The Maximizing Finance for Development agenda will require the Bank Group institutions – IBRD/IDA, IFC and MIGA – to work jointly on an unprecedented scale. Consider the track record so far– a recent IEG study found that over a twenty-year period (1995 – 2015), joint projects represented only a tiny fraction of World Bank Group approved projects.

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Last week’s IEG event, How to Work as One World Bank Group: Lessons from Experience, shed light on the potential role and limitations of the World Bank Group’s ambitious Maximizing Finance for Development (MFD) agenda.

Under this agenda, the World Bank Group has outlined a new approach to help countries draw on private financing and sustainable private sector solutions to tackle development challenges associated with the Sustainable Development Goals. By so doing, countries can create market opportunities for the private sector, while reserving scarce public financing for those areas where private sector engagement is not optimal or available.

The MFD agenda will require the Bank Group institutions – IBRD/IDA, IFC and MIGA – to work jointly on an unprecedented scale. Consider the track record so far– a recent IEG study found that over a twenty-year period (1995 – 2015), joint projects represented only a tiny fraction of World Bank Group approved projects.

For the study, IEG defined a ‘joint project’ as one characterized by the co-financing of a single project by two or more World Bank Group institutions.  Such joint projects can include advisory services from the Bank and/or the IFC, Bank and/or IFC finance, and political risk insurance from MIGA, for example.  Thus, multiple combinations of Bank Group advisory products, financing and risk-mitigation instruments are possible (see Figure).

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Why is it important for the World Bank Group to work jointly?

Combining technical assistance, finance and risk-mitigation products available across the Bank Group can yield benefits that are directly relevant to the creating markets/MFD agenda:

  • De-risking. Joint projects can contribute to a significant de-risking of client investments supporting market creation in high risk business environments such as those in IDA and fragile and conflict-affected countries.
  • Pioneer investments. Joint projects can support ground-breaking, first-time investments and first-time foreign investors with potentially large, positive demonstration effects for market creation.
  • Complex transnational operations. Joint projects can facilitate complex investments across two or more countries achieving economies of scale and market expansion.

In Georgia, for example, IFC is providing loan and equity financing, with MIGA political risk guarantee, to construct and operate a hydropower plant to export electricity to Turkey. IBRD finances the building of the transmission line into Turkey.

IEG’s evidence and last week’s event highlighted similar opportunities and the opportunity to do more.  Panelists, who included representatives from across the Bank Group, also discussed the objectives, success factors and limitations of joint projects:

  • Sectoral transformation. Creating markets/MFD is about crowding in the private sector with solutions that achieve sustainable sectoral transformations. Some of those solutions will be joint projects; many other solutions will be sequential or parallel interventions.  Achieving long-lasting sectoral transformation should be the overarching objective of World Bank Group interventions.

For example, IEG found that half of the Bank Group’s portfolio of joint projects is highly concentrated financing infrastructure investments in IDA countries, mostly energy projects in Africa.  Innovative examples abound including Lighting Africa, with WB ASA and IFC advisory support, that transformed off-grid solar energy use by households in the region and then went global.

  • Success factors. Client ‘buy-in’ is a quintessential success factor, without which joint projects will find it difficult to achieve their market creating objectives. Knowledge of the products and services the World Bank Group can offer is fundamental to offer clients the best combination of products and gain their buy-in. Strategic and effective collaboration across World Bank Group departments, supported by clear assignment of responsibilities, adequate staff incentives and conducive team dynamics, is considered a necessary condition for successful joint projects.  
  • Some limitations. The duplication of processes and procedures, the misalignment of supporting project structures, and the lack of clear roles and responsibilities across Bank Group departments throughout the life of the joint project can create internal and client transaction costs decreasing the World Bank Group’s comparative advantage.

Joint projects are not a panacea

While joint projects work in many situations, they may not apply in others.  In some cases, joint projects may not be necessary to achieve sustainable sector transformation.  Other types of Bank Group interventions will also work. Nonetheless, as the World Bank Group embarks on its ambitious creating markets/MFD agenda, it will benefit from the lessons of two decades of joint projects.

Read the report: World Bank Group Joint Projects: A Review of Two Decades of Experience

[NB: This is the second blog in the Creating Markets blog series.  The motivation for the blog is to share lessons from IEG evaluations early enough to help the Bank Group be successful in its systematic implementation of the Creating Markets concept.  The first in the series is Creating Markets: Lessons from Experience in Developing Countries.]

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