An Evaluation of World Bank Investment Climate Activities

The Investment Climate Study is a evaluation of the Operations Evaluation Department (OED). The OED report reviews the Bank’s investment climate lending and non-lending activities during fiscal years 1993 through 2002-03. The report presents the collected findings of several evaluative exercises: a literature review; an analysis of investment climate themes in country assistance strategies and sector strategies; an analysis of lending operations as well as economic and sector work including survey-based diagnostic assessments; discussions with groups of international investors as well as with Bank staff; and client consultations and country case studies for five countries of Indonesia, Romania, India, Mozambique, and Peru. The key lessons learned are as follows: (i) the Bank’s non-lending intellectual and coordinating contributions can be as important as its financial contributions; (ii) institutional weaknesses in the form of administrative and regulatory barriers and poor property rights, as well as inadequate infrastructure and capability problems in public administration and private business, can continue to constrain growth; (iii) reform efforts must be coupled with a convincing analysis of the costs and benefits of reform, together with an exercise to set reform priorities, capacity building to address weaknesses of executing agencies, and efforts on the ground to achieve political consensus and commitment by government leaders to adopt and implement required reforms; (iv) partial programs may fall well short of achieving their objectives; (v) in cases where comprehensive reform programs are politically impossible, greater effort may be needed to prioritize what needs to be fixed first and what needs to be worked on in the longer run; (vi) reform efforts need people on the ground to help build required political commitment; and (vii) there may be a need for interventions to assist firms in these areas by way of vocational and in-firm training and cost-sharing subsidies for technology transfer to increase the possibilities for a growth response to investment climate reforms. The OED evaluation concludes with the following recommendations to improve Bank support for investment climate reforms: (i) pay more attention to institutions and the political economy of reform; (ii) improve the focus and use of survey-based diagnostics; (iii) do a better job of prioritizing and packaging investment climate reforms in lending operations; and (iv) find organizational solutions that help integrate microeconomic and macroeconomic reform agendas.