Select Committee on International Development Fourth Report


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."[1] 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.[2] 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.[3] The Washington Consensus pushed market solutions and economic globalisation to the top of the donor agenda.[4]

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.[5] 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[6], 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).[7]

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.[8] Clearly, concerns exist about the power and growing social and environmental 'footprint' of business.[9] 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 plans for 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."[10] 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.[11]

1   Canadian International Development Agency, Policy on Private Sector Development Policy (Canada, 2003), p.1, available online at Back

2   World Bank, Private Sector Development Strategy (Washington: World Bank, 2002). Back

3   UN Millennium Development Goals (2000), online at Back

4   Williamson originally coined the phrase 'Washington Consensus' in 1990 "to refer to the lowest common denominator of policy advice being addressed by the Washington-based institutions to Latin American countries as of 1989." The phrase has become synonymous with 'neoliberalism' and 'globalisation'. Back

5   See, for instance, Claes Lindahl for SIDA, 'Wealth of the Poor: Eliminating Poverty through Market and Private Sector Development' (Stockholm: SIDA Studies No.14, 2005); UNDP Commission on the Private Sector and Development, 'Unleashing Entrepreneurship: Making Business Work for the Poor' (New York: UNDP, 2004); Commission for Africa Report, Chapter 7 (2005); World Bank, 'World Development Report 2005: A Better Investment Climate for Everyone' (Washington: World Bank, 2004). Back

6   International Development Committee, Third Report of Session 2005-06, The WTO Hong Kong Ministerial and the Doha Development Agenda HC 730. Back

7   DFID, Departmental Annual Report 2006, p.224 and 'Millennium Development Goals: 2005 Progress Chart', online at Back

8   Ev 320 Back

9   See, for instance, Ev 151 and Ev 165 [Christian Aid] Back

10   Q 404 [Hilary Benn, Secretary of State for International Development]  Back

11   Q 448 [Malcolm Bruce MP] Back

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Prepared 23 July 2006