Implementing PSD

This is the portal to the DCED’s knowledge pages on different Private Sector Development approaches. Information on the most common approaches and the associated knowledge pages can be accessed below. Some of the approaches to implementing PSD named below may be overlapping in practice, but are typically referred to under different terminologies.They include:

Market systems and the poor

This approach aims for large-scale, sustainable impact by understanding how poor people interact with market systems, and how these systems can be changed to improve their lives. Seen by many as an overarching way of thinking about PSD, it may use various ‘tools’, e.g. value chain development, BDS and/ or regulatory reform – based on an analysis of market failures and weaknesses.

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Private sector partnerships and engagement

Many development agencies are now directly engaging the international private sector in development by sharing costs and risks of their investments in developing countries. One common approach are matching grant facilities and other funds which award support on a competitive basis. There is also an increasing interest in the use of other forms of finance, such as loans, guarantees and equity.

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Industrial Policy

Industrial policy is broadly defined as government intervention to promote productivity-based growth through support to  high-potential economic sectors. It may target manufacturing, agricultural or services sectors. If and how donors should promote industrial policy is much debated in development circles.

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Value Chain Development

A value chain is a series of activities that enterprises undertake when they produce a good or service, adding value to the inputs at each stage. Value Chain Development thus seeks to maximise the value of any given type of product, whilst incurring the least possible cost to the producers, in the places along the production chain that give the most benefit to poor people.

Click here for the DCED Value Chains and BDS database

Business Development Services

This approach seeks to build markets in services that improve the performance of individual enterprises. Some of the most important BDS markets are in training, consultancy, marketing, market information, information technology and technology transfer. According to many practitioners, programmes should not undertake BDS directly; instead they should facilitate commercial BDS providers to become self-sustaining.

Click here for the DCED Value Chains and BDS database

Inclusive Business

Inclusive Business models are generally defined as models that integrate the poor, either as consumers or on the supply side as distributors, suppliers or employees. Various PSD approaches can be used to promote Inclusive Business models, e.g. creating an enabling environment, value chain development, or using partnerships to share the costs of risky investments at the Bottom of the Pyramid. Some argue for the need to adapt these approaches in favour of inclusive businesses in particular.

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Business Environment Reform

Where entrepreneurship and markets are stifled by  inappropriate regulation, excessive taxation, lack of fair competition, and a lack of voice or an unstable policy environment, growth and poverty reduction are likely to suffer. Typically, donors first fund business environment analyses, identifying the major constraints in the business enabling environment. They then work with government to implement reforms, or support the private sector in advocacy through Public-Private Dialogue.

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Women's Economic Empowerment

Women’s Economic Empowerment (WEE) is seen as a key driving force behind reducing poverty and aiding economic growth. Across the world, women are paid less for their work and see fewer benefits of their labour. Discrimination and extra household responsibilities often reduce their access to decent work and productive inputs, relative to men. A key objective of donors is therefore to help both women and men contribute to, and benefit from growth, through gender sensitive interventions and WEE programming.

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PSD in fragile and conflict-affected environments

Conflict presents unique challenges and unique opportunities for PSD One the one hand, conflict disrupts the regular functioning of markets and in their place creates a war economy. PSD practitioners must be sensitive to the impact of their activities on the conflict situation, e.g. PSD’s effects on the distribution of resources. On the other hand, by delivering job creation and trade, PSD can play a vital role in building peace.

 

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Local Economic Development(LED) and Clusters

LED typically starts by analysing the economy of a particular region or municipality, identifying opportunities to enhance its prospects. LED strategies may combine business environment reform, value chain development, infrastructure development, innovation and technology policy, planning and/ or skills development. Cluster development is a specific type of LED  which focus on supporting sectoral (and geographic) agglomerations of inter-connected companies, services and institutions.

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Green Growth

We need the active participation of the private sector if we are to tackle perhaps the greatest challenge of our time: mitigating and adapting to climate change on the one hand, whilst reducing poverty on the other. Greater environmental sustainability requires new products, new markets and new production methods. Meeting these demands will be a challenge, but for many enterprises in the developing world, it also presents an opportunity. In fact investment in greening our economies is already a source of growth for many.

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Small Enterprise Development

Many agencies use their PSD programmes that support Small Enterprises in particular. Small Enterprises are not coherently defined across agencies and countries but their support is generally justified by the important employment share that they have in most economies. Opponents of small enterprise support argue for the need to develop the economy as a whole, or to favour larger enterprises. The DCED Knowledge Page on the theme explores these and other debates and provides access to a range of publication and resources.

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Employment Creation

While employment creation in developing countries is high on the agenda of most donor agencies, there are different views on how to best to achieve it – ranging from strategies to support small, large business, or  high-growth enterprises; stimulating economic sectors that with great employment potential for the poor (e.g. agriculture, light manufacturing) or creating  an enabling business environment.

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Innovation Policy

Innovation is considered as a commercially successful introduction or implementation of a new or improved product or process. It is often regarded as a key factor in raising the productivity and competitiveness of enterprises. Innovation policy generally focuses on strengthening innovation systems, i.e. the interaction between companies, research organisations and the state in generating innovation. This is done by increasing the capacities of individual actors in generating, applying and implementing knowledge, as well as their capacities for interaction.

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Youth Employment

Young people globally are almost three times more likely to be unemployed than adults. They are also particularly vulnerable to insecure and poorly paid jobs. Donors are therefore increasingly interested in interventions which aim to help them access both more and better jobs. Interventions to address these concerns predominantly take the form of either job skills training, which aims to help young people compete better in the labour market, or entrepreneurship support, which aims to help young people create and grow their own businesses.

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Promoting Access to Finance

Access to finance is vitally important to private enterprises in the developing world. While some development agencies therefore see it as part of Private Sector Development, the DCED among others treats it as a separate field in its own right. The Consultative Group to Assist the Poor (CGAP), which was originally part of the Donor Committee, is a leading source of information in the microfinance field.

CGAP website (external link)
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