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State Your Business!

Report to the Board from the Committee on Development Effectiveness

The Committee on Development Effectiveness met to consider the report entitled State Your Business! An Evaluation of World Bank Group Support to the Reform of State-Owned Enterprises, FY08–18, and the draft management response.

The committee welcomed the Independent Evaluation Group’s first systematic assessment of the Bank Group’s support for the reform of State-Owned Enterprises (SOEs) for 2008–18 and commended it for the quality and learning orientation of the report. Members were pleased to learn that management broadly agreed with the Independent Evaluation Group’s findings and that it was already working in the direction of the report’s recommendations.

Members welcomed the report’s findings that SOEs can play a major role in both developing and emerging economies to achieve economic, social, and political objectives, including promoting growth; delivering and extending access to services; filling market gaps; developing key sectors or regions; creating jobs; and addressing issues of heightened national priority or security. They noted the use of SOEs by governments and donors, including the Bank Group, to channel subsidies or benefits such as deferred payment of utility bills or subsidized credit to enterprises in response to the coronavirus (COVID–19) crisis. Members highlighted the importance of SOE reforms to help client countries achieve the Sustainable Development Goals and recognized that even in normal times, SOEs’ mixed institutional mandates and political importance often pose performance, financial, and governance challenges. Members acknowledged the evaluation’s findings that reforms have higher rates of successful outcomes in countries with better control of corruption and competitive conditions at the sector and enterprise level and that positive experiences from collaboration across Bank Group institutions are essential for mobilizing private financing and capabilities consistent with the Maximizing Finance for Development and Cascade approach.

Members underscored the importance of corporate governance and corruption, especially in challenging market environments, noting that this should not inadvertently lead to a movement away from these challenging environments, particularly in International Development Association and fragile and conflict-affected situation countries. Members noted that SOE reform is broader than ownership and privatization, and they underscored the importance of regulatory reforms to promote competition and remove potential bottlenecks for private players. Members noted that financial sustainability issues in many SOEs and their impact on general government budget are often a challenge in client countries and encouraged management to continue paying close attention to public financial management reforms.

The committee recognized that SOE reforms could be used to help client countries overcome public sector and multilateral development bank limited financing capacity and that by promoting, when relevant, a more robust and commercially organized governance of SOEs, including with the use of de-risking instruments, the Bank Group could set clients on a trajectory from sovereign-guaranteed public sector financing to commercial financing. Members highlighted that mobilizing private financing for SOE reform can have positive externalities, notably in terms of transparency, and underscored that the sequencing of reforms must be driven by country context, making policy analysis an essential part of the assessment. They recognized that SOEs can impose barriers to private participation in sectors where their dominant presence enables anticompetitive behavior. Members noted that SOEs represent a fertile ground for the implementation of the Cascade approach and for the Bank Group to strengthen its collaboration efforts, and they encouraged management to continue assisting client countries in creating an enabling environment where private sector participants can also invest and play an important role in providing various services.