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What next for additionality: promoting better understanding of its role in development

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According to the ‘additionality’ principle, Multilateral Development Banks (MDBs) such as the World Bank Group’s private sector arm, the International Finance Corporation (IFC), should make a contribution beyond what is available in the market (either financial or non-financial or both)  while avoiding crowding out private sector players. But what does additionality exactly mean, and how can Show MoreAccording to the ‘additionality’ principle, Multilateral Development Banks (MDBs) such as the World Bank Group’s private sector arm, the International Finance Corporation (IFC), should make a contribution beyond what is available in the market (either financial or non-financial or both)  while avoiding crowding out private sector players. But what does additionality exactly mean, and how can it be measured?  The MDB’s Harmonized Framework for additionality in Private Sector Operations (2018), refers to “key financial and non-financial inputs brought by MDBs to a client and project to make the project or investment happen, make it happen much faster than it would otherwise, or improve its design and/or development impact”. The Framework also clarifies that additionality is different from development impact, which captures development results that the project is expected to deliver whereas additionality is the value the MDB adds through its activities, which leads to development results. While the concept of additionality is used by many MDBs as an eligibility criterion for private sector projects, the concept is still not well defined nor applied in most public sector interventions. Yet, even in the private sector space there was no common understanding of additionality, as each MDB follows its own approach. That is why in 2020, the Evaluation Coordination Group (ECG), an entity dedicated to harmonizing evaluation work among MDBs, set up a Working Group to look into the definitions, assessment methods, and reporting of additionality by MDBs and commissioned a report on the topic. The main objective of this stocktaking exercise was to assess the current approaches to additionality within and across MDBs and contribute to ECG members’ understanding of the treatment and evaluation of additionality. Findings of the additionality stocktaking exercise The stocktaking study looked into the practices of the Asian Development Bank (AsDB), the African Development Bank (AfDB), the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD), the Global Environment Facility (GEF), the International Financial Corporation (IFC) , Commonwealth Development Corporation (CDC, now British International Investment), Deutsche Investitions und Entwicklungsgesellschaft (DEG), the Dutch Entrepreneurial Development Bank (FMO) and KFW Development Bank. The resulting report delivered three main findings. First, financial additionality (e.g. financing on terms and conditions not available in the market) has been the main additionality claimed for years as it is embedded in the MDBs’ mandates. The concept is still relevant nowadays, but the financial additionality claims are difficult to validate. Second, non-financial additionality has been gaining relevance over time, particularly in markets where there is availability of funding from private financiers or where there’s high MDB funding. MDBs’ ‘uniqueness’ has indeed shifted towards non-financial additionality including for example political risk cover, knowledge transfer, capacity building, or standard setting. Third, the conceptualization, measurement, and attribution of additionality are difficult to evaluate. Some challenges include variations in the quality of evaluations of additionality that arise over the specification of its sources, supporting evidence, counterfactual assessments, delineation of expected effects, use of indicators, benchmarks, and timings. On the one hand, financial additionality claims suffer from a lack of evidence, making them difficult to evaluate. On the other hand, non-financial contributions are easier to assess but are hampered by a lack of clear expectations of value-added, poor monitoring of implementation, and few benchmarks. Moreover, the non-financial additionality elements often emerge only as projects get underway. Since a reliable ‘test, track and trace’ system is needed for proper assessment and attribution, the monitoring of additionality claims is generally weak, patchy, and uncoordinated. In addition to the above, evaluators face a number of issues when evaluating additionality, be it financial or non-financial, such as clarity and coherence, operational judgements, ambiguous areas, monitoring and reporting, trade-offs and tensions, and finally strategic concerns. Setting the way forward During the 14th European Evaluation Society (EES) Biennial Conference recently held in the Danish capital, Copenhagen, evaluators around the world gathered to discuss actions and shifting paradigms for challenging times. One of the sessions chaired by the World Bank Group's Independent Evaluation Group (IEG) focused precisely on evaluating the additionality of MDBs and analyzing the ECG's stocktaking report. Together with EIB and EBRD representatives, IEG touched on the similarities, differences, gaps and potential synergies in MDBs’ mandates, operational approaches and evaluation approaches to additionality, while identifying best practices. What is next for additionality and its evaluation is still unclear. Evaluations of additionality have been sparse until recently, although more are planned for the future. However, greater consistency in approaching additionality through common definitions of its sources, use of agreed indicators and benchmarks, as well as consistent levels of ambition could benefit evaluators, policymakers, and the public. ​At the same time, every MDB would benefit from common financial market databases while transparency on additionality could be enhanced via public disclosure that supports feedback and interest in lessons derived from evaluations​.

MIGA’s Experience with Non-Honoring of Sovereign, Sub-Sovereign, and State-Owned Enterprise Financial Obligation Guarantees

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This meso evaluation provides the first assessment of MIGA’s 10-year experience with its Non-Honoring of Sovereign, Sub-sovereign and State-Owned Enterprises Financial Obligation insurance products and the extent to which they helped MIGA enhance its additionality, development impact, and achieve its strategic objectives.This meso evaluation provides the first assessment of MIGA’s 10-year experience with its Non-Honoring of Sovereign, Sub-sovereign and State-Owned Enterprises Financial Obligation insurance products and the extent to which they helped MIGA enhance its additionality, development impact, and achieve its strategic objectives.

Conversations: Leveraging the Private Sector for Sustainable Development in FCV - What does it take?

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Conversations: Leveraging the Private Sector for Sustainable Development in FCV - What does it take?
IEG · Leveraging the Private Sector for Sustainable Development in FCV: What does it take? Since the inception of the 2011 World Development Report (WDR 2011), the World Bank Group’s approach to Fragility, Conflict, and Violence (FCV) has emphasized the importance of job creation, especially led by the private sector, to help break these cycles of violence and fragility. The private sector in Show More IEG · Leveraging the Private Sector for Sustainable Development in FCV: What does it take? Since the inception of the 2011 World Development Report (WDR 2011), the World Bank Group’s approach to Fragility, Conflict, and Violence (FCV) has emphasized the importance of job creation, especially led by the private sector, to help break these cycles of violence and fragility. The private sector in fragile situations is often informal and highly constrained. It also faces a distorted playing field with a strong presence of Estate Owned Enterprises, for example, or entities that might be a party to a conflict.  The private sector is nonetheless a key vehicle for providing livelihoods, income, and services to people.  Carmen Nonay, IEG’s Director of Finance, Private Sector, Infrastructure, and Sustainable Development, facilitated this conversation to take stock of the lessons learned at World Bank Group after 10 years from the publication of the WDR2011, and to explore what it takes to support private sector development in fragile contexts. Three guests joined her in conversation: Aline Sara, CEO of Natakallam; Laure Wessemius-Chibrac, CEO of the Dutch Netherlands Advisory Board on Impact Investment at the Global Steering Group for Impact Investment; and Stephan Wegner, Senior Evaluator and Fragility and Conflict Specialist at IEG. Read the Related Report: IFC’s and MIGA’s Support for Private Investment in Fragile and Conflict-Affected Situations: Fiscal Years 2010–21 Transcript Carmen Nonay: Can you tell us about your experience launching a business in a fragile and conflict-affected setting? Aline Sara: Natakallam is a social enterprise that hires refugees and their host community members as online tutors, teachers and translators. Natakallam’s core goal is to provide income to refugees, no matter their location, and no matter their status in a country. Natakallam is a digital program that operates online, with the backbone being in physical presence and in fragile states. But, because we are a double-sided market, our customers are mostly in developed countries. I think it is interesting to acknowledge that perspective. Most of our employees are located in fragile settings, mainly in the Middle East, Sub-Saharan Africa, and in Latin America. The core of our operations began in Lebanon, supporting Syrian refugees. Carmen Nonay: What were some of the challenges you faced and how did you overcome them? Aline Sara: From an operational perspective, the biggest challenge has been dealing with working rights for the populations we're working with, who are mostly refugees. Other challenges include the lack of access to a reliable Internet connection, and now to electricity, especially given the situation in Lebanon.  Another challenge is figuring out payment mechanisms for the individuals we are hiring. Funding and fundraising are a challenge as well.  My experience has been less exhaustive from an investment perspective because Natakallam has mostly operated through its self-generated revenue and non-dilutive investments and grants. I can however say that it is tricky to raise money for an operation like ours because, even though we operate within the digital economy, we are very heavily focused on hiring humans who operate and live in difficult circumstances. There is then a problem with risks at Natakallam and certain investors are less likely to take on such risks. Add to this the fact that patient capital is less available. I would highlight those as very operational challenges that we face working in these countries. Carmen Nonay: Let me now turn to Stephan Wegner, our Senior Evaluation Officer here in IEG. Stephan, could you tell us more about some of the main lessons learned from your work assessing private sector development support? Stephan Wegner: The World Bank Group and many other Development Finance Institutions have recognized that fragile and conflict-affected states require a differentiated approach to support the private sector. They've adapted their instruments to help scale up private sector investment, and some institutions also seek to incorporate conflict analysis. But despite changing their approaches and instruments, we see little impact in terms of scaling up private sector investments. When we looked at the portfolio of evaluated projects, we found that projects performed quite well, especially in the infrastructure sector, as well as those investments in larger countries and of larger size. Now, among the instrument innovations that we've seen are blended finance solutions, which blend funding from public and private sector sources. These have been introduced to address financial risks that private sector investors face in high-risk markets. One example is the IDA Private Sector Window, which was introduced in 2018 and added to the toolbox focusing on the most fragile markets where the World Bank Group offers support. The early experience with that instrument showed some positive results in terms of allowing the private sector arms of the World Bank, IFC and MIGA, to enter new sectors in markets where they were not previously present. We also saw that the uptake has been somewhat limited, indicating that non-financial risks might be more important than the financial risks this finance instrument is designed to address. We are finding that the lack of a pipeline of bankable projects is a more binding constraint than the availability of finance or funds to scale up business in fragile contexts. We've identified a couple of areas where we think Development Finance Institutions can change their business models and further adapt their toolboxes to help them achieve their strategic objectives of increasing business in fragile conflict-affected situations. The first one is the heterogeneity of countries. Differences in country conditions call for differentiated strategies that are based on a thorough analysis and diagnostic of opportunities and constraints in those countries, building on an understanding of the drivers of fragility and conflict. The second area is the limited number of clients with which these institutions are used to work. This implies a need for these institutions to go beyond their client base to more informal, less experienced clients. It requires more patience, capacity building, and a hand-holding type of approach to them. What we found in our work is that many projects were linked to upstream work through efforts to reform a sector and provide capacity building and advisory services that have facilitated the development of a pipeline of bankable projects in fragile settings. We see this evidence as a promising approach to increase the pipeline towards increased efforts in fragile and conflict-affected states. Supporting private investments in fragile contexts is very expensive. It involves higher costs of doing business, longer time horizons for generating projects, and the patient capital that Aline was referring to earlier. Overall, we are still learning which models and approaches are effective in fragile contexts. Supporting private sector activities requires continuous experimentation, the adaptation of approaches and models, and learning as we go along. Carmen Nonay: Let me now turn to Laure. What are some of the lessons that you have learned in your role as CEO of the Dutch Netherlands Advisory Board on impact investing? And, looking into the future, what do you think it will take to increase the pipeline of bankable projects in fragile and conflict-affected situations? Laure Wessemius-Chibrac: I'm responding as CEO of the Netherlands Advisory Board on Impact Investing, but also with a couple of other hats on: I used to be the Managing Director of the investment branch of Cordaid, the NGO based in the Netherlands, and they've had the chance to work a lot in conflict-affected states and in fact that’s where they particularly focus on. I'm completely in line with what Stephan said a little bit earlier about the various points regarding the immense complexity of the situation and the fact that you need a lot of flexibility and adaptability to be able to work in this context. When I was at Cordaid, we were active in different countries over 3 continents and not one context was similar to the other. This underscores the point that we, as a foundation, had the flexibility to adapt our business model and investment strategy to various contexts. That was a big change for us and it’s not always easy to achieve for development finance institutions. Stephan also mentioned the need for capacity building, and I could not agree more. This is connected to your second question regarding how to increase the pipeline of bankable projects. In many of these contexts, the informal sector accounts for anywhere between 50% to 90% of the economic activity. So it's very difficult to invest and increase the pipeline if you do not ensure that there's a gradual building of this pipeline at several levels. In previous conversations with Stephan and the evaluation team, I have always asked the question: what is a bankable project? And I'm pretty sure that if you ask various types of investors, you're going to have many different answers. And I'm sure that for IFC and MIGA, the definition would be slightly different than that from a foundation like Cordaid. The word bankable is often associated with risk-adjusted returns. But when, as Stephan mentioned, the cost of doing business in fragile contexts is 2.5 times more expensive than in other developing countries, how can you ever have a return that is actually adjusted to the risk?  One of the big lessons learned, in our experience, is that you need to diminish the risk where you can, and this brings me to the topic of foreign currency and local currency. We have wonderful instruments offered by currency funds, but unfortunately, the burden of the costs of the hedging very often is borne by the enterprise that we're financing. This results in unbearable costs. What we've learned is that by trying to innovate on solutions, decreasing the costs is actually a good way of increasing the number of bankable projects just because they have reduced risk and they have a more acceptable level of return. Working on the capacity is a very important point, especially if you try to build a pipeline with more informal sector participation. It needs time and patience. Aline talked about patient capital earlier and I couldn't agree more. You can't look at quarterly results when you expect to trigger long-term change in certain situations. The approach as an investor is very different when arriving in fragile and conflict-affected states. If you focus on these situations, you know that there are inevitable cycles of crisis that come again and again and again. And you know you need to be prepared for these crises, and when you have a large organization like IFC, you can be very diversified, which is a great tool to have. Having a portfolio approach towards your investments is worth mentioning because if investors decide to invest in a pool of countries, they can be prepared to maybe make some losses with some of them, or some sectors. For instance, I heard Stephan mentioning that projects in the infrastructure sector are performing well, so if investors are performing well on that part of their portfolio, they might be more accepting of making losses on other parts of their portfolio. Carmen Nonay: Now I'd like to turn to Aline. You have heard some of IEG's analysis and that of an impact investor. Do these findings and proposals resonate with you as an entrepreneur? And what will it take to scale up social enterprises like yours? Aline Sara: You know everything I've heard strongly resonates with my experience. I chose, as the founder of a small social enterprise, not to typically seek investments. As I mentioned, Natakallam has grown from its operations and its self-generated revenue as well as from a combination of non-dilutive grants from foundations, competitions that we've won, etc. From our perspective, as a 6-year-old enterprise, we made a deliberate choice to not go to investors because we knew that they would see too much risk in the work we're doing. They would also not necessarily be ready to wait for us to get to a better point after investing in us. Things might have changed in the interim now. Natakallam continues to grow and we're now looking at impact investments, which I think is itself a term that is sometimes thrown around a little bit loosely and can be looked at in a different way. But this resonates with our experience which is why today Natakallam has not gone for investments yet. Perhaps that will change. I feel like we haven't talked about impacts as much, right? I'm hearing more about the risks from the investor’s perspective, and I feel that sometimes the impact gets lost in the discussion. Natakallam prides itself on being an impact-first for-profit social enterprise, which itself is something that is a complicated topic.  But one thing I find is sometimes missing from the discussion is what does impact mean? Laure raised a very good point by pointing to the meaning of a bankable project and as she was speaking I quickly Googled the definition. The first thing that came up is very often used in the Hollywood sector, or the entertainment sector, for a project that's going to bring back return and success. How does one define success for social enterprise? Are we talking about the returns on investment or are we talking about the impact? What is deep impact versus breath of impact? These are all topics that I sometimes find aren't addressed enough. Everything that I heard Laure pointed out to is the risks, the fluctuations, and the uncertainty when you're operating in fragile states. I mean half of the refugees we work with were affected by the Beirut bombings and from one day to the next we lost our payment mechanism to Beirut, where the entire banking sector crumbled, and even the wealthiest of Lebanese could not pull out their money. So it's a very different ball game when you are investing in fragile States and investors have to be ready to put a whole other level of skin in the game. Carmen Nonay: Laure, you have heard Aline talk about a call for the redefinition of bankable. What is your reaction to that? Laure Wessemius-Chibrac: It's interesting that she considered that her enterprise presented too much risk and she was hesitant to attract investors. I understand that and also see that there are more and more investors asking about what return they can expect. We talked a lot about risk-adjusted returns, but some investors, impact investors, are asking about fair returns. Particularly in asset classes such as private equity, where investors often expect double-digit returns and multiples, you start realizing that in reaching those returns they negatively impact their employees or their customers, either because customers overpay for their services or their products, or because employees are underpaid. I think that's also part of the redefinition of what is bankable and what our returns and what are fair returns. Carmen Nonay: Thank you for joining us for this conversation and to explore more evidence and lessons learned on what works, what doesn't, and why.

International Finance Corporation Country Diagnostics and Strategies Under IFC 3.0: An Early-Stage Assessment (Approach Paper)

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In December 2016, the International Finance Corporation (IFC) introduced its latest strategy, IFC 3.0, which aimed to enhance IFC’s development impact by creating “new and stronger markets for private sector solutions” (IFC 2019) and “mobilizing private capital at significant scale” (IFC 2021) where it is needed the most. To achieve IFC 3.0’s aims of market creation and private capital Show MoreIn December 2016, the International Finance Corporation (IFC) introduced its latest strategy, IFC 3.0, which aimed to enhance IFC’s development impact by creating “new and stronger markets for private sector solutions” (IFC 2019) and “mobilizing private capital at significant scale” (IFC 2021) where it is needed the most. To achieve IFC 3.0’s aims of market creation and private capital mobilization at scale, IFC recognized it would need new tools and analytical capabilities to: (i) Develop a deeper understanding of the constraints limiting private sector solutions and opportunities in each country’s economy, including in key enabling and productive sectors; and (ii) Allow for a more strategic selection, sequencing, and implementation of its activities and stronger coordination across the World Bank Group. At the country level, IFC 3.0’s tools included a new diagnostic instrument, the Country Private Sector Diagnostic (CPSD), and a new strategy instrument, the IFC Country Strategy. The objective of the evaluation is to assess whether IFC Country Strategies and CPSDs have enhanced IFC’s ability to create markets and mobilize capital at scale and have informed Bank Group collaboration on private sector development. The evaluation will focus on IFC Country Strategies and CPSDs completed since their inception in fiscal year (FY)18. The evaluation will cover all 50 IFC Country Strategies and the 31 CPSDs completed between FY18 and December 31, 2021.

IFC’s and MIGA’s Support for Private Investment in Fragile and Conflict-Affected Situations

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Overlooking the central Kumasi market at closing time in Kumasi, Ghana, June 22, 2006.  Image credit: Jonathan Ernst / World Bank
This evaluation assesses IFC’s and MIGA’s effectiveness in supporting private investment and development impact in Fragile and Conflict-affected Situations (FCS) and identifies key factors constraining private investment in FCS and possible trade-offs that practitioners and policy-makers need to consider. This evaluation assesses IFC’s and MIGA’s effectiveness in supporting private investment and development impact in Fragile and Conflict-affected Situations (FCS) and identifies key factors constraining private investment in FCS and possible trade-offs that practitioners and policy-makers need to consider.

The World Bank’s Role in and Use of the Low-Income Country Debt Sustainability Framework (Approach Paper)

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Interest is high on the World Bank’s role in and use of the Low-Income Country Debt Sustainability Framework (LIC-DSF) in light of the sharp rise in debt stress among low-income countries and a changing global risk landscape in the years leading up to and resulting from the coronavirus pandemic (COVID-19). Since 2015, the number of IDA-eligible countries at high risk of or in debt distress has Show MoreInterest is high on the World Bank’s role in and use of the Low-Income Country Debt Sustainability Framework (LIC-DSF) in light of the sharp rise in debt stress among low-income countries and a changing global risk landscape in the years leading up to and resulting from the coronavirus pandemic (COVID-19). Since 2015, the number of IDA-eligible countries at high risk of or in debt distress has more than doubled. As the key instrument to assess the debt sustainability of IDA eligible countries, the LIC-DSF is intended to guide the World Bank’s advice and support to these countries. This evaluation seeks to assess how the World Bank contributes to the LIC-DSF, how it uses LIC-DSF output in various corporate and country-level decisions, and how it can better leverage the LIC-DSF to address debt vulnerabilities in LICs. In doing so, it will seek to identify opportunities for the World Bank to strengthen its role in the preparation and use of the LIC-DSF in a changing global context and to highlight potentially important questions that may need to be addressed in the upcoming joint review, including the extent to which the LIC-DSF meets IDA’s needs in serving its clients. Recommendations from this evaluation will focus on aspects of the LIC-DSF that are within the World Bank’s ability to change or influence.

The Development Effectiveness of the Use of Doing Business Indicators

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This evaluation assesses the strategic relevance of the Doing Business indicators to both the development agenda of the World Bank Group and the reform priorities of its client countries. It also examines the extent to which the use of the indicators, including the discontinued ease of doing business country rankings, contributed to development effectiveness.  This evaluation assesses the strategic relevance of the Doing Business indicators to both the development agenda of the World Bank Group and the reform priorities of its client countries. It also examines the extent to which the use of the indicators, including the discontinued ease of doing business country rankings, contributed to development effectiveness. 

International Finance Corporation Additionality in Middle-Income Countries (Approach Paper)

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Accounting for almost half of global gross domestic product and 70 percent of the world’s population, middle-income countries (MICs) face multiple development challenges limiting achievement of the Sustainable Development Goals (SDGs), including poverty and inclusion, climate change, financial access, and economic diversification and market development. The International Finance Corporation’s ( Show MoreAccounting for almost half of global gross domestic product and 70 percent of the world’s population, middle-income countries (MICs) face multiple development challenges limiting achievement of the Sustainable Development Goals (SDGs), including poverty and inclusion, climate change, financial access, and economic diversification and market development. The International Finance Corporation’s (IFC) portfolio is focused heavily on MICs. Additionality is the unique support that IFC brings to a private client or client country that is not typically offered by commercial sources of finance (IFC 2019). This evaluation assesses the unique support and value addition (additionality) that the International Finance Corporation (IFC) provides to middle-income countries (MICs). It will cover IFC’s support of MICs through investment and advisory projects, and through its platforms and partnerships. The primary audience is the World Bank Group Board and IFC management and staff, however some findings of the evaluation will be relevant to a broader audience including multilateral and bilateral financing private sector activities, investors, and government officials and practitioners in client countries.

COP26 pledges: Can the private sector come through for climate action in emerging economies?

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COP26 pledges: Can the private sector come through for climate action in emerging economies?
The first week of COP26 ended with a loud and clear response from world leaders to the call for greater ambition and urgent climate action. Regardless of whether this enthusiasm is to be received with hope or with skepticism, it is important not to lose focus on the pressing theme of private capital mobilization (PCM) for climate action, without which it will be impossible to meet the Paris Show MoreThe first week of COP26 ended with a loud and clear response from world leaders to the call for greater ambition and urgent climate action. Regardless of whether this enthusiasm is to be received with hope or with skepticism, it is important not to lose focus on the pressing theme of private capital mobilization (PCM) for climate action, without which it will be impossible to meet the Paris Agreement. As US Treasury Secretary, Janet Yellen, noted in her remarks “… as big as the public sector effort is across all our countries, the $100-trillion plus price tag to address climate change globally is far bigger… and the private sector needs to play a bigger role”. In fact, developed economies have not been able to meet the $100 billion a year commitment to finance climate needs in emerging economies. A major announcement at COP26 was the pledge of the Glasgow Financial Alliance for Net Zero (GFANZ) – a global coalition of over 450 finance firms across 45 countries, jointly managing $130 trillion - to align their financing activities to achieve net-zero emissions by 2050. Leaving aside fair questions as to whether it is enough or realistic, this pledge is indicative of the scale and ambition needed.. A similar pledge came earlier this year from the Climate Finance Partnership (CFP), a partnership between BlackRock and the governments of France, Germany, and Japan, as well as a number of leading U.S. impact investing organizations, to align resources towards net-zero emissions. Just as GFANZ and CFP, private sector players are making bolder commitments representing important opportunities. But how much of this financing will reach emerging economies? What can the World Bank Group (WBG) and partner organizations do to facilitate the flow of private capital to developing countries?  IEG recently published an evaluation on the WBG’s approach to capital mobilization which includes lessons that could shed some light on these questions. Coalitions such as GFANZ and CFP seek bankable projects, mostly in the infrastructure and energy sectors, requiring emerging economies to strengthen their policy and regulatory frameworks and raise industry standards in key sectors to attract investors. The WBG can continue to play a major role in addressing institutional barriers to private investment flows at the country level. Examples from Jordan and Ghana illustrate how WBG-supported policy and institutional reforms catalyzed private capital mobilization in the energy sector. In Jordan, the Bank Group’s technical assistance and its support to public sector management reforms strengthened the power utility financially, boosted the development of the wind power market, and facilitated private investments in renewable energy. In Ghana, the WBG supported reforms to strengthen the financial sustainability of the state off-taker in the power sector and promoted the introduction of the Extractive Industries Transparency Initiative standards, which facilitated private investments. With the release of its 2021-25 Climate Change Action Plan (CCAP), the WBG put forward strong commitments to mobilize more private capital for climate action and prioritize adaptation efforts, recognizing that developing countries are bearing the brunt of climate change effects. Avenues to mobilize private capital streams into adaptation are not near as wide and clear as they are for mitigation. In fact, only 2% of tracked adaptation finance comes from the private sector. Turning this around will require a great deal of innovation from the WBG and all other Development Finance Institutions (DFIs) to structure instruments and platforms that yield PCM deals for adaptation in emerging economies. Through its CCAP, the WBG is committing to linking climate and development goals and integrating climate objectives into all its work. Similarly, the Bank Group -and other DFIs – should seek to structurally expand PCM efforts across all sectors and regions by creating more incentives for teams to increase their financial structuring expertise and use of PCM mechanisms, even in sectors where financing is typically done through direct lending. The WBG, and other DFIs, have thus a critical role in ensuring pledges like that of the GFANZ and the CFP represent opportunities for emerging economies. Greater innovation is required to ensure valuable financial structuring expertise is mainstreamed and geared towards all sectors, including those associated with adaptation efforts. As the global development community moves forward with its efforts to mobilize private investment towards climate and development objectives, clarity regarding the standards and taxonomy surrounding climate finance should also be achieved. Avoiding confusion regarding the differences between climate finance, green finance, transformational finance, etc., can prevent these terminologies from becoming another obstacle for the flow of private capital to where its most needed. IEG is committed to building a strong body of evaluation evidence and gathering lessons, identifying what works and what doesn’t, as the WBG advances private capital mobilization towards achieving its green, resilient, and inclusive development objectives. Read: The World Bank Group’s Approach to the Mobilization of Private Capital for Development |  An IEG Evaluation

The private sector in low income and fragile countries needs more than credit

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Kitabi Tea Processing Facility A worker sorts the green leaf tea before it reaches the main processing floor. The Kitabi Tea Processing Facility in Kitabi, Rwanda has a capacity of 48 000 tons of green leaf per day. The facility employs 200 people during its peak season and about 70 during the rest of the year. Photo: A'Melody Lee / World Bank
Lessons from the early implementation of the IDA Private Sector Window (PSW)Lessons from the early implementation of the IDA Private Sector Window (PSW)