Measuring Performance in Private Sector Development

1 IMEASURING PERFORMANCEIN Private Sector DEVELOPMENTiiThis publication was prepared under the Asian Development bank Regional Technical Assistance : Assessing Private Sector Development Outcomes in Projects, by ADB s Regional and Sustain-able Development EditorKAREN DECKERA uthorROBERT HOODBook and Cover DesignGRANT LECETA 2007 Asian Development BankAll rights reserved. Published in the of Congress Cataloging-in-Publication DataISBN: 971-561-600-3 Publication Stock No. 110205 Asian Development BankIndicators for Measuring and reporting on the results of Private Sector Development effortsof selected governments and international Development agencies, including PSD indicatorspublished by international research Asian Development bank .

2 2. Private Sector Development 3. PSD Indicators 4. ResultsThe views expressed in this book are those of the authors and do not necessarily reflect the views andpolicies of the Asian Development bank or its Board of Governors or the governments they Asian Development bank does not guarantee the accuracy of the data included in this publicationand accepts no responsibility for any consequence of their of the term country does not imply any judgment by the authors or the Asian Development Bankas to the legal or other status of any territorial and Acronyms1 Chapter 1. What This Booklet Is About3 Chapter 2. The Private Sector and Private Sector Development5 Chapter 3. What to Measure and How7 Chapter 4. PSD Performance Indicators Available from Academic andResearch Organizations11 Global Competitiveness Report ( world Economic Forum) 11 Investment Survey (Commonwealth Business Council) 13 world Economic Freedom Index (Fraser Institute) 15 Index of Economic Freedom (Heritage Foundation) with Babson College,Ewing Marion Kauffman Foundation, and London Business School 16 world Competitiveness Yearbook (IMD Lausanne) 17 Productivity and Investment Climate Survey ( world bank ) 19 Doing Business ( world bank ) 21 Business Environment and Enterprise Productivity Survey (European Bankfor Reconstruction and Development ) 22 International Country Risk Guide (PRS Group)

3 23 Global Entrepreneurship Monitor (Kauffman Foundation) 25 Chapter 5. What Governments Do29 Government of Singapore29 Government of Australia30 Selected DMCs33 ContentsivChapter 6. What Aid Agencies Do35 world bank 35 International Finance Corporation37 European bank for Reconstruction and Development 38 Department for International Development (United Kingdom)41 Inter-American Development Bank42 Asian Development Bank44 Chapter 7. Conclusion47 Appendix A: Summary of Performance Indicator Sources49 Appendix B: Good Practice on PSD Performance Indicators511 AusAIDA ustralian Agency for International DevelopmentADBA sian Development BankBabsonBabson CollegeBEEPSB usiness Environment and Enterprise Productivity SurveyCASC ountry Assistance Strategy (WB)CBCC ommonwealth Business CouncilCSPC ountry Strategy and Program (ADB)DBDoing BusinessDFIDD epartment for International Development (United Kingdom)

4 DMCD eveloping member country of ADBEBRDE uropean bank for Reconstruction and DevelopmentFDIF oreign direct investmentFraserFraser InstituteGCYBG lobal Competitiveness Year BookGEMG lobal Entrepreneur MonitorGoAGovernment of AustraliaGoSGovernment of SingaporeGTZG esellschaft f r Technische Zusammenarbeit(German Agency for Technical Cooperation)HeritageHeritage FoundationIADBI nter-American Development BankICAI nvestment Climate Assessment ( world bank )Abbreviations andAcronyms2 ICTinformation and communication technologyIFCI nternational Finance CorporationIMDIMD International (International ManagementDevelopment Lausanne)OECDO rganization for Economic Co-operation andDevelopmentOHSoccupational health and safetyPICSP roductivity and Investment Climate SurveyPRSPRS Group (Political Risk Services)

5 PRSPP overty Reduction Strategy PaperPSAP rivate Sector AssessmentPSDP rivate Sector DevelopmentPSODP rivate Sector Operations Department ADBRICSR ural Investment Climate SurveySMEsmall and medium-sized enterpriseSOEstate-owned enterpriseUNCTADU nited Nations Conference on Trade andDevelopmentUSAIDU nited States Agency for International DevelopmentWBWorld BankWEFW orld Economic Forum3 What This BookletIs AboutGovernments around the world set Development goals that rely onthe Private Sector growing and competing, nationally and and other government agencies often invest a lot oftime and money in trying to ensure that the business environmentis attractive for the Private Sector and that needed infrastructure is in developing countries, this requires using scarce public funds, as well asborrowing and seeking technical advisory assistance from multilateral andbilateral Development agencies, such as the Asian Development bank (ADB),the Department for International Development (DFID) of the UnitedKingdom, the European bank for Reconstruction and Development (EBRD),and the world bank , are willing partners of developing countries that striveto enhance their business conditions.

6 As part of their mandate, these agenciesseek to identify high-priority issues that hamper Private Sector Development (PSD) in the requesting countries, and fund programs and projects that their efforts to create the enabling conditions for the Private Sector togrow and prosper, Development agencies and governments increasingly areembracing what has been termed managing for results one of the latestbuzz phrases in international Development . This reflects the global trendtoward greater transparency and accountability, which requires governmentsand Development agencies to prove to stakeholders from taxpayers to agencyshareholders that their money is being put to good use. Such proof requiresmeasuring and reporting tangible the macroeconomic level, it is possible to measure whether the privatesector is growing, shrinking, or stagnating.

7 On the microeconomic level, theoutcomes of individual projects also can be measured. What had been difficultto assess were the enabling conditions that are critical to business success. InChapter 14recent years, various Development agencies and governments have filled thisgap with PSD Performance indicators that are based on their own , however, raises an important question. How can a country knowwhether it is managing for the right PSD results when Development agenciesapproach PSD from their own perspective and use a Performance measurementframework that reflects that perspective? Only a Performance measurementframework that is tailored to an individual country s PSD strategy will providethe government with the comprehensive view and appropriate indicators todetermine whether it is on the right track.

8 The Development of such a country-specific measurement framework will increase the chances that individualprojects will be in synch with the government s overarching PSD booklet aims to increase awareness that measurement frameworksaligned with a country s PSD strategy would be a useful tool for results-basedmanagement of this vital segment of the economy. The booklet also highlightssome of the available PSD indicators, providing readers with importantinsights into the experiences of selected governments, internationaldevelopment agencies, and research organizations in Measuring and reportingPSD results. In this way, the booklet can assist those who want to learn moreabout PSD indicators and practices, as well as those who want to use thisinformation as a starting point for developing their own PSD can be interpreted in many ways.

9 Is it the same as talking aboutthe Private Sector or a Private firm? Before describing how tomeasure results in PSD, this chapter will clarify the use of theterminology in this and developing countries around the globe acknowledge thateconomic growth depends on a vibrant and competitive Private Sector thatcreates wealth and jobs. The Private Sector usually is understood to be thepart of economic activity not owned by government. Typically, it refers toformal or informal economic units or enterprises that are owned, directly orindirectly, by Private gray area concerns enterprises that governments and nongovernmentorganizations partially own or control. These are often commercial enterprisesthat are expected to earn profits on invested funds by providing goods andservices in a competitive market.

10 If profit motivation, rather than ownership,were used to classify Private Sector , then the scope of the Private sectorwould be much larger. For the purposes of this booklet, however, the privatesector will be defined by economic units generally operate as individual enterprises withinan industry or Sector in an economy with specific business conditions. Thissetup can be separated into four levels:(i) Individual enterprises.(ii)All enterprises within an industry.(iii)All enterprises within an economy.(iv)Business conditions within which Private enterprises are created Private Sector andPrivate SectorDevelopmentChapter 26 Business conditions can have a major impact on whether Private enterprisesgrow, merge, shrink, or fail.