainable private sector development in developing countries, and thereby contribute to growth and poverty reduction. It aims to achieve this mission through a range of investment and advisory services activities. In carrying out this mission, IFC faces two fundamental challenges: i) dealing with commercial risk, particularly at the development "frontier" where the private sector is in only a nascent state (which is the case in many low income countries and especially in Africa); ii) ensuring that its activities complement, rather than replace, those of others. This session will examine how, as evaluators, we can i) factor commercial risk into evaluations of private sector development; and ii) estimate the "additionality" - or unique value added - of a Multilateral Development Bank (MDB) such as IFC. |
| Factoring in Risk in Evaluating Private Sector Development in Developing Countries |
| Hiroyuki Hatashima, World Bank Group, hhatashima@ifc.org |
| Dan Crabtree, World Bank Group, dcrabtree@ifc.org |
| Stoyen Tenev, World Bank Group, stenev@ifc.org |
| The private sector operations of Multilateral Development Banks such as the International Finance Corporation face intrinsic business risk. These risks are particularly apparent at the development "frontier", where the private sector is in only a nascent state (for example in Sub-Saharan Africa, Middle East and North Africa, and South Asia). There is considerable literature on how commercial risk affects financial results, and accordant metrics, but no formal literature on how development outcomes might be affected by different risk conditions nor how best to assess development performance under different risk conditions. This paper addresses this gap. The paper identifies eight risk factors associated with a project's development and financial success. Overall, the higher the level of risk intensity, other things being equal, the lower the chance of high development outcomes. Of the individual risk factors, sponsor risk, sector risk and country business climate risk appear to have the most influence on development results. Risk profiling of this kind can offer insights into the long-term development and financial performance of projects, beyond conventional credit analysis that focuses on short term business performance, particularly when considered alongside the quality of efforts to mitigate the risks identified. |
| Estimating Multilateral Development Bank "Additionality" in Facilitating Private Sector Development |
| Dan Crabtree, World Bank Group, dcrabtree@ifc.org |
| Hiroyuki Hatashima, World Bank Group, hhatashima@ifc.org |
| Stoyen Tenev, World Bank Group, stenev@ifc.org |
| Development institutions are expected to do more than just provide finance and advice to their clients, be they governments or companies. Rather, they are expected to help address the serious market- and non-market institutional failures that can exist in the operation of markets and institutions in developing countries - and which collectively constrain economic growth, development and poverty reduction. 'Additionality' arises when development institutions provide inputs and services over and above those available from existing market- and non-market sources and which also exhibit unique added value. This paper will offer the first detailed exploration of the concept of MDB additionality, including a comparative assessment of how different MDBs think about additionality. Secondly, it will show how this concept can be operationalized in a way that distinguishes between different types and levels of additionality, and builds on existing international good practice standards for the evaluation of MDB private sector operations. Thirdly, it will examine the theoretical and empirical connections between additionality, development impact, and profitability. |