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Private Sector Operations: Strategic Directions and Review

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Introduction

1. The founders of the Asian Development Bank (ADB) envisioned a role for private sector operations (PSO) in the region’s development. ADB’s Charter mandates ADB to promote investment of private capital in the region for development and empowers it to invest in equity, provide loans without government guarantees, guarantee loans, and facilitate financing to enterprises operating in its developing member countries (DMCs). ADB made its first equity investment in 1983, and provided its first loan without a government guarantee in 1986. Since then, ADB, through PSO, has supported some 146 private sector projects worth a total of $18 billion. In March 1995, ADB’s Board of Directors approved a more focused operational strategy for PSO.¹ That strategy required a country focus in project selection and accorded high priority to two sectors (infrastructure and financial sector) in which ADB had had long experience through its public sector operations. Industrial and other projects were given low priority. The responsibility to implement the PSO strategy was assigned to the Private Sector Group (PSG), which was created in January 1995 to consolidate PSO into one office.²

2. The first comprehensive ADB-wide private sector development (PSD) strategy,³ which was approved by the Board in March 2000, confirms the role of PSO in catalyzing private investments through direct financing and risk mitigation instruments. Under the new PSD strategy, PSO will continue to support infrastructure projects, funds, and financial intermediaries; however, PSO will now be oriented toward achieving greater development impact and/or demonstration effects.

3. This paper (i) assesses PSG’s past performance; (ii) elaborates on an updated operational strategy for PSO in the context of the broader ADB strategy for PSD; and (iii) analyzes the operational and resource implications of the updated PSO operational strategy.⁴ The paper makes a number of recommendations and seeks Board approval for them.

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