November 16, 2011

Promoting the private sector’s role in development – but whose private sector?

Posted: 16:16 PM UTC

by Bruce Byiers on November 16, 2011

“Policies for Promoting The Private Sector’s Role in Development” was the subject for debate at a high-level roundtable event organised by the Development Policy Forum of Friends of Europe on November 8 in Brussels. ECDPM attended, given our interest and work in economic governance, and in particular in issues relating to business facilitation, taxation, trade facilitation and the Economic Partnership Agreements. The discussions raised some interesting issues and thoughts regarding the role of the private sector in development, but also highlighted the need for more clarity - and perhaps different terminology - when looking at what is inevitably a very broad theme.


In these financially straightened times, the prospect of leveraging private sector funds for development goals is attractive and gaining increasing attention (for example, see “Is Business the New Development?” and “Capitalising on a new “Aidscape”). It may be that there is a need for more of the private sector mentality of “innovate or die” in the development world, while the mix of aid and investment, frequently employed by the Chinese in developing countries, is also pushing Western policy-makers to think along similar lines.

The private sector can also benefit from “the development sector”. Donors can play a valuable role in absorbing risk, fundamental in countries, which are characterised by high levels of economic risk and high transactions costs. Donor money may be very effective in piloting specific projects where the initial risk is to high for the private sector, thus unleashing a range of commercial opportunities, which might otherwise remain unexploited.

But what is “the private sector”?

However, when we discuss private sector involvement in development, the private sector itself is often minimally represented at these events. Its voice is therefore often heard through associations or a token selection of speakers. Further, there is a need for greater clarity on what we mean when discussing the “private sector” and its role in development. This becomes apparent once participants at workshops, such as Friends of Europe’s roundtable event, begin to air their views, which can all be relevant, but have in mind very different aspects of private sector behaviour. Indeed, I wondered if anyone outside the development world ever thinks of “the private sector”?

A heterogeneous bunch

An important distinction can be made between at least two forms of private sector involvement. The use of international commercial firms, organisations and private finance to leverage aid through Public Private Partnerships (PPPs) might be considered the “new” aspect of private sector involvement in development. The “old” aspect is the promotion of policies to strengthen and encourage the foreign and domestic private sector in developing countries themselves. While both forms are very important, more focused and separate discussions of the two might make the debate on the private sector role more productive.

More specifically, the “new” form focuses on PPPs, philanthropy and investments with a development impact, which is quite distinct from examining how to expand the impact of firms and employment on poverty reduction in developing countries. This “old” form relates to the importance of the business environment for promoting Foreign Direct Investment and expansion of the domestic private sector in developing countries (which itself is very heterogeneous in terms of size, sectors, ownership form, and degree of integration into domestic and international markets, etc.) The questions here tend to focus on: how to best bring foreign and domestic private sectors into regular and focused dialogue with government on key policy issues? How best to create linkages between local firms at the micro and small level with larger domestic and international firms? How to encourage greater tax compliance while promoting firm growth and investment? How to assist successful micro-firms in expanding their markets? How to assist domestic firms to enter international markets and value-chains? How to ensure acceptable employment and sufficient employment opportunities for young people, etc. These are very different from questions of how to leverage aid money through collaboration with multi-national corporations.

There are nonetheless some overlaps between both aspects. This is highlighted by regional infrastructures, for example, a key component of regional integration and a theme that is gaining increasing attention in ECDPM’s work. There are also overlaps relating to taxation, a topic which has been discussed here before and is steadily creeping up the agenda. At ECDPM, we are also in the process of developing plans on how to make public-private sector dialogue more effective, again with potential overlaps between discussion of PPPs and promoting the domestic private sector.

Ultimately, the growing consensus around the potential of using “private sector” actors to promote development goals is positive, but “the private sector” is a large tent. To take the debate forward in more concrete terms, we need to start being clearer about which aspect of “the private sector” we are talking about, and focusing individual debates and discussions there.


Bruce Byiers is Policy Officer Political Economy of Reforms and Development at ECDPM.



This blog post features the authors personal views and does not represent the view of ECDPM.

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