Governments and development institutions play an important role in creating conducive enabling conditions for private investment and production. The Asian Development Bank's (ADB) long-term corporate strategy (Strategy 2020), adopted in 2008, confirmed the strategic importance of ADB's support for private sector development (PSD). Under Strategy 2020, a substantial increase in these operations is envisaged to promote - through investments in infrastructure and advising governments, among other measures - a business-friendly environment in which there are reliable regulations and policies that do not disadvantage private enterprises.
Independent Evaluation's study reviews ADB's strategies and assistance programs for private sector operations over the last decade. It focuses on (i) the strategic relevance of support for strengthening the enabling environment for private sector development, (ii) the results of this support, and (iii) ADB's capacity to further improve support in line with Strategy 2020 objectives.
The study found that support for strengthening the enabling environment for private enterprises has been smaller (and has grown less) than investment support. Some elements of the investment climate such as education and financial sector reforms that are critical to fostering PSD have not received adequate attention, and not all infrastructure support fully recognized its relevance for PSD. Some success has been seen with the development of public-private partnership (PPP) policy, legal and institutional frameworks, but this has not translated into expected levels of actual PPP transactions mainly due to a lack of progress made with underlying sector reforms, regulatory capacity constraints, financial sector issues, and overall investment climate concerns.
Support for reforms to reduce unnecessary regulatory transaction costs, enhance competition, improve the rule of law and property rights, and reduce corruption, though growing, remains low. Furthermore, success in this area has been mixed, with reforms related to business registration, tax administration, procurement systems, customs administration and other trade facilitation measures showing promise, although their ultimate impact on business transaction costs and new enterprise formation will be dependent on support and incentives for implementation. Effectiveness in promoting enabling-environment reforms for private sector development varied depending on a range of factors, primarily the levels of government and stakeholder commitment and the quality of the overall governance environment.
The study offers several suggestions for strengthening the relevance and effectiveness of ADB's support for improving the enabling environment for the private sector in developing member countries; among them: enhancing the inclusiveness of PSD enabling environment support; following good practice approaches that are attuned to local conditions, strengthening the quality and use of private sector assessments, systematically considering and monitoring PSD contributions and impacts in country and sector strategies and projects,enhancing operational guidance and coordination for PSD work. Apart from increasing the share of PSD-relevant operations in its core areas - in particular, finance, education, and infrastructure - ADB needs to strengthen its support for business regulatory, competition and governance reforms through larger ADB contributions to advocacy efforts, increased levels of advisory and investment support, greater outcome orientation in project design and adequate support for reform implementation. Synergies between enabling environment support and private sector operations could be improved through the provision of adequate enabling environment support for key areas of private sector operations. Investment support needs to be carefully sequenced with enabling environment support, particularly for SME development and PPPs.