The Ajaokuta steel factory in 1994

How should donors work with the private sector?

We are enthusiastic about the growing interest in supporting private investment in developing countries, but it matters a lot how this is done. The tools that donor countries usually use to “crowd in” the private sector — guarantees and cheap loans — distort firms’ incentives by reducing their risks or increasing their rewards irrespective of how well they do. Donors should not pick winners.