The power of the private sector

15 April 2013
ITC News
The European Commission seeks to harness the potential of the private sector to help businesses flourish, encourage sustainable growth and create jobs.

With a vibrant private sector playing a central role in creating growth, jobs and wealth, I believe development stakeholders can end extreme poverty within a generation. More broadly, as an active partner in development, the private sector can help overcome the main challenges in eradicating poverty once and for all. Agenda for Change, the European Commission’s blueprint for a higher impact European Union (EU) development policy that delivers more and better results, recognizes this and advocates greater engagement with the private sector to boost inclusive and sustainable growth in human development.

The challenges are tough. Take job creation, for instance. This remains a huge challenge in all countries, but is particularly challenging for those in the developing world. Young people and women are finding it difficult to find jobs, and much of the work that is available is in low-quality, low-productivity jobs in the informal economy. This does not offer the best route out of poverty.

In response, the European Commission must take action on two fronts: supporting the growth of an innovative and dynamic private sector, and tackling the obstacles to job creation and income generation faced by people who depend on the informal economy for their livelihoods. To this end, the Commission must help partner countries adapt regulations to take account of informal businesses and workers, reinforce those regulations and give more people access to skills development and social protection. 

A lack of sustainable energy supplies and food security is holding back growth and development in partner countries, yet both the energy and agriculture sectors can do much to bring inclusive and sustainable growth to developing country economies. To fight poverty, the European Commission would like to see more public-private cooperation and a larger role for the private sector in energy and agriculture. This would include greater efforts to deliver green growth and help meet the ambitious targets of the United Nations (UN) Sustainable Energy for All initiative. The EU is contributing to the UN initiative through its Energising Development programme, which will provide an additional 500 million people in developing countries with access to sustainable energy by 2030.

A recent EU project in Rwanda’s coffee sector, Support to the Agricultural Sector in Rwanda 2003-2010, shows what a huge difference the private sector can make to people's lives. The project, which included building drainage canals, carrying out road works and providing training, helped to create jobs and improve the livelihoods of some 60,000 farmers in the country. The final evaluation report showed that women made up 40% of the beneficiaries, and that the project has done much to improve coffee production and exports in Rwanda. The Commission is looking at other initiatives to emulate this kind of success and build further on the support it has provided for local private sector development over the years. 

In an economic climate characterized by scarce resources for external assistance and escalating global needs for finance, it is clear that development assistance alone cannot address all development challenges. More innovative financing approaches are needed to mobilize extra investments. Here again, the private sector has a key role to play. For example, by blending grants with resources such as loans and equity, the Commission can leverage additional funding from the private sector to create jobs and income opportunities for the poor.

The private sector can bring sizeable economic benefits to development, but it would be a mistake to think the benefits it delivers are only economic. Provided certain preconditions are in place, such as rule of law, good governance and respect for human rights, the private sector can play a less obvious but vital role in strengthening democracy and supporting social justice. For example, the Commission provides political and financial support to the Extractive Industries Transparency Initiative and works with the private sector to enable citizens and parliaments to access information on corporate income taxes, royalties and other fees paid by private companies to the developing countries in which they operate. By taking part in the initiative, the private sector is playing its part in supporting good governance, transparency and accountability.

The private sector's potential to implement viable development solutions is enormous, which is why the European Commission will continue to champion engagements with the sector that help businesses grow, ignite and sustain growth, and create jobs, all with the ultimate goal of lifting people out of poverty. Public-private partnerships will also help development stakeholders build a more comprehensive and inclusive post-2015 global development framework to rid the world of poverty and inequality and secure its sustainable development.