ECDPM at the EDDs: Engaging the private sector for development
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Preparations for this year’s European Development Days on the 16th and 17th October are now well underway. Among 4 panels in which ECDPM will participate, we are co-organizing a panel to look at “How can we maximise inclusive growth and development: The Pros and Cons of Private Sector Engagement and Blending Instruments”. The idea for the panel builds on the growing interest and demand among donors, developing country governments and the private sector itself for engaging business for development ends, something we have discussed here before and in a recent discussion paper. Although there are no clear dividing lines, we find it useful to distinguish between “private sector development” and engaging the “private sector for development’. While the former relates to the domestic, developing country private sector, with a strong donor focus on the business environment, the “private sector for development” agenda refers more to engaging with the international private sector to achieve development ends. This international angle can then be further broken down into private sector activities (e.g. Foreign Direct Investment) and private sector finance (e.g. public-private partnerships for infrastructures). While there are some blurred lines between these categories, they can help bring clarity to discussions. Our panel will discuss all three aspects to some degree and seeks to highlights some of the main pros and cons. The European private sector wants to know how to engage with donors, and the development finance institutions are interested in seeing to what degree blending of grants and loans can serve to promote the private sector in developing countries.
Getting the debate goingTo promote discussion prior to the panel itself, in early October ECDPM will be publishing a special edition of its monthly GREAT Insights with contributions from a range of experts, including some of our panelists. Some draft contributions that already came in give a flavour of the main points for discussion. Focusing on financing, Klaus Rudischhauser of the EC highlights the importance of using blending of EU grants and loans to leverage additional public non-grant financing for important public investments but that these are also “equipped to unlock private investments for achieving EU development objectives.” Nonetheless, he cautions that “while the involvement of the private sector holds great potential, a cautious and selective approach is necessary to ensure that development objectives are paramount and market distortions are avoided.” Sarah Gonzalez of USAID in Brussels says we should “embrace pragmatic alliances at the intersection of development objectives and commercial interests.” and comments that “some European donors have not yet found a healthy balance between cautious due diligence and skepticism, and so they let pass the skills, technologies and resources of the private sector”. Imoni Akpofure from the IFC also highlights that a “small amount of initial capital, with some well targeted advisory services, can marshal the talents and finance of private sector investors to create economic activity that ultimately is self-financing.” Nonetheless, as the EIB contribution points out, “serving a diverse group of private sector clients requires tailor-made approaches, integrating mutual reliance and the use of innovative financial instruments to leverage impact.” At the same time, José María Vera of Oxfam Spain worries that the focus on engaging the private sector “opens the way for activity that deviates from the goal of achieving the greatest possible impact in poverty reduction;… that economic goals and visibility for activities are more highly valued.” He also believes that the private sector for development agenda opens up room for “abusive use of intermediaries and new financial actors that considerably reduce operation transparency and limit responsibility.” Development practitioners will need to find a way to to balance these challenges, and this requires a far greater understanding of what sort of private sector engagement has worked where, to what degree, and why. This is something we will continue to work on at ECDPM, while we hope that the EDD and discussions it leads to will also help to provide some interesting insights. In particular, we would like to stimulate reflection and debate on the following questions:
- Is there any reason to fear a stronger focus on private sector development and engagement in ODA?
- How can we strike a balance between investment in social sectors and investment in economic sectors?
- What really constrains the implementation of necessary business environment reforms, and how to create an enabling environment that can attract private investments?
- Does working with the private sector give donors more “policy leverage” in this?
- How can a combination of various forms and modalities of finance have greater effects? For instance, how can loans and investments be best used to leverage scarce public grant resources and catalyse additional private resources?