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Private Sector Development Strategy : The required internal changes

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Operating principles

To implement these fundamental changes required by the PSD strategy, two important operating principles are proposed to guide the delivery of assistance and concentrate ADB’s efforts on where it can contribute best.

“Think PSD” in public sector operations. This entails deliberate efforts by public sector operations to improve the enabling environment for the private sector and to use the experiences of PSO as inputs to these efforts. The new operational orientation calls for disciplined, sequenced examination of private sector alternatives at key stages of ADB projects: (i) at project preparation, asking whether the private sector can undertake the project without government assistance or, if not, whether a public-private partnership is feasible, or whether parts of the project can be undertaken by the private sector; or (ii) after project completion when construction and implementation risks no longer exist, asking whether the private sector can step in by taking over management and/or ownership, partially or wholly, or by refinancing government debt. The deliberate pursuit of private sector approaches to ADB’s public sector operations does not necessarily mean less public sector lending. It will, however, mean that public sector operations should focus more on projects (i) that involve direct poverty interventions and/or (ii) that private investors are not prepared to undertake.

“Think development impact” in private sector operations. PSO’s orientation will be to achieve greater development impact and/or demonstration effects, and work with governments to take deliberate steps to reduce poverty. At concept clearance and due diligence stages of any private sector project, due consideration should be given to ensuring development impact through, for example, employment opportunities, cleaner environment, access to public services, effective competition, and better corporate governance. At the same time, clarity and transparency should be observed in dealing with private sector partners to retain their confidence. Demonstration and catalytic effects are also important in PSO, and these will be pursued by seeking private sector projects that can be replicated if successful. To broaden the impact of PSO in the region, there may be a need to extend the reach of PSO to smaller DMCs or to sectors other than finance and infrastructure, which constitute PSO’s present core competence.

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