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
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• 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
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From pscyho to BoP and “shared value”
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“We want to industrialise”
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AIDA
“We want to engage the private sector…”
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• 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…”
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Push factors: Fiscal crisis, aid squeeze & “value for money”
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Push factors: job cuts, competition & “new models”
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Pull factors: Learning from the private sector
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• The private sector is going there anyway…
Large FDI flows anyway!
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…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”?
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“Many ways to skin a cat”
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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 :
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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…..
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• 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
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• 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
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• 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
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• 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
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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
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• 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(?)
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• 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
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• 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…
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• 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…
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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…
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