Business Magazine

The Role of the Private Sector in International Development

Posted on the 15 February 2012 by Center For International Private Enterprise @CIPEglobal

In December of 2011, representatives from aid agencies, NGOs, and companies meeting in Busan, South Korea for the High-Level Forum on Aid Effectiveness reaffirmed that private sector partnerships were vital to the future of international development. However, the prevailing understanding of what “private sector partnerships” means within the development community will not be enough to unlock the true growth potential of developing countries. For that to happen, development organizations need to involve the local business community in pushing for the kinds of institutional reforms that lead to sustained, private-sector-led growth.

Today, it is widely agreed that economic growth, job creation, and innovation are largely driven by the private sector. This is equally true in rich and poor countries — however, the latter often suffer from institutional problems that prevent businesses and entrepreneurs from fully contributing to development. Yet development partnerships with the private sector rarely focus on institutions, and instead aim to support investment and technology transfers by large foreign firms, include private companies in the financing and operation of infrastructure projects, or provide skills training to individual entrepreneurs.

CIPE’s unique approach is to support business communities in developing countries in identifying institutional barriers, proposing their own policy responses, and working within the democratic political system to build support for those policy ideas.  Good institutions, ones that are responsive and work for all citizens, can only come from a strong democracy, and a strong democracy, in turn, requires informed and open policy debate.

This month’s Economic Reform Feature Service article, adapted from CIPE Executive Director John D. Sullivan’s testimony before the Canadian parliament, looks in depth at what development organizations can do to support local business communities in developing countries to build the kinds of institutions necessary for both broad-based economic growth and governance that delivers for citizens. As the article concludes, “top-down reforms, built around experts, governments, and ministries, must give way to bottom-up efforts that solve the key problem of the poor — ‘voicelessness and powerlessness.’”

Article at a glance:

  • The involvement of the private sector is crucial for economic development and poverty reduction.
  • Development partnerships need to involve local business communities in emerging markets and developing countries, not just large multinational companies and individual entrepreneurs.
  • Institutional reform is the key to unlocking the private sector’s growth potential. Helping the business community articulate its policy concerns is one of the most effective ways to achieve such reform.

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