The Link Between Public Sector Reforms and a Thriving Private Sector

Creating and sustaining a public sector that is transparent, inclusive and accountable is the ultimate goal of government reform initiatives, both in developing nations and world powers. One area where this is particularly important, but where a fine line must be walked, is with the private sector.

There’s a push/pull force at work on this front.

Regulatory reform that touches the business sector must, on the one hand, be responsive and do the job of facilitating the interests and needs of the business community. Too much regulation – or regulations that are too onerous – will effectively make it harder to do business. That may stifle business spending, investment, employment and economic growth in total.

But those interests must be balanced against the public good. Regulations that may serve the financial interests of a particular sector but compromise the quality of life of a nation’s people – think air and water pollution, for example – will not measure up to world standards.

That balancing act has made business-oriented policies and regulations an ongoing focus of reform projects, and not just in developing countries. There are lessons to be learned on this front that are critical to any forward-thinking government. The World Bank has funded various such initiatives through the years. Three of the case studies it outlines in its Doing Business 2018 and 2017 reports provide helpful food for thought.

Information transparency at business registries

New regulations on the transparency of business information reflect growing concerns over how some take advantage of obscure company ownership structures to move money illicitly around the world. Allowing disclosure of beneficial business ownership (those who receive equity benefits even if they’re not legal owners), for example, makes it easier to identify suspected money launderers and potential sources of terrorist financing. Furthermore, greater transparency strengthens public confidence in businesses and institutions, helps to better manage financial exposure and makes for more stable markets, the report found.

Facilitating access to business credit

Modern secured transaction laws are being increasingly adopted by developing countries. It’s one way to help make the business environment more secure for smaller companies. Collateral-related reforms are key to the process. Expanding the scope of what small and mid-sized businesses can use as collateral also expands their access to finance. One reform approach is to establish a collateral registry for all sorts of movable assets – digitally-based, accessible to the public and searchable. Ghana opened the first such registry in Africa, where $1.3 billion was issued in financing for small businesses and $12 billion for businesses overall.

Reforming insolvency laws

When a viable business is in financial stress, if procedures for restructuring and reorganization aren’t efficient, the price can be steep – loss of the business itself, its contribution to the economy (like employment and taxes) and losses that creditors can’t recoup. A strengthened framework for insolvency policies, studies have shown, can result in reduced cost and level of credit and lower interest rates on large loans. One example is France, whose 2005 insolvency reforms featured a new restructuring tool – a “safeguard procedure.” This allowed struggling firms to apply for court protection while they negotiated a restructuring plan with creditors. This was refined in 2008 and again in 2011, eventually resulting in business survival in three out of four cases initiated.

PPP’s role and challenges in public services reform in post-conflict economies

There’s a lot of ongoing talk in business, government and academic circles about public private partnerships (PPPs). They have a role to play in public sector reform. They’re the best way to undertake major infrastructure projects on time and on budget. And why can’t the tech innovations that are transforming businesses be brought to the public side to improve government services?

It’s the developed countries that have leveraged these deals most extensively. The World Bank, for example, notes that the U.K. has the most projects, 648, while Korea has 567 and Australia, 127. The institution further notes that the market is growing “in absolute terms…(with) the growth cycles of PPP investments…influenced by five big economies – Brazil, China, India, Mexico and Turkey – that have increased their market share over time.”

Traditionally, PPPs have tended to be projects intended to see through significant infrastructure projects. Singapore, for example, has used them successfully for desalination and water management projects. A PPP has been behind the upgrades to the Mactan-Cebu International Airport in the Philippines, a project that has won much acclaim and is on track to finish in the middle of this year.

But many see PPPs as evolving and as even the best way we can successfully manage some of society’s most pressing issues. In one interview, former World Bank CFO Bertrand Badre said that multi-stakeholder partnerships are the only way to come to grips with the global challenges of sustainable development.

From my perspective, PPPs are just as critical to helping less developed and post-conflict countries rebuild their public sectors. But while the need is great, so are the challenges.

Post-conflict countries can become trapped in cycles of economic regression and further conflict. That results in overextended governments that have established patterns of suppressing the private sector. That’s not the stuff of successful public/private partnerships.

Overcoming those barriers takes rebuilding on a number of fronts, but starting with stronger policy making. This is essential if emerging economies are to learn to broaden their perspectives and borrow best practices from more advanced nations of the world.

My work in this area with the governments of Liberia and Sudan led to a greater understanding and appreciation for the importance of the private sector, particularly the innovators and entrepreneurs, to a struggling country’s long-term survival.

It was, we found, an education process. Government jobs alone cannot grow an economy or create wealth. It takes businesses of all sorts to create an environment that stimulates economic growth – and there should be a mutual interest in nurturing it.

Ultimately, the environment must be stable and one where long-term private sector investments will make sense. Stronger policies help, but they need to be accompanied by a concerted effort to tackle corruption and a willingness to share the risks. In fact, some governments have actually gotten political risk insurance. In the Ivory Coast, such coverage led one PPP to finance construction of an important toll bridge after a decade-long delay.

Public Private Partnerships matter. Post conflict and emerging economies will need them to support their reform agendas as this century advances. It’s time we move from talk to action.