Private Sector Development
Definition: Private Sector Development is the range of strategies aiming to establish markets that function vibrantly and fairly, providing economic opportunities of quality to poor people at scale.
Knowledge about these strategies can be accessed via the links below.
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.
Private sector engagement
Many development agencies are now directly engaging the international private sector in development. This knowledge page maps out different trends and engagement practices; offers information and lessons learnt on four different formats of engagement, including new and traditional approaches; and lists ‘how-to’ guidance and tools for practitioners.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
Increasing opportunities for refugees
25 million people are currently asylum-seekers or refugees. In the last decade, fostering self-reliance has come to be seen as a more sustainable and desirable solution to displacement than humanitarian assistance. There is a growing recognition that refugees have an important role to play in the economy. Donors are increasingly trying to facilitate this role. The DCED’s webpage below summarises current practice and understanding about how to help such people become more self-reliant, through increased economic opportunity or employment.