Evaluation Presentation: Evaluation on ADB's Private Sector Operations

Evaluation on ADB's Private Sector Operations

Evaluation Presentations

This evaluation assesses the degree to which ADB has adhered to its private sector development strategy, fostered the efficiency and effectiveness of its operations, and created value.

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The private sector is a powerful engine of economic growth and job creation, and thus a major contributor to poverty reduction. To provide better services and achieve development results, international finance institutions know that they must focus their private sector strategies on strengthening enabling environments; boost their private sector operations; and move away from providing funding to the private sector through state-owned development finance institutions.	ADB's private sector development strategy (2000) has two thrusts: support governments in developing member countries in creating enabling conditions for business, and generate business opportunities in ADB-financed public sector projects.	ADB has also catalyzed private investments through direct financing and risk mitigation instruments. Private sector assessments and country quantitative indicators have helped to identify opportunities and constraints and formulate country partnership strategies.
ADB's private sector transactions have grown, especially since 2003. They amounted to $1.5 billion in 2006—more than five times the annual average level of approvals in the 1990s. For 2007, $1.9 billion in transactions were planned.	In 2006, the Operations Evaluation Department in ADB assessed the degree to which ADB's Private Sector Operations Department has pursued the correct objectives, fostered the efficiency and effectiveness of its operations, and created value.	To capture the effects of the strategy, the study evaluated operations over the period 1995–2005, five years before and five years after the strategy was adopted. Case studies were conducted in India, Philippines, and Viet Nam.
Overall performance was rated "satisfactory". Investment profitability and additionality were judged "satisfactory". Development impact was deemed "marginally satisfactory", and effectiveness was considered "partly satisfactory" due to lack of progress in strengthening the overall environment. That lower rating reflects the fact that ADB has not yet fully harnessed private-public synergies.	What is more, despite the strong growth of ADB's portfolio, many developing member countries argue that ADB still does not respond adequately to demand. In parallel, in most countries, the private sector's role in financing, managing, and delivering services has increased, particularly in sectors such as finance, energy, transport, and water utilities. Governments are shifting their operational focus to policy and regulatory functions in response.	ADB's Medium-Term Strategy II, 2006–2008 calls for a concerted effort for more private sector operations. It also directs that ADB should prioritize transactions that have a strong demonstration effect, are innovative and pioneering, and are replicable by ADB and others.
More recently still, the report of the Eminent Persons Group, Toward a New Asian Development Bank in a New Asia, highlighted in 2007 the importance of economic growth, private-public partnerships in infrastructure, and the need to strengthen financial intermediation.	Against this background, the study recommended that ADB assess the need for changes in organizational structure for private sector operations and private sector development activities. It should strengthen its Risk Management Unit in anticipation of a significant increase in nonsovereign lending.	The study also tabled that ADB should establish a permanent unified credit committee supported by a permanent independent secretariat; point committee operations toward consideration of risks in and returns from transactions; encourage direct and frank exchange of information; and have it review projects from the concept clearance stage.
To underpin these changes, ADB should develop a five-year corporate management plan that matches resources to aspirations. The plan should detail the necessary administrative budget, technical assistance resources, staff skills mix, and supporting functions. It should use a balanced scorecard framework to assess achievements in private sector operations, drawing on experience elsewhere.	ADB's Private Sector Operations Department should prepare country business plans to deliver outputs under the country partnership strategy. It should develop and implement a medium-term strategic plan, including new products for supporting private sector and nonsovereign clients, monitorable results indicators, and resource requirements.	Lastly, the Private Sector Operations Department should prepare integrity due diligence guidelines in support of ADB's anticorruption policy. These might encompass actions against fraud, money laundering, and financing for terrorism.