Private Sector Development
1. The objective of Private Sector Development (PSD)
has been defined as: "To create more, better, and decent
jobs and sustainable livelihoods by helping markets to function
well and by stimulating the growth of the local private sector
in developing countries and countries in transition."
The World Bank sees PSD not as a sector but as a 'way of doing
things' that cross-cuts a variety of policy areas from agriculture
to the financial sector.
As such, it does not represent another sector in which donors
should be engaging, but rather a change in the perspective and
practice that comprise their current development approaches. PSD
is not an end in itself but a tool for achieving positive human
development outcomes such as equality, stability and empowerment.
2. Whilst it has been accepted that the private sector
is a primary driver of growth and human development for a number
of decades, the last ten years have seen PSD rapidly raise its
profile within development discourse and practice. The creation
of new global targets in 2000 triggered fresh thinking about appropriate
and feasible strategies for attaining these goals and
Millennium Development Goal 8 specified that a 'global partnership
for development', including cooperation with the private sector,
should underpin international efforts.
The Washington Consensus pushed market solutions and economic
globalisation to the top of the donor agenda.
3. PSD's move into the mainstream has been marked
with a prolific and growing body of literature
and analysis scoping the rationale, empirical evidence and potential
practical impact of the approach.
We do not intend in this report to repeat what has been said so
well in existing publications. Our intention is to cast the spotlight
very specifically on the UK's Department for International Development
(DFID) and its core partners, rather than examine the work of
other donors and organisations in any great detail. It is also
worth noting that PSD is a wide-ranging, disparate and relatively
new policy area, and thus addressing every aspect of private sector
activity has not been possible in this report. The Committee has
looked at the issue of international trade in depth in another
recent report, marking the end of World Trade Organisation's Doha
Development Round, and
the international trade regime is therefore not covered in detail
in this report. The Committee will explore the issues of water
and sanitation in an inquiry beginning later in 2006, and so again
these areas are not addressed in detail in this report. The report
focuses more on sub-Saharan Africa than on Asia, the Middle East
or Latin America. This reflects a number of factors: the nature
of the evidence we received; the current orientation of DFID's
work (one third as much again is currently spent on African than
on Asian programmes) and scale of poverty (sub-Saharan Africa
is the only region not on track to meet any of the MDGs).
4. It is indicative of how far the debate over PSD
has come that not a single piece of evidence received under this
inquiry contested the basic premise that the private sector must
contribute to poverty reduction. This demonstrates the emerging
consensus in the development community on the important role of
the private sector in job-creating, poverty-reducing growth.
Clearly, concerns exist about the power and growing social and
environmental 'footprint' of business.
But there is growing recognition, firstly, that constructive engagement
with big business is an effective way to influence corporate behaviour
and, secondly, that the global private sector generally does not
conform to the stereotypical corporate giant, but manifests itself
far more often as small and medium-sized companies, co-operative
enterprises and family farms.
5. This inquiry, then, starts from the premise that
donors should view the private sector as a key partner in global
poverty reduction. After an initial survey of how PSD is defined
and a brief exploration of the rationale for utilising it as a
development approach in Chapter 2, the report will seek to explore
the two primary approaches to PSD currently employed by donors:
enabling investment climates (Chapter 3) and making markets work
for the poor (Chapter 4). Chapter 5 will look at the financing
of PSD, and Chapter 6 will survey the private sector's current
contribution to poverty reduction, and how these efforts can be
supported by donors. The report will conclude with an assessment
of how DFID's PSD policies operate in practice (Chapter 7), through
an examination of DFID's organisational design and ways of working
in this area.
6. Our role is to scrutinise DFID and find constructive
solutions to its shortcomings in areas of policy, expenditure
and administration. At first glance, DFID has an impressive array
of innovative PSD policies. However, with greater scrutiny it
becomes clear that there is a lack of either sufficient strategic
planning or appropriate resource allocation for PSD within DFID.
As the final chapters and our conclusion to this report make
clear, we have a number of quite serious reservations about DFID's
capacity to implement its PSD policies. There is a degree of DFID
trying to 'run before it can walk', and we strongly advise the
Department to take a step back and develop a coherent and co-ordinated
strategic plan with appropriately resourced, practical and time-bound
the full implementation of existing PSD policies.
7. The Secretary of State for International Development,
Rt Hon Hilary Benn MP, when giving evidence, told us that, "If
you are interested in helping the poor you need to be interested
in private sector development."
We trust that he and his Department find the recommendations in
this report useful in reducing not just the poverty of individuals
but also the poverty of the state in which they live.