The International Finance Corporation (IFC), part of the World Bank group, is drafting laws in Papua New Guinea to create Special Economic Zones - tax free enclaves where foreign corporations will receive special incentives to set up factories - but the World Bank's own Independent Evaluation Group (IEG), its internal watchdog, has published an evaluation which finds the IFC is failing in its mission to assist vulnerable communities and alleviate poverty through its projects and investments. 

The report, Assessing IFC’s Poverty Focus and Results, finds that:

• less than half of the projects reviewed were designed to deliver poverty outcomes;
• just one third of the projects addressed market failures, such as enhancing access to markets or employment by the poor;
• the IFC does not adequately consider issues of poverty reduction in project design; and
• its primary focus is the pace of economic growth, rather than the pattern of growth that could support the most vulnerable and the poor.

The IFC’s stated mission is to “promote private sector development…to create opportunities for people to escape poverty and improve their lives.”

However, the evaluation published found that “less than half (43%) of the projects … included at least one type of mechanism that addressed distributional issues at design or implementation.” Even worse wass the finding that only a paltry “13% of projects had objectives with an explicit focus on poor people.”

The rate is even lower for advisory services - the mechanism the IFC is using to draft the SEZ laws in PNG. The evaluation found that only “10% had identified benefits to the poor and 40% delivered benefits to society but did not provide evidence of enhanced opportunities to the poor.” 

The report identifies several reasons for this failure:

• focus on poverty reduction is hardly taken into account in project design;
• poverty outcomes are not systematically tracked during project implementation; and
• the IFC’s evaluation framework does not have specific indicators for measuring the benefits to vulnerable groups and the poor.

The IEG highlights that the growth oriented policies of the IFC ignore broadly acknowledged market failures that exclude the poor from access to jobs, income, and markets – in a nutshell, to decent work and decent lives. It recognises that “the link from growth to poverty reduction is not automatic” and points that “deliberate action is often required to incorporate distributional aspect of growth into project design and implementation.” However, in its leveraging of the private sector the IFC fails to acknowledge that “private companies may have difficulties addressing distributional and equity considerations, particularly where market failure is widespread.”

The IEG report suggests the IFC needs to make serious changes to its institutional culture as well as to its development strategy and to “shift from a volume output culture to development impact and financial sustainability,” if it is to engage in effective poverty eradication schemes.