Private Sector Development Strategy

1 Private Sector Development StrategyProsperity for all: making markets workPhotograPher akash, PaNosPrivate Sector Development StrategyMinisterial ForwardCreating the right conditions for businesses to expand and grow is essential if we are serious about achieving the MDgs. If we want people in developing countries to have the chance to get a job and earn a decent living, if we want parents to be able to provide for their children, if we want families to have access to affordable goods and services, and if we want to make poverty history for millions of people around the world we need to put the Private Sector at the heart of the way we work. this Strategy sets out how we will do Millennium Development goals (MDgs) are about helping people to realise those simple ambitions.

2 And the Uk is committed to providing the support they need to do don t have all the answers. the World Bank estimates that 80% of poverty reduction is due to economic growth. It is the Private Sector that drives the economic growth developing countries need. It is companies that offer people the chance to get a job and earn a living. It is the Private Sector that creates wealth and helps individuals and nations lift themselves out of Private Sector does not just mean multinational companies. small firms and enterprising individuals matter just as we want to achieve the MDgs and make a difference to the lives of the poorest we need to work with businesses small and large to create jobs, drive growth, and raise the incomes of the Strategy will prioritise three things: firstly, it will help businesses from multinational companies to individual entrepreneurs to provide jobs and deliver goods and services.

3 Secondly, it will improve market access by rewarding investment and Private enterprise and giving poor people the opportunity to make better use of local and international markets. and thirdly, it will enhance competition by helping governments to tackle constraints such as corruption, excessive regulation and weak transport Foster MPParliamentary Under-secretary of state for International DevelopmentCoVer: PhotograPher Mark heNley, PaNostaBle of CoNteNts 3 Table of contents Executive Summary 4 List of Figures 7 List of Tables 7 Text Boxes 7 List of Acronyms 81 Putting wealth creation at the heart of Development 9 A Private companies the route to prosperity for all 10 A Where s the evidence?

4 122 The case for intervention 15 A overcoming market failures and inefficiencies 15 A avoiding state failure 17 A the political economy of PsD 17 A global trends and local influences 19 A the donor response 20 A an agenda for PsD donors 213 DFID s Private Sector Development Strategy 22 A DfID s core PsD competencies 23 A access, Competition & engagement (aCe) 244 Working with business for sustainable Development 26 A New approaches to business: pushing the boundaries 27 A growth and the investment climate 32 A successful and responsible: managing social and environmental risk 335 Making markets work in partner countries 34 A Making markets work better for the poor 35 A supporting inclusive market Development 38 A Improving the performance of international agencies 40 Multilateralism with edge 40 Development finance institutions 41 Infrastructure Development facilities 426 Research, innovation and knowledge management 43 7 Priorities and risks 46 A sharpening the focus 46 A key risks and mitigation 474 DfID Private Sector Development strategyExecutive SummaryAbout billion people live on less than $2 a day.

5 Everyday, roughly half of the world s population struggle to earn enough income through employment and selling products from their farm and households. Poor men and women participate in markets to meet their needs for food, housing and services such as transportation. But these markets are often difficult or costly to access for poor people. They may be informal, uncompetitive and may not meet the needs of the poor effectively. The world s poor are not well integrated into the global economy and do not get access to its benefits. Amartya Sen has described participation in economic interchange as a basic part of social living and argues that economic freedoms are closely tied to political and social sUMMary 5the core of the DfID Private Sector Development (PsD) Strategy is to make markets function better and with greater fairness.

6 More accessible and competitive markets enable poor people to find their own way out of poverty by providing more real choices and opportunities. Markets that function well have wider economic benefits too. they encourage firms to innovate, reduce costs and provide better quality jobs, goods and services to more people. Wealth creation is at the heart of Development . the evidence is clear increasing incomes amongst the poor leads to better educated and healthier poor people. the involvement of poor people in economic growth is the best way to get people out of poverty and represents the exit Strategy for aid. sustained economic growth in developing counties is essential if we are to reach the Millennium Development goals (MDgs).

7 Growth lies behind about 80% of the poverty reduction that has been achieved so far and is needed to finance the achievement of the other MDgs as well. Growth: a step change in DFID engagement sets out our vision for sustainable Development . DfID s PsD Strategy describes how that vision can be Private Sector is the engine of innovation, investment and growth. Vibrant, competitive markets populated by dynamic Private companies offer the most effective way to create wealth, jobs and prosperity for all on a sustained basis. Nine out of ten jobs in the developing world are in the Private will help maximise the Private Sector impact on the MDgs in three ways:1.

8 Working with international and domestic Private companies to boost the positive impact of their core Working with developing country governments and international agencies to create an environment that supports the growth of business. specifically, this means reforms that allow markets to work with greater efficiency and Investing in research and knowledge management that supports Private Sector 1. Working with business to support sustainable s objective is to leverage the maximum impact from the Private Sector on the MDgs. this means responsible businesses operating in a healthy investment climate, producing not only growth and jobs, but also innovative solutions to Development expects companies to be responsible for the social, environmental and economic risks in their areas of operation, and will work with them to achieve this.

9 This is particularly true in sectors such as mining and construction where companies have a large social and environmental footprint . DfID will work to ensure that business concerns on the investment climate are reflected in the national plans of developing countries. We will encourage companies that are developing new approaches and extending core business , to engage the poor and have transformative impacts. this includes assisting business to invest in new supply chains that make their goods and services accessible, available and affordable to poor people. a good example is the health Product Development Partnerships to accelerate the Development and use of new drugs and vaccines for significant but neglected diseases in developing countries.

10 DfID will look to new partnerships under initiatives such as the environmental transformation fund to harness the resources of Private companies to meet the challenges of climate DfID Private Sector Development strategyA 2. Working with governments and international agencies to promote inclusive market Development . DfID will use its decentralised in-country presence, technical expertise and untied flexible aid in a limited number of low-income countries. the core of the Strategy is to make markets accessible, competitive and work in a way that involves and benefits the poor. this type of inclusive market Development will encourage Private companies to invest more, create more jobs, and widen the access of poor people to markets, goods and will use its shareholding and co-financier roles to improve the Private Sector Development performance of international Development agencies.