DP #3: The Role of the Private Sector in Development Aid
“T[t]he greatest contribution that companies can make to society, especially in developing countries, is through responsible, efficient and profitable mainstream investment that produces a variety of socio-economic multipliers1” (Nelson 2003).
This sentence already implies the possibility how the private sector can contribute to development in poorer countries. But what is the so called “private sector”? To see just the big multinationals and well-known brands would be to short sighted. The private sector in poorer countries is made up of a huge amount of small and medium-sized enterprises (SMEs) which have between 11 and 250 employees (European Commission 2003). Whether domestic or non-domestic, each enterprise contributes in a different way to development, some with technology others with employment (Davies 2011). But what is development? Development can be defined in different ways and might mean different things to individuals. In this blog it is considered to be actions towards closing the gap between rich and poor and not only focused on economic growth.
Let us focus on the private sector: It offers employment, is a main driver of economic growth and provides goods and services for the society. It has huge advantages compared to the public sector like efficiency due to competition, flexibility and profits which can be used to reinvest. Why should it not be included in development aid?
The rapid urbanization challenges the traditional way of delivering development work and emphasizes the role of the private sector in an economy. Until now it was little engaged and some big NGOs like Oxfam were not very keen to work together with the private sector. Anyhow like Clermont et al. (2011) state it is important to engage the private sector, especially after a disaster to make relieve to recovery as smooth as possible. The applied policies should be focused on short term needs and long term development at the same time. It would be better for the long term recovery not to ignore the existing market and to work together with local enterprises to meet the basic needs of the society.
To increase the responsible participation of business in development, development cooperation agencies like GIZ (German) or Sida (Swedish), can do several things:
- First they should act as role model and establish corporate responsibility policies and transparency into their own business practice.
- Second they can support developing country’s government to create an investment friendly environment and help state owned companies to act in a corporate responsible way.
- The third step includes capacity building in the private sector and civil society to increase the use of corporate responsibility policies on the local level.
- Fourthly development cooperation agencies can focus on SMEs and support the ones which put corporate responsibility already in practice. One relating measure could be to create links between the domestic market and multinationals.
- The fifth and last area of action to foster corporate responsibility would be to give training to individuals to enable them to create links between different parties and hence decrease the rate of failing projects. (Fox, Prescottie 2004)
The question is now how to implement the strengths of the private sector into sustainable development. There are many options to engage the private sector like public-private-partnerships, contracts, franchise, concession or private subscription (Cointreau). Each alternative should be chosen depending on which work should be done. Naturally there will be some activities where participation of each sector might not result in the requested target and where other sectors can perform better.
Now we have seen that NGOs and development cooperation agencies can include the private sector, but what are the incentives for the private sector to engage itself especially in “poverty eradication related activities in developing countries” (Davies 2011)? For multinational companies the reasons may differ and are directly or indirectly connected to the goal of making profit. The incentives “range from addressing risk to exploring business opportunities” (Davies 2011) and can come from outside or inside.
The art is to combine the different goals of development aid and enterprises to make them to pull together. Just if a common target can be established the strengths of the parties can be combined to create unique projects which are sustainable in the long run and contribute to close the gap between rich and poor.
1“The eight core business multipliers: 1. Generate investment and income; 2. Produce safe products and services; 3. Create jobs; 4. Invest in human capital; 5. Establish local business linkages; 6. Spread international business standards; 7. Support technology transfer; 8. Build physical and institutional infrastructure” (Nelson 2003).
Resources, last accessed 29.12.2011:
Clermont C, Sanderson D, Sharma A, Spraos H (2011) Urban disasters – lessons from Haiti, http://www.alnap.org/pool/files/dec-haiti-urban-study.pdf
Cointreau S (year unknown) Private sector participation in developing countries, http://siteresources.worldbank.org/INTURBANDEVELOPMENT/Resources/336387-1249073752263/6354451-1249073991564/cointreaupsp.pdf
Davies P (2011) The Role of the Private Sector in the Context of Aid Effectiveness, http://www.oecd.org/dataoecd/7/58/47088121.pdf
European Commission (2003) Small and medium-sized enterprises (SMEs), SME Definition, http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/sme-definition/index_en.htm
Fox T, Prescotti D (2004) Exploring the role of development cooperation agencies in corporate responsibility, http://www.eldis.org/fulltext/IIED_CSR1.pdf
Nelson J (2003) ECONOMIC MULTIPLIERS, Revisiting the core responsibility and contribution of business to development, http://commdev.org/content/document/detail/1026/
1 comentario /
29 Dec 2011
por
Marie Glueck
IMSD /
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