Oct. 3, 2023
The True Role of Project Contractors: The Influence of Corporations in World Bank Lending and Complaints
By Irmak Ersoz
Private sector involvement in multilateral development bank (MDB) projects, both in terms of investment and implementation, undeniably affects the implementation of a project, influencing banks’ adherence to their own policies. This tends to manifest in unpredictable ways, leading to communities being impacted by higher-level decisions they may not be able to see. Accountability Counsel has been tracking and analyzing World Bank projects with corporate influence that result in complaints.
Multilateral development banks (MDBs) contract private firms to execute multi-million dollar development projects. Although project contracts are open for bidding, these banks often choose multinational corporations (MNCs) as project implementing partners due to their high productivity, technology, organizational skills, and other intangible assets.1 These corporations hold significant political and lobbying power at government and MDB levels, influencing the course of a project's implementation in ways that are often misaligned with the interests of impacted communities.
Holding these corporations accountable is challenging partly due to the lack of legal and regulatory frameworks in countries receiving development assistance. This allows MNCs to influence development projects and their outcomes as they please, even if it results in harm to the communities involved. MNCs mainly exert their influence through project disbursement; banks may release funds for projects evaluated as unsatisfactory or projects that have complaints against them. This puts communities at a disadvantage by hindering their access to remedy, and demonstrates that overall ethical and developmental considerations between companies, banks, and communities do not necessarily match.
The World Bank, the largest multilateral development bank, contracts more MNCs than any other development bank. It has developed relationships within its Management and Board with MNCs, highlighting the challenges in holding these corporations accountable.2
How does conditionality work when large corporations are involved?
The World Bank's evaluation group assesses whether a project has met the goals that were established for it in the design phase, such as reducing poverty or mitigating environmental and social harm. This group deems projects as “Satisfactory” or “Unsatisfactory” based on evaluations of a project’s sustainability, impact, efficiency, and effectiveness.
Conditionality thus becomes a crucial aspect of project evaluations: Funds are only disbursed if projects meet these established goals.3 However, MNCs may be interested in exceptions to this rule that influence their profits, which significantly affects the true outcomes of projects4 A project may be completed, but at the expense of the communities involved.
Researchers Rabia Malik and Randall Stone found that US multinational firms are well positioned to lobby the Bank to disburse funds, allowing projects evaluated as unsatisfactory to still be disbursed almost completely. They found that this disbursement pattern is linked to the involvement of multinational corporations as project contractors. Multinational corporation involvement inflates project evaluation scores, impacting perceptions of project performance. This suggests the lobbying influence of MNCs in loan releases, particularly within the US foreign investment sphere.5
From Malik and Stone’s data on disbursement based on project evaluations, it can be seen that overall, there are fewer projects evaluated as unsatisfactory than satisfactory. This may appear to be a good outcome, but in fact disbursement patterns remain constant in spite of outcome evaluations:
MNC involvement in projects leads to more disbursement, with funding for 92% of projects involving MNCs being disbursed, compared to 75% of projects without MNC involvement. Given the findings of Malik and Stone, one possible explanation for the difference is the lobbying power of corporations within the World Bank and the US foreign investment sphere, as funds released ensure profit for MNCs involved. In addition, 46% of projects evaluated as Satisfactory with MNC involvement were fully disbursed, while 47% of projects evaluated at Unsatisfactory with MNC involvement were fully disbursed. The fact that projects that don’t meet their goals are disbursed as often, if not more, as satisfactory projects, raises questions about the World Bank's evaluation and disbursement practices.
Interactions with Complaints
Observing the trend of almost complete disbursement for unsatisfactory projects, questions arise about its impact on communities. Does corporate influence prevent communities from securing accountability and remedy for harm caused by these projects? A research project conducted by Accountability Counsel in conjunction with Stanford University students revealed three interesting findings:
1. Once bank funds are fully disbursed, complaints are more difficult to file and pursue.
The Inspection Panel ensures compliance with the World Bank's operational policies and procedures, but addressing complaints becomes more challenging when funds have already been disbursed and the project is completed. As funds are disbursed, gathering evidence, verifying claims, and linking adverse effects to a World Bank-funded project become more difficult. Operational policies, particularly OP/BP 4.01 on Environmental Assessment, dictate how environmental and social risks and impacts are managed throughout a project's lifecycle. As funds are disbursed, the Bank's ability to influence future client actions diminishes, and its capacity to enforce changes or remedial actions is reduced. The effectiveness of the World Bank's Inspection Panel in ensuring compliance is higher during the earlier stages of the project's life cycle.
In its almost 30 year history, the Inspection Panel has only received 13 complaints about its 1731 fully disbursed projects. Additionally, only 5 of these fully disbursed projects were evaluated as Unsatisfactory. 211 Unsatisfactory projects out of all projects were disbursed fully with no associated complaints. The dearth of complaints for projects with MNC involvement that are evaluated as Unsatisfactory indicates that disbursement levels may play a role in how these processes move forward (or don't).
Figure 2: WB Project Evaluations and Complaints
|Evaluation||Projects without Complaints||Projects with Complaints||% Projects with Complaints|
2. When complaints are filed, they are often taken out of conventional accountability processes.
Student researchers from Stanford University working with Accountability Counsel found that the World Bank often manages complaints outside regular accountability processes, with 39 out of 155 complaints filed being handled "outside of process", in a way that does not involve formal IAM accountability practices. Complaints are often taken outside IAM processes due to the Bank's independent actions. These processes have been found to be overwhelmingly driven by Bank interests in certain complaint outcomes that aren’t always community-oriented, which invariably creates a power imbalance between communities and the Bank. More often than not, outside process commitments do not include community voices and are composed of decisions single-handedly made by Bank management. While addressing community concerns tangentially, these commitments are made quickly and focus on operations management to ease higher-level concerns over meeting actual needs.
Corporate influence may exacerbate this tendency. MNC relationships with the World Bank's board may become important due to corporate incentives such as keeping complaints short and maximizing profits and efficiency. Out of all 39 complaints filed with the World Bank' Inspection Panel, all had MNC involvement, and only two were found to be unsatisfactory. 9 of these complaints were taken outside the formal complaint process, so we do not know how they were handled, and 6 of the projects handled outside process were disbursed completely. This raises questions about the Bank's evaluation practices and the influence of MNCs over project evaluations.
The taking of complaints outside of accountability mechanism processes makes it challenging to determine whether harm is adequately addressed or remedied, as disbursement and complaints seem to not be affected by project evaluations. If conditionality is not followed adequately by the World Bank, it will fail to ensure borrower compliance with Bank standards as well as project objectives.
While MNCs may bring significant benefits to the World Bank’s development projects, their adherence to Bank policies and prioritization of community needs is critical to ensure that their outsized influence does not cause outsized harm. This continues to be disregarded by implementing companies, resulting in complainants being suppressed in the name of profit. With their lobbying power in consideration, MNC influence over projects and complaints is a considerable concern for true remedy for communities.
In this regard, IAMs have a responsibility to adapt their processes to community needs, even if complaints are disbursed. Accountability mechanisms should have access to tools necessary to either stop or pause disbursement when complaints are filed or to counterbalance the influence of disbursements to such actors, such as being able to blacklist companies for future investments. In addition, providing more support to communities engaging in outside process complaints is important to offset power dynamics. Providing communities with legal guidance and representatives for outside process complaints and creating policies to continue IAM investigations when complaints go outside process could be a starting point for these processes to produce more community-centric outcomes.
However, the World Bank must enforce conditionality and maintain accountability for this to work. If the World Bank is truly committed to investing in successful and satisfactory projects, it should re-examine its corporate relationships and disbursement patterns. Corporate influence over disbursement can reflect on complaints in unpredictable ways, possibly hindering true accountability and remedy. With the US as its key investor, the Bank's decision-making may never be entirely objective, but ensuring that accountability is safeguarded from corporate interests is essential to promoting accountable development.
1 Malik, Rabia, and Randall W. Stone. 2018. “Corporate Influence in World Bank Lending.” The Journal of Politics. University of Chicago Press. doi:10.1086/694102.
3 Koeberle, S., Bedoya, H., Silarszky, P., & Verheyen, G. (Eds.). (2005). Conditionality Revisited: Concepts, Experiences, and Lessons. World Bank Group.
4 Malik, Rabia, and Randall W. Stone. 2018. “Corporate Influence in World Bank Lending.” The Journal of Politics. University of Chicago Press. doi:10.1086/694102.