Private Sector Engagement (PSE) refers to the interest of donors and others to work more strategically and systematically with business. The OECD has proposed a very broad definition of PSE as ‘an activity that aims to engage the private sector for development results, and involves the active participation of the private sector’ (OECD, 2016). In practice, however, and as the DCED’s Working Group notes, ‘developing an operational framework … necessarily implies a need to narrow down the most relevant PSE categories … and to draw pragmatic boundaries’ (DCED PSE WG, 2017).
For example, PSE strategies tend to focus in practice on working with international business (ECDPM, 2012) whereas other approaches may focus more on local business (e.g. MSD) or on government agencies (e.g. BER). PSE strategies are a means to reach many development goals, the private sector being an equal partner with finance, ideas and capacity. Private Sector Development focuses on stimulating the private sector to generate more economic opportunities for the poor.
In order to engage the private sector more effectively, many donor agencies are now exploring ways to build staff skills in PSE. To assist in this effort, the DCED has compiled a list of training offers on private sector engagement and partnerships on this dedicated webpage.
At a glance: Short reads on private sector engagement
- Two-page summary: Donor Engagement in Innovative Finance: Opportunities and Obstacles, DCED, 2019: Summarises four key issues that donors need to address as a basis for effective engagement in innovative finance, including definitions and discourse; evidence on results; ‘best fit’ roles for donors; and capacity for performing new roles. Includes a summary graphic of different innovative finance concepts and how they relate to each other.
- Two-page summary: Towards strategic private sector engagement: Programming innovations and institutional change in donor agencies, DCED, 2018: Summarises pioneering changes in policies and procedures, staff roles and team structures, as well as skill-sets and incentives that donor agencies are implementing to enable strategic private sector engagement. For a checklist to review organisational readiness for private sector engagement, click here.
- One-page summary: Demonstrating Additionality, DCED, 2017: Summarises the DCED guidelines on demonstrating additionality in one page plus graphics. It targets donor programmes providing grants and/ or technical assistance to business.
- Synthesis Note: Donor funds and facilities for partnering with business, DCED, 2017: Gives an overview of design options, current trends and lessons learnt for challenge funds and similar facilities for partnering with business.
- Two-page summary: Results Measurement in Impact Investing: A Preliminary Review, DCED, 2016: Reviews the ‘state of the art’ in measuring social and environmental impact generated through impact investment.
- Synthesis Note: Comparison of matching grant schemes and systemic approaches, DCED, 2015: Covers both the differences and potential complementarities between matching grant facilities such as challenge funds and systemic approaches to PSD.
DCED guidance and knowledge products on private sector engagement
The DCED is a key forum and knowledge hub providing practical support to donors that wish to strategically engage businesses in delivering economic development outcomes that benefit the poor. This section provides access to the DCED’s key documents on private sector engagement, based on the experiences of DCED member agencies and other organisations. Click here to learn more about the DCED’s Private Sector Engagement Working Group.
DCED ‘how to’ guidance and resources
- Minimising the risk of negative market distortions in PSE. A practical framework, DCED, 2018. Reviews how PSE interventions may give rise to three types of negative market distortion, and explores four practical solutions: Designing against and measuring distortions; crowding in other commercial players; involving competition agencies and experts; and publishing information.
- How donors can make the transition to strategic private sector engagement: Programming innovations and organisational change, DCED, 2017. Documents big changes in policies and procedures, staff roles and well skill-sets in donor agencies to enable strategic PSE.
- Does business structure influence social impact? Insights and practical implications for donors, Oxfam/DCED, 2016. Explores why business form, governance and ownership may influence outcomes for the poor and reviews relevant evidence.
- Measuring Results in Challenge Funds: Practical Guidelines for using the DCED Standard, DCED, 2013. Provides advice on how to measure results in challenge funds, based on the DCED Standard. Includes advice on how to share responsibilities between the business and the fund manager.
- Demonstrating Additionality in Private Sector Development Initiatives: A practical exploration of good practice, DCED, 2014. Proposes eight criteria and principles to help agencies develop a credible narrative on additionality. Focuses on grants and TA. Click here for a one-page summary.
DCED research on different formats of engagement
- Donor Engagement in Innovative Finance: Opportunities and Obstacles, DCED, 2019. Explains different innovative finance concepts and approaches, and identifies four key issues that donors need to address as a basis for effective engagement in innovative finance: definitions and discourse; evidence on results; ‘best fit’ roles for donors; and capacity for performing new roles.
- Working document: Operational framework and categorisation of PSE strategies for the DCED Private Sector Engagement Working Group, DCED, 2018.. Categorises different PSE strategies and modalities and distinguishes between PSE and approaches covered by other DCED working groups.
- Impact investing: Measurement valued by investee businesses, DCED, 2017. Examines the data being generated by impact investee organisations and how they are using it.
- Attribution in Results Measurement: Rationale and Hurdles for Impact Investors, DCED, 2017. Explores current practices of impact investors around the concept of attribution in results measurement.
- Engaging the private sector through multi-stakeholder platforms, DCED, 2017. Reviews the objectives, achievements and lessons of multi-stakeholder platforms. To what extent do they provide a useful strategy for engaging business for development?
- Results Measurement in Impact Investing: A Preliminary Review, DCED, 2016. Examines current practices in measuring social and environmental impact generated through impact investments.
- Donor partnerships with business for private sector development: What can we learn from experience? DCED, 2013. Categorises different partnership models and highlights key issues in the areas of assessing additionality, measuring results and ways to enhance partnership effectiveness.
‘All new [aid] investments will explore innovative ways to engage the private sector ‘…’Central to this new way of working is ‘the concept of shared value…: that business can deliver sustainable social impact … while achieving commercial returns.’ Australia DFAT
Overview documents: engaging the private sector for development
The SDGs confirm that “private business activities, investment and innovation are major drivers of productivity, inclusive economic growth and job creation.” This section links to selected overview documents on how donors and other organisations engage with business to leverage their capacity and resources for poverty reduction.
Global reviews and typologies
- Private Sector Engagement for Sustainable Development. Lessons from the DAC, OECD, 2016. Takes stock of current practices, instruments and lessons learnt in private sector engagement.
- From looking good to doing good. Mapping CSO-Business Partnerships, ECDPM, 2015. Maps different types of partnerships between civil society organisations and businesses as well as possible roles for donors.
- Financial Instruments for Private Sector Development. EPS PEAKS, 2014: Gives an overview of definitions of different financial instruments and appropriate uses.
- How donors engage with business, ODI, 2013. Provides a typology of ten different engagement modalities.
- USAID (2018): Private Sector Engagement Policy
- OECD DAC Peer learning country reports (2016): Germany; Netherlands; Sweden; United States
- Desk Study of Sida’s Experiences from Private Sector Collaboration, Sida, 2016.
- DFID Business in Development, UK Independent Commission for Aid Impact, 2015.
Different formats of engagement (1): Innovative Finance
Innovative Finance may refer to strategies for mobilising additional private finance and/or for making more effective use of existing funds for development by engaging with private investors, funds or financial institutions. Three specific concepts that feature frequently in discussions on innovative finance include
- Blended Finance, i.e. catalytic approaches used by development actors to raising or mobilise additional private finance for development purposes (including from commercial or impact investors), using a wide range of financial instruments
- Impact Investment, i.e. the practice of private investors of deploying private capital towards development outcomes, while (according to several definitions) generating a financial return
- Results-Based Finance, which may refer to a specific set of instruments used by development actors to encourage impact investments or the use of private implementation capacity towards development outcomes, by promising to repay investments in full upon achievement of agreed results.
- Donor Engagement in Innovative Finance: Opportunities and Obstacles, DCED, 2019.
- Private Capital for Sustainable Development. Concepts, Issues and Options for Engagement in Impact Investing and Innovative Finance. DANIDA, 2016.
- Innovative Financing for Development: Scalable Business models that produce economic, Social, and environmental outcomes, Citi Foundation et al., 2014.
Mobilising additional private finance for development: Blended Finance
- Inspiring Investment Partnerships to Achieve Global Goals: Attracting the Necessary Capital. A summary of key lessons, Swiss Sustainable Finance, 2019.
- The State of Blended Finance 2018, Convergence, 2018.
- Making Blended Finance Work for the Sustainable Development Goals, OECD, 2018.
- A resource for structuring blended finance vehicles, GIIN, 2018.
- Blended finance: What it is, how it works and how it is used, Oxfam, 2017.
- Blended Finance Vol. 1: A Primer for Development Finance and Philanthropic Funders, OECD, 2015. This overview document is complemented by a practical guide (2015).
Deploying private capital towards development outcomes: Impact Investing
- Case studies: Stimulating the Potato Value Chain in Zambia and Investments in macadamia nut farming in Malawi, AgDevCo, 2019.
- Social Impact Investment 2019. The Impact Imperative for Sustainable Development, OECD, 2019.
- The Global Landscape of Gender Lens Investing, Intellecap, 2019.
- Annual Impact Investor Survey 2018, GIIN, 2018.
- Impact Investing: who are we serving? A case of mismatch between supply and demand. Oxfam, April 2017.
- Social impact investment – building the evidence base, OECD, 2015.
Encouraging the use of private finance for development outcomes: Development Impact Bonds and other Payment for Results initiatives
- Paying for Poverty Alleviation: A Case Study, Richard Sedlmayr, 2018.
- Pay for results in development. A primer for practitioners, USAID/Palladium, 2017.
- A practitioner’s guide to results-based financing. Getting to impact, Instiglio, 2017.
- Social Impact Bonds. State of play and lessons learnt, OECD, 2016.
- Evaluating Development Impact Bonds, DFID, 2015.
A second set PSE strategies focuses on engaging with (mainly international) companies – either directly or via an NGO – to support or influence core business investments and practices or related activities (e.g. investments that may become core business in the future). This can be done through a variety of instruments, such as grants, loans, policy dialogue or technical assistance to the partner business. Resources on some of the key strategies used by donors can be found below.
Sectoral partnerships are typically multi-stakeholder in nature; they feature combined donor and private funding and an agreement of all funding and implementing partners on the sharing of tasks and responsibilities towards a common goal – such as jointly boosting the competitiveness of a particular commodity in a country or regions, or enhancing sustainable production methods.
- Study on the responsible management of global value chains in the garment sector, EC, 2016.
- Public-private partnerships for agribusiness development: A review of international experiences. FAO, 2016.
- Review of the Sustainable Trade Initiative IDH 2008-2013, Netherlands Ministry of Foreign Affairs, 2014.
- Key conditions for successful value chain partnerships: A multiple case study in Ethiopia, The Partnerships Resource Centre, 2012.
Multi-stakeholder platforms and processes
Multi-stakeholder platforms are a specific sub-form of partnerships that typically have a knowledge sharing or standard-setting purpose; involve a large number of organisations; and include multi-stakeholder members, supporters and funders. The direct beneficiaries of platforms are their members. Note that the terms ‘platforms’ and ‘partnerships’ are often used interchangeably in the literature (including some of the publications below). Most of the publications below offer insights into the design and governance multi-stakeholder processes more generally, including platforms.
- Incentivising and regulating multi-actor partnerships and PSE in development cooperation, DIE 2018.
- Engaging the private sector through multi-stakeholder platforms, DCED, 2017.
- In-country multi-stakeholder platforms to catalyse collaboration and partnerships for Agenda 2030, The Partnering Initiative, 2016.
- More than the sum of its parts: Making multi-stakeholder initiatives work, Global Development Incubator, 2015.
- Multi-stakeholder processes: Knowledge portal of Wageningen University
- List of multi-stakeholder platforms/ roundtables in the area of sustainable sourcing, SAI
A sub-set private sector engagement work is implemented through competitive funds and facilities that invite applications from businesses, such as challenge funds. These central or regional-level mechanisms are primarily geared at businesses from donor countries, and offer cost-sharing and/or technical assistance to facilitate investments in developing countries.
Research on current practice and lessons learnt in challenge funds
- Donor partnership funds and facilities for partnering with business, Synthesis Note, DCED, 2017.
- USAID’s Public-Private Partnerships. A data picture and review of business engagement, Brookings, 2016.
- Enterprise challenge funds for development: rationales, objectives, approaches, ANU, 2014.
- Centrally managed donor funds and facilities to promote business engagement, ODI, 2014.
- Meeting the challenge: How can enterprise challenge funds be made to work better, EPS PEAKS, 2014.
- Challenge Funds in International Development. Research Paper, TripleLine Consulting et al., 2013.
- Models for Trade-Related Private Sector Partnerships for Development, North-South Institute, 2013.
- Evaluation of Sida’s Global Challenge Funds, IPE Triple Line, 2018; the evaluation findings were also shared in two DCED webinars on When to use challenge funds, and How to manage them effectively.
- Evaluation of the DeveloPPP Programme, DEval, 2017.
- Evaluation of the Responsible and Accountable Garment Sector (RAGS) Challenge Fund, Oxford Policy Management, 2014. The Fund’s own final report can be accessed here.
- AusAID Enterprise Challenge Fund for the Pacific and South-East Asia. A report on the outcomes of the ECF Portfolio Investment, Coffey International, 2012.
- Evaluation of PSOM/PSI 1999-2009 and the MMF, for the Netherlands Ministry of Foreign Affairs, Triodos Facet, 2010.
Practical tools and ‘how to’ resources for engaging business
This section includes documents which provide practical guidance or pointers for how development practitioners can choose partners, design and manage partnerships and collaborations with business, and assess their results.
In 2017, the Practitioner Hub published a series of blog posts on demystifying the donor-business space, including on how to bridge the cultural gap between business and development organisations, approaches to business collaboration beyond traditional frameworks, and lessons on screening partners from field programmes.
To view a list on training courses on PSE, click here.
Generic handbooks, overviews and guides
- Global Food Security Strategy. Technical Guidance for Private Sector Engagement, USAID Feed the Future programme, 2017.
- How donors can make the transition to strategic private sector engagement: Programming innovations and organisational change, DCED, 2017.
- The MSP Guide: How to Design and Facilitate Multi-Stakeholder Partnerships, Wageningen University, 2016.
- Private Sector Engagement Toolkit, Mercy Corps, 2012.
- Challenge Fund Guidelines, Sida, 2013.
- LINK methodology: A participatory guide to business models that link smallholders to markets, CIAT, 2012.
- Development aid and subsidies: A science and an art, SDC, 2007. (practical lessons from page 8)
Mitigating negative market distortions and assessing additionality
- Minimising the risk of negative market disortions in PSE. A practical framework, DCED, 2018.
- The Elusive Quest for Additionality, Carter et al for CGD, 2018 Argues that DFIs are unable to show additionality because of their ‘demand-led’ approach.
- Demonstrating Additionality in Private Sector Development Initiatives – A practical exploration of good practice for challenge funds and other cost-sharing mechanisms, DCED 2014. Proposes specific measures that agencies can take to better demonstrate additionality of technical assistance and grants. Click here for a one-page summary of the report.
- A framework for efficient government investment, IMF, 2013.
- Additionality. A Primer, IFC, 2013.
- ‘Leveraging’ private sector finance: How does it work and what are the risks?, The Bretton Woods Project, 2012.
Criteria and processes for choosing partners
- Does business structure influence social impact? Early insights and practical implications, DCED and Oxfam, 2016.
- Multinational enterprises and economic development in host countries, United Nations University, 2016.
- Promoting ethics when partnering with the private sector for development, NSI, 2014.
- Guidelines for risk management (2013), Danida
- Due Diligence Guide (2014), DFID.
- What practical approaches/frameworks are there for effectively delivering subsidy to private sector entities for development purposes?, EPS PEAKS Helpdesk Request, 2013
Gender and Women’s Economic Empowerment Mainstreaming
- Gender Equality Mainstreaming for Business Growth and Impact: A Step-by-Step Manual for Investors and Capacity Builders, MEDA/USAID, 2018.
- Measuring the results of private sector engagement through development co-operation Discussion paper for the OECD/DAC Results Community Workshop, OECD, 2018
- Impact investing: Measurement valued by investee businesses, DCED, 2017.
- Attribution in Results Measurement: Rationale and Hurdles for Impact Investors, DCED, 2017.
- DCED (2016): Results Measurement in Impact Investing. A preliminary review, DCED, 2016.
- Measuring Results in Challenge Funds. Practical Guidelines for Implementing the DCED Standard. DCED, 2013.
- The business value of impact measurement, GIIN, 2016.
- 12 Good Practices for Results Measurement, Endeva, 2014.
- Measuring Socio-Economic Impact A Guide for Business, WBCSD, 2013.