Promoting private sector development and private investment in high-risk FCS remains a major challenge. IEG evaluations emphasize the challenges related to leveraging the private sector for sustainable development in FCS countries, including investing in difficult operating environments with specific fragility risks (such as security, weak capacity of clients and governments), different characteristics of the private sectors and potential project sponsors, distinct features of investment opportunities, and higher cost of doing business. A key knowledge gap remains concerning which approaches and instruments are effective in engaging the private sector in FCS countries.
IEG evaluations suggest several lessons for IFC in engaging in FCS:
Adapting IFC’s business model, instrument mix and risk tolerances to FCS countries and to the characteristics and needs of the private sectors in such countries can help scale up business opportunities for IFC. IFC has adjusted its strategy and introduced several new mechanisms and instruments to support business in FCS. However, it has not systematically adapted its business model to work in FCS.
Similarly, aligning internal incentives and performance metrics to IFC’s strategic objectives can support increased engagement in FCS. To this end, IFC recently added corporate targets and metrics for its commitments in FCS and low-income countries in its corporate scorecard and redesigned its corporate awards program. IFC can further link its corporate goals to individual performance metrics. Finally, past evaluations point to the importance of adequate staffing for FCS. These evaluations also found that IFC has deployed relatively few investment officers to FCS.
The range of potential private sponsors in FCS countries suggests different pathways to increasing business in FCS – including through proactive upstream efforts to conceive projects, working with existing clients not yet invested in FCS, and engaging with non-traditional sponsors.
Given the low capacity of firms in many FCS, advisory services may be important to enhance the capacity of some clients.
IFC can have high additionality when it is working with smaller domestic sponsors or existing clients investing in an FCS for the first time. Its implied political risk insurance and implementation support helped enable several investments in FCS. In some cases, however, additionality was more limited where an established client may have been able to attract similar financing from commercial sources.
Nobody can do it alone. Engaging with the private sector in FCS countries requires collaboration and offers opportunities for synergies among World Bank Group institutions. Collaboration among WBG institutions facilitated private sector investment in high-risk countries.
More lessons from IFC’s Experience in FCS (Chapter 4)
Past IEG evaluations have identified the following three areas of attention that can potentially strengthen IFC’s engagement and support the scale-up of its investment and advisory activities in FCS countries:
- Tailor business development to different typologies of FCS markets and different types of potential private sector clients in FCS countries;
- Address IFC staff incentives, skills, and staffing to enhance their ‘fit for purpose’ to FCS-related work;
- Adapt IFC’s approach, risk appetite, instruments, and metrics of success to the context of FCS countries.
More implications for IFC’s Work in FCS and for Future Evaluation (Chapter 5)