Engaging the Private Sector for Development

Engaging the Private Sector for Development

European Centre for Development and Policy Management (ECDPM)

Dr Bruce Byiers

Helsinki February 2013

• Policy Context

• The “private sector”

• 3 agendas in 1

• Instruments and issues

• Implications

Overview

Page 2ECDPM

• Until at least the mid-1990s, Africa had “inclusive, sustainable, pro-poor, shared stagnation”.

• Growth is necessary but not sufficient for poverty reduction

• The elusive quest for growth… • aid for investment• education• health & population• conditional loans…• debt relief… Incentives matter!!

• Need jobs, and therefore investment – need private sector!

In the beginning…growth & the private sector

ECDPM Page 3

From pscyho to BoP and “shared value”

ECDPM Page 4

“We want to industrialise”

ECDPM Page 5

AIDA

“We want to engage the private sector…”

ECDPM Page 6

• UK: “bring private sector ideas, innovation and investment into the heart of what we do...”

• NL: “Dutch interests first, more so than in the past....PPPs, business instruments and economic diplomacy can lead to gains in both commercial profit and poverty reduction.”

• DK: ”… strategic priority in Danish development cooperation to work for a strong private sector…important that Danish business participates actively...”

• FL…

“...and help our own…”

Page 7ECDPM

Push factors: Fiscal crisis, aid squeeze & “value for money”

ECDPM Page 8

Push factors: job cuts, competition & “new models”

ECDPM Page 9

Pull factors: Learning from the private sector

ECDPM Page 10

• The private sector is going there anyway…

Large FDI flows anyway!

ECDPM Page 11

…but largely to mining and minerals…

So who is the“private sector” we want to engage with?

And what policy tools do we have to be “transformative”?

Page 12ECDPM

ECDPM Page 13

“Many ways to skin a cat”

Page 14ECDPM

Business level:

InternationalLarge domesticSMEsMicro-household basedMultinational enterprises State-owned enterprisesNational monopoliesInformal tradersAssociations

Sectors:

Agricultural smallholdersLarge-scale agricultural producerManufacturers/processorsExport-led industriesExtractive sector firmsService providers

Market structure Domestic/export competitive/oligopolistic New entrants/incumbents

Business models:"Raw" capitalismShared valueCore business modelsBase of pyramid/social businessesFair Trade Corporate Social ResponsibilityPeople-centered business Cooperatives

Business constraints:

Credit accessInfrastructure Capacity and education level Business linkages Labour regulationsMarket exclusion

Business climate

• Private sector developmentOld agenda: domestic, enterprise growth, value-addition, exports, access to credit, business climate, firm-level skills, industrial policy etc

• Private sector finance for developmentInput side – promote and leverage private sector finance

• Private sector investment for developmentNew agenda: international, partnering with developed country firms, offset risk, link producers & suppliers

Three related but distinct agendas :

ECDPM Page 15

Private Sector Development… developing country businesses were able to startup and expand

Private Finance for Development…there was a way to bring in more finance for public investments (and the private sector)

Private Investment for Development… there was a way to encourage more inwards investment to link with the local private sector

Assumptions – development would happen if only…..

ECDPM Page 16

• How to promote structural transformation?

• How prioritise & implement reg. reforms?

• How to increase credit access?

• What role for FDI and industrial policy?

• How to promote innovation?

• How to make it “inclusive” – SME linkages?

• Big firms, better jobs?

• How to build “capabilities”

1. Private Sector Development: Issues

Page 17ECDPM

• TA for regulatory reform• Value-chain development• Business development services• Making markets work for the poor• Industrial policy• Innovation policy• Access to finance• Management skills – vocational training etc

Mixed results

• Endogenous and exogenous firm conditions

• The PE of economic reforms

PSD Instruments

ECDPM Page 18

• About inputs – private finance for development ends

• Foundations, investment/pension funds

• Blending grants, loans & private finance

• Various purposes e.g. infrastructures, equity funds

• Challenges

- Need to be profitable

- Risk management and balancing

- Legal environment

- Capacity to use effectively

- Primarily a lack of finance?

2. Private Sector finance for Development

Page 19ECDPM

• Less clarity on agenda and processes

• Different underlying approaches/ideology

• From CSR to "core business model”

• Partnerships - public-private cooperation

models and CSO-business

• DFIs, ODA, non-ODA

• Promoting outwards FDI?

• What best value-added of donors here?

3. Private Sector Investment for Development

Page 20ECDPM

ODA• Public-private dialogue• Challenge funds• Match-making• Multi-stakeholder partnerships• Corridors approach etc

Non-ODA – under-analysed! • Domestic industrial policy• Outward FDI promotion• State-aid?• China – includes SEZs, export credit, etc

PS Investment Tools/instruments

ECDPM Page 21

• Private Sector: Image and reputation, CSR, risk absorption, high entrance costs to new markets, unfair competition from subsidised firms

• Donors: financial crisis and decreasing ODA, new positive grand narrative, financial sustainability

• Partner governments: employment creation, raised productivity, inclusive growth, growing capabiities, improved business climate, new types of investment, debt burden, interest groups, rents(?)

• NGOs and CSOs: people centred business….

Debates: Common interests(?)

Page 22ECDPM

• Profitability vs optimal developmental

outcome (or people vs profits!)

• Risk-sharing balance

• Opportunity costs of finance

• National ownership

• National vs local conflicts

• Impact assessments

• Eligibility criteria or corp. track record?

• Tied aid, subsidies, PCD!

• Tax revenues!

Debate: Conflicting interests

Page 23ECDPM

• To what degree does the new agenda promote structural change?

• What roles for aid and non-aid in working with the private sector?

• What approaches for working with MNEs to promote linkages with SMEs?

• What factors for successful public/private/CSO partnerships?

• Organisational settings and institutional factors for donor engagement with PS?

Ongoing questions…

ECDPM Page 24

• How to link donor agenda with local industrial policy and country ownership?

• What about beyond global value-chains? Especially informal trade and women?

• Focus on impacts – is this the key?

• Data availability and analysis of levels of donor PS engagement?

• Role/usefulness of international commitments (e.g. UN Global Compact etc)?

On-going questions…

ECDPM Page 25

If development is the ultimate goal, then:

• Potential to find synergies – but also need care

• Need to identify the trade-offs

• Agree on how to identify & measure impact

• Regulate expectations and understand the mandate and capacity of the other

• Improve PS-donor-gov-CSO communication and mutual understanding

• Focus on how to boost transformation, no matter the financing!

In sum…

Page 26ECDPM

Thank you

www.ecdpm.orgBruce Byiers bby@ecdpm.org

www.slideshare.net/ecdpm

Page 27