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World Bank Business Aid Should Target Poor Better, Audit Says

A majority of the World Bank’s investments in the private sector of developing economies fail to bring identifiable benefits to the poor, even as they generate growth, an internal evaluation said.

The International Finance Corporation, the bank’s arm that lends to companies, has traditionally focused on growth, trusting it would automatically alleviate poverty, according to the report published today. As the IFC starts paying more heed to how expansion trickles down to people, the agency should better outline how its investment and advice help the poor, the audit said.

“The link between growth and poverty reduction is not automatic or universal,” said Ade Freeman, the report’s lead author, in a phone interview. IFC should “make explicit the assumption through which growth leads to poverty reduction,” and “do a better job of tracking the poverty outcomes and impacts from its interventions.”

Institutions including the World Bank and the International Monetary Fund are rethinking their approach to policy advice after uprisings toppled the presidents of Tunisia and Egypt, countries they had praised for their economic policies. For the IFC to both support the private sector and make an impact on development, the agency must understand who are the poor it wants to help and where they are located, the report said.

Today’s report from the Independent Evaluation Group cited as an example a farm forestry project in an unnamed country of South Asia where IFC had invested in a company owning a pulp plant. While the goal was to have more farmers cultivating trees for the plant, an insufficient knowledge of their livelihood led to having only 10 percent of them choosing to do so.

Cash Needs

The reason is that most of the farmers had immediate cash needs and didn’t want to make a long-term investment in pulpwood, which had high initial costs and took four to five years to bring higher income, according to the report.

In a written response to the report, IFC management welcomed its recommendations, saying “a key next step for IFC in its poverty focus is to better articulate poverty dimensions in its projects.”

“The key conclusion for us is we have to be much more explicit upfront about the expected poverty reduction effects” be they direct or indirect, said Nigel Twose, IFC’s Director for Development Impact, in a phone interview. “So we can then track it and see if we were right.”

The report looked at IFC projects over the decade that ended in June 2010. A focus on 58 of them in the non-financial sector showed that 59 percent made a positive contribution to growth “without evidence of discernible benefits to the poor.”

That doesn’t mean that the projects had no impact on the poor at all, the report said.

“Rather, there is no conclusive evidence of how the benefits from growth actually created employment for poor people or delivered good and services that reached the poor,” it said. “These findings reflect a failure to articulate the poverty effects of projects that focus primarily on economic growth.”

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