Bilal, S. 2015. Private sector matters: Editorial. GREAT Insights Magazine, Volume 4, Issue 5. August/September 2015.
Private sector matters for development! The good news is that this is now explicitly recognised and embodied in the Sustainable Development Goals (SDGs). It is good news in two respects:
First, by including considerations beyond the important social objectives of the Millennium Development Goals (MDGs), the international development community finally explicitly embraces the challenges of engaging with economic actors, the key drivers of economic growth and structural transformation. But growth and transformation have no merit on their own. They need to be socially inclusive, equitable, environmentally and financially sustainable, so as to improve the living conditions of the population at large, and the poorest in particular.
Second, the universality principle embodied in the SDGs implies that the goals are relevant to all countries and all actors. This means they also apply to developed countries, in their domestic and international relations, and to all actors, including private sector. One consequence is that it brings the policy coherence of developed countries to the forefront of the development approach. It also calls on the business community to embrace sustainability criteria in their operations.
What does it mean in practice? Time will tell…
Public and private actors have not waited for the adoption of the SDGs to pursue sustainable development activities and engage with one another. The articles in this issue of GREAT Insights on Helen Hai’s Chinese productive investment in Africa, and on SGS partnerships to facilitate trade in Ghana and other African countries are examples of business engagement with potentially positive development outcomes. But there are many challenges for the private sector and public actors.
Developing countries need to identify effective strategies and policies to better harness the private sector potential to foster economic transformation and industrialisation in an inclusive and sustainable way, at domestic, regional and international levels. This requires not only the establishment of a more conducive business environment and the design of appropriate policy measures, but often also a change of mindset, overcoming resistance and some lobbying pressures, as indicated in the exclusive interview of ECOWAS Commissioner for Industry and Private Sector Promotion, Kalilou Traoré.
For donors, many of which are already involved in supporting private sector for development objectives, the challenges are three-fold: learn from experiences, innovate and improve coherence; all three are intrinsically linked of course.
There are a lot of very interesting initiatives and experiences of donors’ engagement with the private sector.
The article by TradeMark East Africa points to impactful experiences in supporting smallholder farmers, cooperative and business organisations. How to best replicate and scale up such initiatives, building on positive achievements and learning from problems encountered to improve them?
The European Commission is becoming very active in this regard. In an exclusive article, Roberto Ridolfi, Director at DEVCO, outlines for the first time the EU new Agriculture Financing Initiative, AgriFI, aimed at engaging the private sector in agriculture and food and nutrition security development. One of the main objectives of this new initiative is to leverage private investment in agriculture, in particular, through blending mechanisms, accompanied by business development and advisory services.
Cost and risk-sharing objectives are an important drive to leverage private finance. One of the main cited reasons for international business reluctance to invest in developing countries, and the poorer ones in particular, are the risk factors.
This puts institutions like the Multilateral Investment Guarantee Agency (MIGA) at the core of the learning-from-experiences process, but also of the innovation imperative to face rapidly increasing and evolving needs for developmental investment, as discussed in the article by MIGA Senior Risk Management Officer, Conor Healy.
It also raises some fundamental issues about the way donors seek to leverage private finance.
In their article, Theodore Talbot and Owen Barder, from the Center for Global Development in Europe, argue that donors are misled in providing mechanisms to share costs and risks with the private sector, which are inefficient in terms of incentives and development impact. Instead, they recommend that donor subsidies should be paid out conditional on the private sector success or performance in terms of measurable development impact. Their proposal raises interesting questions around the mechanisms, incentives, costs and impact of the approaches adopted to leverage private input and finance. A one-size-fits-all is certainly not going to work.
Together with Sebastian Grosse-Puppendahl, we note in our article that many public mechanisms already exists outside the development cooperation framework to support private sector along commercial lines, often in the context of an active economic diplomacy strategy. These also entail cost and risk sharing, technical advice and matchmaking and linkages services for business. How do they affect development? What is the coherence and synergy between development-oriented mechanisms and economic diplomacy ones?
The potential seems important. Focusing on export promotion and private sector development in Africa, Professor Andreas Klasen underlines in his contribution the positive development impact export credit agencies (ECA) can have. Not only do they increase access to finance in developing countries, but by abiding to global standards, as those set by the OECD and the Berne Union, they can contribute to better environmental, social and developmental impact, in particular, if embodied in a comprehensive policy framework. Hence the need for coherence in approaches.
The same principle applies to the effort to better link international business, and small and medium-sized enterprises (SMEs) in particular, with partner companies in developing countries. Philippe Adriaenssens from EUROCHAMBRES stresses the positive role on development such matchmakins
As always, we hope you will enjoy reading this issue of GREAT Insights and welcome your comments and contributions.
Dr San Bilal (Editor), Head of Economic Transformation and Trade Programme, ECDPM
This article was published in GREAT Insights Volume 4, Issue 5 (August/September 2015).