Learning Curves

OED
July 2007

HarnessingPrivatePublic Synergies

Theprivatesectorisgenerallyregardedastheengineofeconomicgrowthandjobcreation andthusasamajorcontributortopovertyreduction. Toprovidebetterservicestotheirclientsandincreasetheprobabilityofachieving developmentresults,internationalfinanceinstitutionsknowthattheymust(i)moveaway fromprovidingfundingtotheprivatesectorthroughstateowneddevelopmentfinance institutions,(ii)sharpenthefocusoftheirprivatesectorstrategiesonstrengtheningenabling environments,and(iii)increaseinvestmentsfundedthroughtheirprivatesectoroperations. Initsprivatesectoroperations,isADBdoingtherightthing?Isitdoingthingsright?Isit addingvalue?

Background In2000,theAsianDevelopmentBank(ADB)drafted aPrivateSectorDevelopmentStrategyinsupportof itsoverarchinggoaltoreducepovertyinAsiaandthe Pacific.Inrelationtopublicsectoroperations,the strategyhastwothrusts:(i)supportgovernmentsin developingmembercountriesincreatingenabling conditionsforbusiness,and(ii)generatebusiness opportunitiesinADBfinancedpublicsectorprojects. Regardingprivatesectoroperations,itaimstocatalyze privateinvestmentsthroughdirectfinancingandrisk mitigationinstruments.Privatesectorassessmentsand countryquantitativeindicatorshavehelpedtoidentify opportunitiesandconstraintsandformulatecountry partnershipstrategies. ADBsprivatesectortransactionshavegrown, especiallysince2003.Theyamountedto$1.5billionin 2006morethanfivetimestheannualaveragelevelof approvalsinthe1990s.For2007,$1.9billionin transactionsareplanned.In2006,theOperations EvaluationDepartmentundertookaSpecialEvaluation StudyonPrivateSectorDevelopmentandOperations: HarnessingSynergieswiththePublicSectortoassess thedegreetowhichADBsPrivateSectorOperations Departmentispursuingthecorrectobjectives,the efficiencyandeffectivenessofitsoperations,andthe extenttowhichADBhasbeencreatingvalue. 1 To capturetheeffectsofthestrategy,thestudyevaluated
Operations Evaluation Department Asian Development Bank

operationsovertheperiod19952005,fiveyearsbefore andfiveyearsafterthestrategywasadopted.Case studieswereconductedforIndia,Philippines,and VietNam. SummaryofFindings ADBsprivatesectordevelopmentandoperations wereevaluatedfollowingADBsGuidelinesfor PreparingPerformanceEvaluationReportson NonsovereignOperations.

Item U PS S E DevelopmentImpact PrivateSectorDevelopment Beyondcompanyimpacts (improvingtheenabling environment) Directcompanyimpacts (catalyzinginvestments) BusinessSuccess EconomicSustainability ContributiontoLivingStandards EnvironmentalPerformance ADBsInvestmentProfitability ADBsEffectiveness Screening,Appraisal,&Structuring Monitoring&Supervision Role&Contribution ADBsAdditionality OverallRating Legend:U=unsatisfactory,PS=partlysatisfactory,S=satisfactory, E=excellent.

6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444; evaluation@adb.org; www.adb.org/evaluation/

Performanceoverallwasratedsatisfactory. meetings,andreviewprojectsfromtheconcept Investmentprofitabilityandadditionalitywererated clearancestage. satisfactory,whiledevelopmentimpactwasrated StrengthentheRiskManagementUnitin marginallysatisfactory.Effectivenesswasrated anticipationofasignificantincreaseinnonsovereign partlysatisfactoryduetolackofprogressin lending. strengtheningtheoverallenvironment.Thatlower Developacorporatemanagementplancoveringa ratingreflectsthefactthatADBhasnotrealizedits fiveyearperiodthatalignsresourceswith potentialtoharnessprivatepublicsynergies. aspirationstoexpandprivatesectoroperations, DespitethestronggrowthofADBsportfolio,many includingdetailsonnecessaryadministrative developingmembercountriesarecomplainingthat budget,technicalassistanceresources,staffskills ADBisnotrespondingadequatelytodemand.Inmost mix,andstrengtheningsupportingfunctionsofrisk countries,theprivatesectorsroleinfinancing, managementandcommercialcofinancing. managing,anddeliveringserviceshasincreased, Introduceabalancedscorecardframeworkfor particularlyinsectorssuchasfinance,energy,transport, assessingachievementsinprivatesectoroperations, andwaterutilities.Governmentsareshiftingtheir drawingontheexperienceofothermultilateral operationalfocustopolicyandregulatoryfunctions. developmentagencies. ADBsMediumTermStrategyII,20062008calls foraconcertedeffortformoreprivatesectoroperations, DepartmentalLevelRecommendations andendorsestherecommendationofaninternal Preparecountrybusinessplansfordelivering ReviewofADBsPrivateSectorDevelopmentStrategy privatesectoroperationsandprivatesector Implementation,conductedin2006,thatADBshould developmentrelatedoutputsinthecountry prioritizetransactionsthathaveastrongdemonstration partnershipstrategyframework. effect,areinnovativeandpioneering,andarereplicable byADBandothers.TowardaNewAsian Developandimplementamediumtermstrategic DevelopmentBankinaNewAsia,theReportofthe plan,includingnewproductsforsupportingprivate EminentPersonsGroup,highlightedin2007the sectorandnonsovereignclients,monitorableresults importanceofeconomicgrowth,privatepublic indicators,andresourcerequirements. partnershipsininfrastructure,andtheneedto Prepareandimplementintegrityduediligence strengthenfinancialintermediation.Theadjustments guidelinesforprivatesectoroperationsthatform thisvisionimplieswouldnotbestraightforward;from partofADBsanticorruptionpolicyframework theearly1980s,ADBhasstruggledtofindwaysto encompassingvariousaspectsofcorruption, mergepublicandprivatesectoroperations.Thisisnot includingfraud,moneylaundering,andfinancing surprising:corporationsinvolvedinmergersand forterrorism. acquisitionshaveoftenfoundthatdifferentculturesare difficulttointegrate. Feedback CorporateLevelRecommendations Assesstheneedforchangesinorganizational structuresupportingPrivateSectorOperationsand PrivateSectorDevelopmentactivitiessuchthatthe potentialsynergiesofthepublicandprivatesectors workingtogetheraremoreeffectivelycaptured. Establishapermanentunifiedcreditcommittee supportedbyapermanentindependentsecretariat. Revisecreditcommitteeoperationstoconsiderrisks andreturnsoftransactions.Encouragedirectand frankexchangesofinformationthroughregular AtthetimeofpreparationoftheseLearningCurves, ADBManagementsResponseandtheChairs SummaryoftheDevelopmentEffectiveness CommitteeDiscussionswerenotyetavailablefor disclosuretothepublic.Thestudywascompletedin May2007. 1 ADB.2007.SpecialEvaluationStudyonPrivateSector
DevelopmentandOperations:HarnessingSynergieswiththe PublicSector.Manila.Available: http://www.adb.org/Documents/SES/REG/SSTREG2006 06/SSTREG200606.pdf

Learning Curves available @ www.adb.org/evaluation/

Team Leader: Bob Finlayson; Tel +63 2 632 4107; bfinlayson@adb.org