Private sector development is critical to generate employment, investment, innovation, and productivity growth. When the business environment is supportive, firms are better able to expand production, adopt new technologies, hire workers, and contribute to the tax revenues needed for public investment. However, when the business environment is weak, firms face higher costs, greater uncertainty, and fewer incentives to invest and grow. This policy paper provides a comparative panorama of private sector development using firm-level evidence from the World Bank Enterprise Surveys (WBES). Covering the formal, non-agricultural private economy across world regions, the analysis compares business-environment conditions by region, firm size, and sector of activity, with a distinction between manufacturing and services.
The heterogeneity of the private sector in developing countries
The core argument is that the global business environment is uneven across regions, but those differences are also mediated by firm size and sector. Larger firms generally show stronger performance, wider access to finance, more structured management, and greater participation in innovation and trade. Smaller firms are more numerous, more heterogeneous, and often more exposed to financing gaps, capability shortfalls, and informality-related competition. This heterogeneity challenges the effectiveness of standardised reform agendas. Policies designed without accounting for differences in firm structure, sectoral dynamics, and institutional context risk producing limited or uneven results.
Access to finance
The global business environment remains uneven across regions, but these disparities are also influenced by the size of firms and the sectors in which they operate. Large corporations generally perform better and have greater access to finance, whereas small businesses, which are more numerous and diverse, are often more vulnerable to funding shortfalls. This diversity calls into question the effectiveness of standardised reform programmes.
Market access
Access to international markets constitutes another key dimension of productive capability. Export participation is strongly differentiated by firm size, with large firms significantly more likely to export than medium-sized firms, and medium-sized firms more likely than small firms. This is particularly true in developing countries where both firm-level characteristics and location matter for the likelihood and extent of exporting.
Innovation capacity
The policy paper highlight that innovation is closely linked to firm scale and organisational capability, rather than being evenly distributed across the private sector. These findings align with previous works that show exporting and importing are important channels of technological innovation in developing countries.
The feminisation of the workplace
Workforce quality and skills development constitute a first core dimension of productive capability. The WBES data show that formal training is strongly correlated to firm size, with large firms significantly more likely than small firms to provide structured workforce upgrading across all regions. This pattern indicates that capability accumulation remains highly uneven, with smaller firms facing persistent constraints in upgrading skills and organisational practices.
Gender inclusion adds an additional layer to workforce capability. Female participation varies widely across regions, sectors, and firm sizes, with higher representation in ownership than in top management, and services often outperforming manufacturing in female leadership. Beyond participation patterns, external evidence suggests that gender diversity within firms is associated with stronger performance outcomes.
The role of governments and public policy
The policy implication suggests that governments and development actors should design business-environment reforms that are region-, size-, and sector-sensitive. This implies prioritizing reliable infrastructure, targeted support for smaller firms, better trade and tax administration, stronger financial ecosystems, management and innovation upgrading, and more effective anti-corruption and formalisation strategies. Private sector development is best understood not as a single reform agenda, but as a combination of institutional quality, productive capability, and firm heterogeneity.
Recommandations
Private sector development policy should be designed around a central insight: firms operate under fundamentally different conditions depending on their size, sector, and institutional environment. Effective reform therefore requires targeted, coordinated, and outcome-oriented approaches.
First, differentiate policies by firm size and sector.
Smaller firms consistently lag behind in access to finance, workforce upgrading, management quality, innovation, and export participation, while services and manufacturing face distinct constraints. Private sector policy should move beyond generic SME support and develop targeted instruments adapted to firm characteristics and sectoral dynamics.
Second, prioritise the quality of implementation.
Across infrastructure, licensing, taxation, and corruption, the main constraint is often not the existence of rules, but how they are applied. Reducing uncertainty, delays, and administrative burdens should be a central objective of reform. Predictable, transparent, and consistent implementation is as important as regulatory design.
Third, strengthen productive capabilities within firms.
Management quality, workforce skills, innovation capacity, and certification systems remain unevenly distributed across firms. Policy should treat capability upgrading as a core component of the business environment, through management support, training systems, innovation services, and quality infrastructure, particularly for small and medium-sized firms.
Fourth, restore competitive neutrality.
Informality, corruption, and uneven enforcement distort competition by penalising compliant firms. Reform efforts should focus on strengthening enforcement, reducing discretion, and ensuring that firms compete on equal terms. Fair competition is a key driver of investment, formalisation, and productivity growth.
Fifth, anchor reforms in firm-level outcomes.
Policy effectiveness should be measured not only by job creation, but also by improvements in productivity, investment, innovation, workforce upgrading, and access to reliable infrastructure and finance. A firm-centred monitoring framework can strengthen accountability and improve policy design.
