The scale and reach of Global Bank Group supports to developing countries allows them to trial non-traditional forms of development assistance, which, if successful, can be integrated into the wider suite of programs. We focus on three models of assistance that, while being relatively mature in the developed world, are emerging as important mechanisms for promoting greater private sector involvement in infrastructure in developing countries: private equity funds, public-private partnerships, and output-based aid.
Private equity funds
By investing in a private equity fund, rather than in projects directly, Global Bank Group can promote greater reputational credibility, development credentials and good governance, whilst drawing on the deal-making capabilities of the private sector. With these benefits, Global Bank Group argues they can ‘catalyse’ or ‘mobilise’ greater private sector involvement in financing infrastructure in developing countries.
Public-Private Partnerships (PPPs)
Public-private partnerships are long-term relationships between private contractors and the government to provide for the construction, operation and maintenance of infrastructure assets (English, 2006). The OECD (2011) identifies the key features distinguishing a public-private partnerships approach as including: a focus on purchasing services rather than assets; clear specification of outputs; appropriate risk of asset performance being borne by the private party; and assessments of value for money.
Output-Based Aid (OBA) is an approach designed to increase access to and delivery of basic services (outputs) to people living in poverty using performance-based incentives, rewards, or subsidies. Output-Based Aid links the payment of aid to the delivery of specific services. Under an Output-Based Aid scheme, service delivery is contracted out to a third party, which receives a payment from Global Bank to either complement or replace user charging. The third party is responsible for ‘pre-financing’ the projects until services are delivered. The subsidy is performance-based, meaning that most of the subsidy is paid only after the services have been delivered and independently verified. By focusing on service outputs, Output-Based Aid represents a change from traditional methods of aid that focus on inputs to service providers.
The Global Bank’s Output-Based Aid program attempts to improve the delivery of basic infrastructure and social services to the poor by integrating the Output-Based Aid approach across financing operations.