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Below is the Executive Summary of the report, highlighting particular outcomes and future recommendations.
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executive Summary
Recent global social and economic shocks have demonstrated that it can “no longer be business as usual” in the development world. Aid budgets are being cut or are drying up, with developing countries facing a shortfall of funds. This is coupled with the realisation that decades of development aid have not lifted countries out of poverty and that while still crucial in the combat against poverty, official development assistance (ODA) alone will not solve world challenges. All eyes are therefore on the private sector as a new engine for economic growth and opportunities.
The Development Policy Forum (DPF) debate on the role of the private sector in development cooperation took place ahead of the High-Level Form on Aid Effectiveness organised in Busan at the end of 2011. Participants discussed the current development cooperation landscape, different types of private sector intervention, the ‘pros’ and ‘cons’ of the private sector as a new development player and its impact on the development agenda.
The roundtable discussion began with a review of the three major types of private enterprise that are involved in development: ‘For-profit’ enterprises; ‘not for profit’ companies, and philanthropic bodies, usually Foundations or charities.
Examples were given of these: Allianz – a for-profit company dealing with microcredit insurance, Cargill Europe, a ‘for profit’ company specialising in food and agriculture; Proparco, a public-private bank, that provides funds to foster small business in developing countries; and the Aga Khan Foundation, a grant-giving body that works with communities to develop their own projects. The meeting also heard from the German development agency GIZ, which over the years has developed successful public-private partnerships (PPPs).
Roundtable participants were clear about the private sector’s positive impact on development and agreed that private enterprises are central to development. The private sector can also teach public donors several lessons: the need to innovate, an ability to scale up programmes, and the importance of “the bottom line” in development projects. However, questions were raised on whether the private sector should be classified as a development actor, or whether its involvement should be seen in purely business terms.
One of the most successful forms of private sector involvement in development has been through public-private partnerships (PPPS), where developing country governments sit with the private sector to develop programmes. As well as working through PPPs, the private sector also works via PP Platforms, country-based spaces where the actors who represent sectors and commodities come together to make decisions and develop a common language, helping producers to gain a foothold on the relevant international supply chain.
It was also stressed that small and medium-sized enterprises (SMEs) are the drivers for industrial development in developing countries, as they are the largest generators of employment, and crucial to private sector activity, so more attention should be paid to supporting their development.
One issue raised during the discussion was the need to revisit the regulations in developing countries and to see how they could be tightened to improve the tax regimes and to stamp out corruption, as well as the need to cut unnecessary regulations that prevent the entry of new private sectors actors.
Several issues remained unresolved: whether private companies could become political actors in recipient countries; whether donor aid might once again be ‘tied’ to the use of specific companies from donor countries, whether ODA might be phased out as Foreign Direct Investment and the private sector take over its role in development. There was also a call for more clarification about private sector involvement in aid, and how it reflects on aid principles.
Looking to Busan and its aftermath, participants hoped the meeting would signal better coordination and cooperation among donors, including the private sector. There are doubts, however, as to whether the meeting would produce any new breakthroughs. Finally, a word of caution remained: While the private sector can make a major contribution to economic growth, this is not enough in itself. The private sector makes a major contribution to growth and employment, but this does not automatically result in major improvements to the country’s human development index.
