Private sector development
Private Sector Development (PSD) is a strategy for promoting economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...

 and reducing poverty in developing countries by building private enterprises, membership organizations representing them, and competitive markets that are stronger and more inclusive.


Supporters argue that PSD is an important part of poverty reduction
Poverty reduction
Poverty is the state of human beings who are poor. That is, they have little or no material means of surviving—little or no food, shelter, clothes, healthcare, education, and other physical means of living and improving one's life....

. Whether as workers, subsistence farmers or entrepreneurs, most poor people already participate in markets. Strengthening these markets in ways that secure higher incomes for the poor is therefore seen by PSD advocates as a fair and efficient way to fight poverty. Earning a decent income in the private sector
Private sector
In economics, the private sector is that part of the economy, sometimes referred to as the citizen sector, which is run by private individuals or groups, usually as a means of enterprise for profit, and is not controlled by the state...

, it is argued, is also more dignifying than relying on hand-outs.

As with all development interventions, PSD programmes are under pressure to measure and report their achievements, monitoring and evaluating their work in ways that are both credible and cost-effective. One source of further information about methodologies for measuring the results of PSD, including the approaches currently used by different donors, is the Donor Committee for Enterprise Development..

Business environment reform

Where entrepreneurship and markets are stifled by inappropriate regulation, excessive taxation, lack of fair competition, lack of voice or an unstable policy environment, growth and poverty reduction are likely to suffer. Typically, donors first fund business environment analyses, such as the World Bank's Doing Business Reports
Doing Business Report
The Doing Business Report is a study elaborated by the World Bank Group since 2004 every year that is aimed to measure the costs to firms of business regulations in 183 countries in 2010...

, identifying the major constraints to business growth. They then work with government and other stakeholders to implement reforms.

The private sector itself can play an important role in advocating for a better business environment. Many development agencies thus work to strengthen the capacity of businesses and business associations to engage in public-private dialogue with governments.

Business linkages and 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. One way is to improve production processes. Another way is to increase the commercial linkages between the businesses that poor people own or work for, and businesses that can offer them new and more profitable opportunities as customers or suppliers.

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. For many within the development community, donors should ideally not undertake BDS directly; instead they should facilitate commercial BDS providers to be self-sustaining, through the improvement of their techniques and the sourcing of new clients,. BDS markets can be sustainable where providers recover their costs via the fees they charge for services.
However, business development services are also found in developed countries where the argument advanced is that the market for business development fails and therefore the government should enable this market Developed countries experience suggests that fees for publicly supported advice was a policy that did not work. . In fact, the evidence suggests that subsidised intensive work with relatively few business clients works well , which suggests the requirement for DBS to be self-financing is too onerous.

Making markets work for the poor

The Making markets work for the poor/M4P
The term M4P refers to an approach in aid and development known as 'making markets work for the poor'. The approach utilises systems analysis as a means of diagnosing and addressing the constraints that face poor and disadvantages households and communities in accessing goods and services...

 approach aims to understand how poor people interact with market systems, and how these systems can be changed to improve their lives. It aims for large-scale, sustainable impact by focusing on overall markets, rather than targeting individual actors within that market. In this sense, an M4P programme may incorporate various elements of value chain development, BDS and/ or business environment reform. Donors that have pioneered the M4P approach include the UK's Department for International Development (DFID), the Swedish International Development and Cooperation Agency (Sida) and the Swiss Agency for Development and Cooperation (SDC).

Green growth

A number of development agencies are engaged in developing markets to channel finance
Carbon finance
Carbon finance is a new branch of Environmental finance. Carbon finance explores the financial implications of living in a carbon-constrained world, a world in which emissions of carbon dioxide and other greenhouse gases carry a price....

 raised for climate change mitigation and adaptation in industrialised countries towards initiatives that reduce carbon emissions in the developing world. If managed appropriately, they argue, the challenge of responding to climate change
Climate change
Climate change is a significant and lasting change in the statistical distribution of weather patterns over periods ranging from decades to millions of years. It may be a change in average weather conditions or the distribution of events around that average...

 could generate decent jobs and incomes for many millions of poor people.

Women's entrepreneurship development

In many parts of the developing world, women are systematically excluded from business opportunities. Discrimination can disadvantage women in their access to the knowledge and skills needed to be successful in business. At the same time, laws that disadvantage women in gaining access to property can make it hard for women to raise the necessary capital. Many donors actively support programmes that help women to overcome these and other barriers.

Local economic development

LED typically starts by analysing the economy of a particular region or municipality, identifying opportunities to enhance its prospects. LED strategies may combine any of the following: business environment reform, value chain development, infrastructure development, innovation and technology policy, planning and/ or skills development. LED programmes often involve local and regional governments, the private sector and civil society in programme design and implementation. is an open access database of publications on Local Economic Development. In addition, the Donor Committee for Enterprise Development has a knowledge page on Local Economic Development and Clusters.

Public-private partnerships

Many development agencies are now working directly with businesses to deliver development impacts. Such public-private partnerships or public-private development partnerships cover a wide range of activities. A common characteristic of most PPPs is the aim to leverage the development impact of companies’ core business activities. One increasingly common approach is to create a Challenge Fund, whereby companies bid for donor funding, competing to maximise the development impact of the grant money made available. Other PPP programmes assist companies in finding business partners in developing countries, or offer technical support and expertise. Through some PPP programmes, companies can directly contribute to donor and development agencies' development projects.

Access to finance

Affordably access to finance
Access to finance
Access to finance refers to the possibility that individuals or enterprises can access financial services, including credit, deposit, payment, insurance, and other risk management services...

 is seen by most experts as vital to private enterprises in the developing world. While some development agencies therefore see it as part of Private Sector Development, many treat it as a separate field in its own right.

Private sector development in conflict-affected environments

Conflict presents unique challenges and unique opportunities for Private Sector Development. 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. effects on the distribution of resources, as well as the impacts that conflict will have on their activities. On the other hand, where it generates job creation and trade, Private Sector Development can play a vital role in peacebuilding.

Industrial Policy

Industrial policy
Industrial policy
The Industrial Policy plan of a nation, sometimes shortened IP, "denotes a nation's declared, official, total strategic effort to influence sectoral development and, thus, national industry portfolio." These interventionist measures comprise "policies that stimulate specific activities and promote...

 is broadly defined as selective government intervention to promote a specific economic sector and promote structural change . It may target manufacturing, agricultural or services sectors. If and how donors should promote industrial policy is much debated in development circles.

Innovation Policy

New or improved products and processes are are important drivers of competitiveness, growth and employment generation. In the context of private sector development, “innovation is understood as the commercially successful introduction or implementation of a technical or organisational innovation.” Donor agency support to innovation covers a broad range of activities, including the creation of appropriate framework conditions for innovation, and the development of innovative capacities of companies. This may include business advisory and support services, finance and skills development; business incubators and technology extension services, as well as value chain and cluster approaches .

Private sector development following the financial crisis

For many people, the Global Financial Crisis has raised questions about the ways in which markets should be regulated in order to ensure long-term, sustainable development. At the same time, with many countries now faced with slower growth and higher unemployment, reviving economies by kick-starting the private sector is seen by many as at the heart of a global response.

See also

  • Aid
    In international relations, aid is a voluntary transfer of resources from one country to another, given at least partly with the objective of benefiting the recipient country....

  • AusAID
  • Canadian International Development Agency
    Canadian International Development Agency
    The Canadian International Development Agency was formed in 1968 by the Canadian government. CIDA administers foreign aid programs in developing countries, and operates in partnership with other Canadian organizations in the public and private sectors as well as other international organizations...

  • Corporate governance
    Corporate governance
    Corporate governance is a number of processes, customs, policies, laws, and institutions which have impact on the way a company is controlled...

  • Corporate social responsibility
    Corporate social responsibility
    Corporate social responsibility is a form of corporate self-regulation integrated into a business model...

  • Danish International Development Agency
  • DFID
    Department for International Development
    The Department For International Development is a United Kingdom government department with a Cabinet Minister in charge. It was separated from the Foreign and Commonwealth Office in 1997. The goal of the department is "to promote sustainable development and eliminate world poverty". The current...

  • Deutsche Gesellschaft für Technische Zusammenarbeit
    Deutsche Gesellschaft für Technische Zusammenarbeit
    The Deutsche Gesellschaft für Internationale Zusammenarbeit or GIZ is an international enterprise founded in 1975 by Erhard Eppler and owned by the German Federal Government, operating in many fields across more than 130 countries. It primarily works for public-sector organizations and is...

  • Dutch Ministry of Foreign Affairs
  • Economic Development
    Economic development
    Economic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area...

  • Entrepreneurial ecosystem
    Entrepreneurial ecosystem
    An entrepreneurial ecosystem, in a broader sense refers to the environment affecting the local/regional entrepreneurship.But it can also be a group of companies, including start-ups, and one or more coordination entities, which share similar goals and decide to form a network or organization in...

  • Federal Ministry of Economic Cooperation and Development
  • French Development Agency
    French Development Agency
    French Development Agency is the French international development agency.The Agence Française de Développement is a public institution providing development financing...

  • Food and Agriculture Organization
    Food and Agriculture Organization
    The Food and Agriculture Organization of the United Nations is a specialised agency of the United Nations that leads international efforts to defeat hunger. Serving both developed and developing countries, FAO acts as a neutral forum where all nations meet as equals to negotiate agreements and...

  • Foreign direct investment
    Foreign direct investment
    Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...

  • International Development Research Centre
    International Development Research Centre
    The International Development Research Centre is a Canadian Crown Corporation created by the Parliament of Canada that supports research in developing countries to promote growth and development...

  • International Finance Corporation
    International Finance Corporation
    The International Finance Corporation promotes sustainable private sector investment in developing countries.IFC is a member of the World Bank Group and is headquartered in Washington, D.C., United States....

  • International Fund for Agricultural Development
    International Fund for Agricultural Development
    The International Fund for Agricultural Development , a specialized agency of the United Nations, was established as an international financial institution in 1977 as one of the major outcomes of the 1974 World Food Conference. IFAD is dedicated to eradicating rural poverty in developing countries...

  • International Labour Office
  • Ministère des affaires étrangères
  • Norwegian Agency for Development Cooperation
    Norwegian Agency for Development Cooperation
    The Norwegian Agency for Development Cooperation is a directorate under the Norwegian Ministry of Foreign Affairs. Its task is to ensure effective foreign aid, with quality assurance and evaluation. NORAD both finances NGOs, and does its own research and projects. The current director general is...

  • Organisation for Economic Co-operation and Development
    Organisation for Economic Co-operation and Development
    The Organisation for Economic Co-operation and Development is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade...

  • Poverty reduction
    Poverty reduction
    Poverty is the state of human beings who are poor. That is, they have little or no material means of surviving—little or no food, shelter, clothes, healthcare, education, and other physical means of living and improving one's life....

  • Swedish International Development Cooperation Agency
    Swedish International Development Cooperation Agency
    The Swedish International Development Cooperation Agency is a government agency of the Swedish Ministry for Foreign Affairs. Sida is responsible for organization of the bulk of Sweden's official development assistance to developing countries....

  • United Nations Development Programme
    United Nations Development Programme
    The United Nations Development Programme is the United Nations' global development network. It advocates for change and connects countries to knowledge, experience and resources to help people build a better life. UNDP operates in 177 countries, working with nations on their own solutions to...

  • United Nations Industrial Development Organization
    United Nations Industrial Development Organization
    The United Nations Industrial Development Organization , French/Spanish acronym ONUDI, is a specialized agency in the United Nations system, headquartered in Vienna, Austria...

  • World Bank
    World Bank
    The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...

External links

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