Donors apply various approaches to develop the private sector. Often,
these are classified into three types of interventions: business
environment reform, market development approaches, and public-private
partnerships (PPPs). What the approaches tend to have in common is the
expectation that the incomes of the poor will be improved, by
- increasing the turnover/ profit of poor entrepreneurs,
- creating employment,
- and stimulating economic growth.
The sequence of events through which public-private partnerships
are typically expected to achieve these outcomes is illustrated below.
a) General rationale
Business leaders are increasingly interested in social and developmental issues. They may be interested to invest their own resources in initiatives that would have developmental outcomes – but the risks involved in ‘going it alone’ may be simply too high.
For donors, partnering with individual businesses can offer a cost-effective way to achieve development goals. For example, development agencies sometimes lack capable implementing partners, while the private sector already has great capacity and outreach – and may be able to co-finance shared initiatives.
In this context, public-private partnerships (PPPs) can bring about win-win solutions whereby both commercial and developmental goals are achieved. In addition to job creation and raised incomes, these can also include a greater availability and choice of improved goods and services at lower prices, also for the poor.
Sequence of expected results
In a typical PPP, a donor agency encourages a firm, mainly through financial support, to take risks which it would otherwise not take, such as the adoption of innovative technologies and approaches, or investment in new markets.
As a result, firms are expected to expand their turnover/ profit, either directly through reaching new markets or indirectly through increasing productivity, via the adoption of better technologies or approaches. It is also generally hoped that other businesses will in time emulate the pioneer, if the partnership achieves good results.
When firms increase their productivity and turnover or profit, it is reasonable to expect that they tend to employ more people, as well as contributing to aggregate economic growth. A PPP may also directly promote the creation of new enterprises.
c) More information: Success stories and research on evidence