Catalog

	Table of Contents
p. 12 of 32 BACK | NEXT I. Introduction II. Assessment of Past Performance III. Rationale and Role IV. Operational Strategy A. Focusing Primarily on Existing Strengths B. Extending the Country and Sector Reach C. Wider Use of Innovative Financial Instruments D. Building Strategic Alliances and Partnerships V. Operational Improvements VI. Resource Requirements VII. Conclusions and Recommendations

Private Sector Operations: Strategic Directions and Review

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IV. Operational Strategy

47. ADB’s strategic objective for PSO is to increase the flow of capital into and within DMCs and, more importantly, to broaden the flow into more countries and sectors. Private capital flows have dramatically increased and now dwarf official flows. In the past five years, average annual private capital flows to developing countries reached nearly $270 billion per annum, while average annual official capital flows were only about $40 billion.³⁷ However, most of the private capital goes to only a few emerging markets, only a handful of which are ADB’s DMCs. Moreover, over 70 percent of the capital flows to infrastructure projects benefit only two sectors: energy and telecommunications. Other infrastructure sectors such as water, ports, airports, and roads, receive relatively less.³⁸

48. While the need is to broaden the reach of the private sector, the proposed PSO operational strategy will build on ADB’s existing strengths and capabilities while innovating in response to development needs. The strategy also contemplates improvements in PSO, including a sharper focus on development impact and the further strengthening of risk management. The strategy has four main elements.

1. focus primarily on existing strengths in infrastructure and capital markets;
2. extend country and sector reach and pursue projects in new areas on a pilot basis;
3. make wider use of innovative financial instruments such as guarantees; and
4. build strategic alliances and partnerships with other institutions.

49. The PSO operational strategy will be responsive to the particular needs and conditions of individual DMCs, taking into account external factors, such as the level of demand from private project sponsors for ADB’s assistance, and the sectors in each country that are sufficiently ripe for private sector involvement. Thus, the strategy will be implemented at the country level with respect to the sectors and/or subsectors to be targeted within the sector priorities for PSO and the specific approach to PSO in any DMC will be an integral part of ADB’s overall country strategy in the DMC. To ensure such integration, PSG will participate in country strategy formulation and programming, but on a selective basis and to the extent resources will allow. While desired PSO sectors will be indicated in country strategies and programs, it should be recognized that PSO cannot be “programmed.” For private sector projects to proceed, able and willing sponsors are needed, and basic elements of the enabling environment must be in place. In the absence of technical assistance (TA) funds, PSG cannot “make projects happen” either. PSG can only respond—albeit in a strategically selective manner (e.g., consistency with ADB’s country strategy and PSG’s operational strategy and core competencies)—to available opportunities and in light of country needs. Taking on a “developer role” selectively to instigate projects requires TA funds for PSO (paras. 100-102).

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