PSDI is a regional technical assistance program undertaken in partnership with the Government of Australia, the Government of New Zealand, and the Asian Development Bank.
Since 2007, PSDI has worked to alleviate poverty and promote economic growth in the Pacific region through reforms that reduce the constraints to doing business and promote inclusive growth, entrepreneurship, and new business models.
The support of the Australian and New Zealand governments has enabled PSDI to assist with more than 300 reforms.
Why is PSDI needed?
For any country to achieve sustainable and inclusive economic growth that increases formal employment, investment, and entrepreneurship, and reduces poverty, a robust and vibrant private sector is necessary. This is a challenge in the Pacific, as isolation, small market size, and inadequate infrastructure make doing business difficult.
PSDI is needed because these intractable problems are often compounded by preventable ones, such as outdated laws, limited access to credit, overbearing public sectors, and poor competition. These preventable impediments to private sector-led growth further reduce productivity and prosperity, harming long-term growth. And it is these PSDI helps governments and the private sector to overcome.
What is PSDI's goal?
The overall goal of PSDI is to reduce unnecessary costs of doing business in the Pacific and enable private sectors to formalize and grow, which creates jobs, increases tax revenues, and lifts people out of poverty.
To achieve this, PSDI helps Pacific countries address the problems outlined above through its five focus areas. The specific goals of the focus areas are to:
- Modernize business laws
- Develop better financial markets and services that increase access to finance
- Reform state-owned enterprises and pursue public-private partnerships
- Establish effective competition and protect frameworks
- Advance the economic empowerment of women.
What private sector challenges does PSDI work to address?
PSDI works to improve the business environments of Pacific countries through reforms addressing challenges in five areas:
- Outdated business laws and unnecessary regulations. Business laws in Pacific countries are often unsuited to the needs of modern commerce. In many countries, starting a business involves high costs and long delays, which have an especially adverse effect on smaller businesses. In addition, overly burdensome regulations impose significant costs on business. This compromises investment and business growth and contributes to Pacific countries having small formal business sectors and large informal ones, which contributes to low productivity and reduced tax revenue for governments.
- Limited access to finance. Many Pacific island economies have underdeveloped financial markets because of weak institutions and lack of scale. But unless investors, entrepreneurs, and viable businesses can be financed, opportunities go to waste and growth potential goes unrealized.
- Inefficient state-owned enterprises. In many Pacific countries, state-owned enterprises provide essential services such as power generation, water, sewage, and telecommunications. But they are often inefficient, draining government resources and providing low returns, as well as providing costly, low-quality services that increase the costs of doing business. Where state-owned enterprises are monopoly service providers they can also crowd out potential investment from the private sector.
- Dysfunctional or non-existent competition and consumer protection frameworks. Confronted with small and concentrated markets, extensive participation by governments in domestic economies, and a few firms’ dominance of key markets, competition policies in most Pacific countries struggle to break monopolies or level the playing field. But when competition and consumer protection is weak or non-existent, consumers have less choice and pay more, and micro, small, and medium-sized enterprises are constrained.
- Barriers to women’s full economic participation. A lack of awareness of business processes, limited access to finance, support and training, along with discriminatory laws and customary practices results in Pacific women not engaging in business to the same extent as men. Along with holding women back from realizing their potential, this means they are prevented from contributing fully to the private sector, community welfare, and economic growth.
How is PSDI support provided?
When Pacific countries request PSDI assistance, and a reform program has been agreed upon, PSDI support is delivered through technical assistance, capacity development, and intensive reform implementation support. Legislative reform, for example, will typically commence with diagnosis and analysis, followed by policy design, and concluding with the introduction of new laws or legal instruments.
Independently, and in support of specific reforms, PSDI experts regularly conduct in-depth analyses of Pacific business environments and the unique economic, political, and cultural issues and challenges facing each Pacific country. These analyses identify business constraints and opportunities, and inform policy dialogue with Pacific governments and private sectors. This insight and discourse facilitates the development of policies to overcome the challenges identified and improve the business climate in support of inclusive economic growth.
How is PSDI unique?
PSDI is committed to country-led development. The following aspects of PSDI facilitate its capacity to deliver demand-driven support in response to requests from Pacific countries.
Flexible and fast. A key feature of PSDI is its ability to respond rapidly and support reform opportunities when requests for assistance are received. PSDI's flexible program design allows it to mobilize expertise quickly when support is needed, to demobilize should political commitment to reform wane, and to pick up where the process left off when countries are ready to re-engage. This flexibility also allows PSDI to allocate resources where the need and political will for business environment reform is greatest and will be most effective.
Regional and responsive. Working across the Pacific allows PSDI to accrue knowledge and learn from experience gained undertaking similar reforms in various countries. Meanwhile, its adaptable approach allows it to sequence, prioritize, and design reform measures according to the political commitment and existing institutional capacity of each country. Together, this insight and flexibility ensures PSDI-supported reforms are informed through regional experience while remaining responsive to countries’ individual needs and local conditions.
Established and long term. Since its inception, PSDI's core team of highly qualified, deeply experienced experts has built the trust and confidence of Pacific governments. As change processes can be complex and reform initiatives often require several years to design and implement, these relationships are a pre-requisite to reform success. Strong partnerships with key bilateral and multilateral partners, meanwhile, ensure reform interventions are coordinated and harmonized.
Another benefit of PSDI’s longevity is its record of achievement, with successful reforms in one country often motivating others to follow suit. Ongoing awareness-building and advocacy with policy-makers, the private sector, civil society, and the media fosters understanding of the benefits of business environment reform and awareness of opportunities to pursue it.
Complementary and interdependent. PSDI’s five focus areas provide a range of interconnected support that works together to develop dynamic provide sectors. For example, business law reform initiatives facilitate access to finance mechanisms; state-owned enterprise reforms and public-private partnerships pave the way for enhanced competition; and through considered implementation, all PSDI activities promote the economic empowerment of women.
What are PSDI's key successes?
Key PSDI achievements include:
- Secured transaction frameworks established in ten countries, making it easier for lenders to accept movable assets, such as vehicles, inventory, accounts receivable, and crops, as collateral for loans, and resulting in the number of secured loans issued more than tripling, on average. PSDI has also supported the commercial transformation of government owned banks and strengthened the capability of retirement funds to finance long-term domestic.
- Increased business formation, investment, and trade through a sustained effort to reform business laws across Pacific countries. The establishment of online business registries in five countries has dramatically increased the rate of company formation. This has made new investments possible and spurred formal economic activity and job creation.
- SOE reforms that have more than doubled the profitability of infrastructure SOE portfolios in five countries. Improved governance frameworks and support for privatizations and public–private partnerships has further advanced this agenda, while advocacy and transparency initiatives have articulated the benefits of reform and made performance results more accessible.
- Establishing or strengthening competition and consumer protection safeguards, with assessments of competition and regulatory frameworks undertaken in seven countries, competition policies or laws supported in three countries, and dedicated support for three competition commissions ongoing.
- Five PSDI pilot projects have demonstrated approaches to help women gain technical skills, establish formal businesses, access credit and markets, or reach senior professional roles. Meanwhile, PSDI has assessed the impact on women of all its outputs.