Africa: IFC, Industrial Policy and the Private Sector: Development Through the Lens of the Thiam Threshold
The "Thiam Threshold" proposes a new framework for African development, shifting focus from individual project bankability to building systemic coherence within economies to foster continuous productive transformation.
Intelligence analysis by Gemini 2.5 Flash
Dr. Papa Demba Thiam introduces the "Thiam Threshold" to reframe the debate on industrial policy and private sector development in Africa. It argues that while individual project bankability is important, true economic transformation requires a systemic approach that connects all elements of an economy, from production to markets and finance, to create a continuously financeable system.
Imagine an economy is like a big LEGO set. Instead of just making sure one LEGO car can be built (a bankable project), the "Thiam Threshold" idea says we should make sure all the LEGO pieces fit together perfectly – the roads, the houses, the people – so you can keep building new, cool things all the time. It's about making the whole LEGO city work, not just one toy.
Analysis
Rethinking Development in Fragile Economies
The World Bank Group, under Ajay Banga's presidency, has renewed its focus on job creation and private sector mobilization, recognizing that sustainable employment requires a blend of public policies, infrastructure, investment, and private initiative. This shift is particularly pertinent for developing and fragile economies, prompting a re-evaluation of how the private sector can become a genuine actor in productive transformation, rather than just a financing beneficiary. Evaluations by the Independent Evaluation Group (IEG) of the International Finance Corporation’s (IFC) engagement in fragile and conflict-affected situations highlight the specific challenges of private investment in these environments, underscoring the need for stronger coordination among the World Bank Group’s various instruments.
Traditional development thinking often prioritized macroeconomic stability, market openness, and an improved business environment. While these dimensions remain necessary, the article argues they are frequently insufficient to produce the desired structural transformation. The core question posed is whether traditional private sector financing instruments are adequate to transform economies whose productive structures are fragmented or insufficiently organized. This suggests a deeper, more structural issue than simply adding a higher risk premium to investments in fragile contexts.
Transactional vs. Systemic Bankability
The article draws a fundamental distinction between transactional bankability and systemic bankability. Transactional bankability focuses on making a specific investment possible, following a linear path from project structuring to financing and results. This approach can lead to individually successful projects without necessarily triggering broader economic transformation. An economy might host several such projects without its underlying productive structure evolving significantly.
In contrast, systemic bankability follows a more complex, integrated logic. It envisions a process where productive potential, entrepreneurs, businesses, suppliers, processors, infrastructure, value chains, and markets are all coherently connected to financing, leading to a continuous generation of new investments. This approach aims to progressively build an economy that is inherently capable of generating new bankable projects, rather than just making existing ones viable. The IEG's evaluation of the World Bank Group’s Fragility, Conflict and Violence Strategy 2020–2025 supports this, emphasizing the need for more holistic approaches and stronger coordination between public and private instruments.
The Thiam Threshold: A Framework for Strategic Relevance
The Thiam Threshold introduces a complementary analytical framework by proposing an additional layer of assessment beyond financial and development performance. It asks whether, collectively, development interventions achieve a sufficient level of coherence to trigger a cumulative transformation of the economic system. This framework distinguishes three levels of assessment: transactional performance (financial viability and proper implementation), development performance (job creation, income generation, goods, services, positive externalities), and systemic strategic relevance.
Systemic strategic relevance evaluates whether interventions strengthen the relationships among various economic components in ways that enable new activities and investments to emerge. The Thiam Threshold posits that an accumulation of individually successful projects does not automatically equate to systemic transformation. Instead, it advocates for a deliberate strategy to foster interconnectedness and coherence across the entire economic ecosystem, ensuring that investments contribute to building a continuously financeable and productive economy, particularly vital for Africa's industrialization and private sector development.
Key points
- The World Bank Group is re-centering its agenda on job creation and private sector mobilization.
- The "Thiam Threshold" proposes shifting from individual project bankability to systemic economic coherence for development.
- Traditional development approaches are often insufficient for structural transformation, especially in fragile economies.
- Systemic bankability focuses on building an economy capable of continuously generating new, integrated projects.
- The framework introduces three levels of assessment: transactional, development, and systemic strategic relevance.
If the Thiam Threshold approach is adopted, African economies, especially fragile ones, could achieve more sustainable and widespread structural transformation. By fostering systemic coherence, investments could lead to a continuous cycle of new, bankable projects, creating more jobs and integrating value chains effectively. This could unlock greater private sector participation and lead to robust, self-sustaining economic growth.
Without adopting a more systemic approach, traditional development efforts focused solely on individual project bankability may continue to yield fragmented results. Fragile economies might struggle to achieve genuine structural transformation, leading to persistent underdevelopment, limited job creation, and a failure to fully mobilize the private sector despite significant financial injections.
