Private Sector and development at the World Bank

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Written by Tina Chang with inputs from Anne Lindsay and Sarah Montgomery

“Engaging the private sector is not about how we feel about business; it’s about how high our aspirations are for poor people. If we rely only upon foreign aid, then our aspirations are far too low.” (Jim Yong Kim)

President of the World Bank Group, Jim Yong Kim made the above statement in a recent Oxfam blog. Similar statements were made at this year’s annual meetings in Washington and the Bank is increasingly seeing a central role for the private sector in the fight against extreme poverty.

It may be stating the obvious to say that the impacts of the private sector on development are as diverse as the private sector itself but it does bear repeating. Ultimately this understanding is important for unlocking the (we would agree with Dr Kim) significant role of the private sector in development.

It also makes it slightly meaningless to say you are either “for” or “against” the private sector. Whether you are a private sector optimist or pessimist matters less than whether you have based your approach to the private sector on a full and balanced analysis.

Our experience and research tells us a few things:

First, that it is essential to ensure that the right framework is in place to minimize the risks and impacts of core business activities on human rights and the environment and maximize the benefits. This is relevant to the Bank’s current reflections on its safeguards policies. It is also important that as the Bank continues their work to support government “efforts on shaping the business environment for the private sector” and “identifying private sector investment” opportunities that the inequalities in terms of political access and lobbying influence are taken into account.

Second, that the local, small-scale domestic sector is an underrated and under invested often neglected part of the “private sector” in development thinking and strategies.

The World Bank is a case in point – at a CAFOD-ITUC sponsored meeting at the World Bank annual meetings we discovered that the Bank does not have a strategy for supporting small businesses, despite their critical role as a source of jobs and route out of poverty for the majority of poor men and women (email us if you would like a summary of this event). The Bank does not even have a good definition of what a “small business” is and its spend on supporting them is relatively insignificant.

We hope that this will change under the new strategy. And certainly things look a little promising. One of the biggest offenders (and most high profile projects) of the Bank – Doing Business – has been the subject of a far-reaching review and we hope, on the road to reform.

Doing Business is ill-suited to the needs of small businesses. Its definition of a model firm is a far cry from the reality of small businesses in most developing countries (being formal, export-oriented, located in the capital and having more than 60 employees, for example) and the reforms that it encourages governments to carry out bear little relevance to their priorities or needs. This is why India can rank highly for “Getting Credit” when that is precisely the major obstacle for the majority of small businesses in that country. (Fur further resources on the Doing Business project see here).

The World Bank is not alone in having a small business “blind spot”. Recent CAFOD research uncovered some useful lessons for donors and governments on the priorities and approaches that suit small businesses in developing countries.

The bottom line is, private sector involvement can mean and look like many different things. Research and evidence from the ground would point to the fact that “Thinking Small” needs to be the next big thing at the Bank if it is to achieve its new corporate goals of shared prosperity and poverty eradication.

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