DCED 2024 Annual Meeting: Key Take-Aways from the Thematic Day on The Future of PSD at the Nexus of Green and Digital Transformations

The future of Private Sector Development (PSD) will be significantly shaped by climate change and the digitalisation of the global economy – involving both new challenges and opportunities. Below are our Top 8 take-aways for donor agencies from the recent DCED Annual Meeting on how to navigate the green and digital transitions.

For more information on specific sessions and speakers, please go to our main Annual Meeting page.

On the green transition

  1. Developed countries need to de-carbonise their growth, developing countries need to set themselves up on a low-emission growth trajectory – focusing on the main emitting sectors of power generation and industry, agriculture and land use. This will require big financial commitments (of about 10% of developing country GDP). Donor agencies have a role to play in helping to mobilise private capital and in supporting countries in managing difficult tensions and trade-offs, such as in balancing financing needs for mitigation with those for adaptation and other development goals.
  2. There is a particularly strong case for supporting governments in using innovation, industrial and competition policy to accelerate the green transition – stimulating green innovation and practices in a context of serious market failures, technological uncertainty and high time pressure, while maintaining open, competitive markets. Industrial Policy does, however, require careful monitoring to avoid the risks of mismanagement. Many countries have also worked to align competition law with environmental sustainability goals – an area which could also be explored more in development cooperation.
  3. International and regional trade and investment agreements also play a key role in enhancing the business environment for green and competitive growth, including the WTO’s Investment Facilitation for Development Agreement (IFDA) and the African Continental Free Trade Area Agreement (AfCFTA).
  4. A more circular economy in particular holds much potential for mitigation and more environmentally-friendly growth, but circularity is low and on the decline globally. Promising areas of donor support include public procurement to stimulate market demand, enhancing the regulatory environment for circular business models,enhancing access to finance for circular businesses, including for those that are technologically innovative.
  5. At a practical level, donor-funded PSD programmes share similar operational lessons – for example the need for flexible funding and ‘green’ expertise to explore relevant market opportunities, the importance of generating stakeholder buy-in for the switch to greener practices, the need to consider mitigation of possible negative economic impacts, including where trade-offs exist between employment and environmental outcomes, and the need for more knowledge and resources on how to measure climate and environmental impacts. 

On the digital transition

  1. AI is often seen as a risk to high-skilled knowledge workers globally, but we also need to consider impacts on developing country labour markets: AI can help improve job quality, replace dangerous work and improve the performance of lower-skilled workers. It can, however, also foster income and gender inequality, and increase risks of workplace surveillance. There is also a real risk of the creation of low-end service economies and job displacement, with lower paid workers being 14x more likely to have to change jobs. Re-skilling is therefore a priority, alongside rights and safeguards for low-income workers.
  2. The basics for enabling developing economies to benefit from digitalisation are still not in place. We need investments in digital infrastructure, more systematic support for Africa’s tech start-up sector and finance for firms’ adoption of digital technologies.
  3. Particular (market) opportunities – as well as regulatory and financial needs – exist in harnessing digital technologies specifically for the green transition. For example, we’ve heard how Open Cosmos is using satellite and AI-powered data to support governments in efforts to address climate challenges and enable a green transition. We’ve also learned about how IDB Lab works to finance and nurture ecosystems for innovative climate tech entrepreneurs. On the flipside, the energy- and carbon intensity AI and other digital technologies needs to be acknowledged and mitigated (e.g., through renewable energy sources) in order to ensure ensure the sustainability and effectiveness of digital and AI-driven climate solutions.

Overall, there was strong agreement that greater collaboration amongst agencies, including through the DCED, will be paramount to tackle the complex challenges and opportunities ahead.

Picture credits: Sakorn Sukkasemsakorn; sasint/pixabay; Gerd Altmann/pixabay