Editorial: Promoting Development through Business
That the private sector is a key driver of economic prosperity is stating the obvious in the eyes of business people. For development cooperation actors, however, the role of private sector in development, and how to engage with it, is a less familiar and more controversial issue.
In recent years, it has received increasing attention in international forums and currently in the United Nations led debate on the post-2015 development agenda to move beyond the Millennium Development Goals. Following the financial crisis and economic slowdown, stringent budget constraints and the fast rise of so-called emerging economies, most developed countries are reconsidering the role of aid in their development cooperation agenda. Emphasis is now put on alternative sources of financing for development, including private finance (a trend to be addressed in the September issue of GREAT Insights) and on different delivery modalities, which increasingly include working with business.
There is growing recognition that focusing on social dimensions is necessary but not sufficient to address development challenges, and that structural transformation towards productive employment is a key condition to achieve economic growth. This is at the top of the agenda for an increasing number of developing countries, and in particular in Africa, where economic transformation and industrialisation towards sustainable and inclusive growth have become a continental priority. Private sector development must be at the core of this endeavour. While support to micro, small and medium size enterprises and the informal sector may serve more social and immediate poverty alleviation objectives, promoting economic transformation through higher productivity and value addition may require attention to larger firms. In certain conditions, the private sector may also improve service delivery in social sectors – something being experimented with in a number of countries.
Yet, how to ensure inclusiveness and sustainability of this economic growth agenda? Based on the much discussed evidence by Thomas Piketty, rising inequality appears as a key feature of capital in the 21st Century, and rich countries seem to have little lessons to give to developing countries in that respect. One thing is certain though: business attitude, and the public-private dynamics are key parameters affecting the inclusiveness and sustainability of development, including poverty reduction.
In this context, the European Commission communication outlining the new EU strategy on private sector for development is a much awaited and welcome contribution. In a short document, the Commission manages to balance most of the important considerations regarding the EU development cooperation framework, as discussed in this issue of GREAT Insights by EU Development Commissioner Piebalgs and Italian Deputy-Minister of Foreign Affairs (ahead of the forthcoming Italian Presidency of the Council of the EU). But beyond welcomed principles, it is the implementation that represents the main challenge for donors, and the measurement of concrete impact on development. While past private sector support by the EU has paradoxically not given emphasis to quality job creation objectives, the UK government has recently been criticised for making too bold assumptions on the design and impact of its development cooperation for private sector development, in particular on the benefits on employment and poverty alleviation. As for NGOs, their watchdog and advocacy role is gaining prominence in denouncing abuses by companies and the risks of donors’ capture.
Finding the right balance between commercial interests and development objectives, and the optimal synergy between the two, is the new grand bargain. In doing so, all stakeholders should keep in sight the structural transformation required to achieve sustainable and equitable development. This means a stronger focus on quality job creation and social transformation. This is no easy task.
We hope the range of perspectives presented in this issue of GREAT Insights can usefully contribute to this debate. As always, your comments and contributions are welcome.
This article was published in GREAT Insights Volume 3, Issue 6 (June 2014).