Private sector development

Private sector development

Private sector development

ABOUT THIS SECTOR

The economic and social impact of private sector development can be substantial. As a driver of inclusive growth and job creation, responsible for 84% of GDP and 90% of jobs in developing countries, the private sector is ideally placed to improve the lives of the poor and deliver on the promise of sustainable and socially inclusive economic development.

Over the last decade, European Commission support for private sector development has averaged EUR 350 million per year and the current Multiannual Financial Framework for 2014-2020 contains approximately EUR 2 billion for private sector development. This, combined with development assistance from Member States, makes the EU a key player in supporting local private sector development in partner countries.

Private sector development plays a key role in creating economic growth, employment and improved living conditions. It:

  • incentivises people to invest in education and skills acquisition;
  • improves people’s lives through increased access to goods and services, including basic ones such as clean water, sanitation and energy;
  • enables governments in developing countries to generate increased tax revenues, thereby contributing to the funding of wider development strategies;
  • encourages entrepreneurship and diversification of the economy.

In recognition of this, the European Commission supports governments’ efforts aimed at developing the private sector, with a particular focus on assistance to micro, small and medium-sized enterprises (MSMEs). This forms part of a new global approach, a new paradigm for sustainable development, in which the private sector plays a critical role.

The potential of the private sector to create enabling conditions for inclusive and sustainable economic growth has been noted, specifically:

  • in the EU’s Agenda for Change in 2011;
  • in the 2014 the Communication on "A Stronger Role of the Private Sector in Achieving Inclusive and Sustainable Growth in Developing Countries", which places the private sector at the forefront of international development and identifies it as a key partner in achieving the Post-2015 Sustainable Development Goals, set out in the 2030 Agenda for Sustainable Development;
  • in the 2015 Addis Ababa Action Agenda;
  • at the Conference on Climate Change in Paris, in December 2015.

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The overarching goal of the European Union’s efforts aimed at private sector development is to engage this sector in the fight against poverty, and to support the private sector in its role as a driver of job creation, a provider of goods and services and a generator of the public revenues needed to underpin economically, socially and environmentally sustainable development.

To achieve this, the EU has developed an approach to strengthening the role of the private sector in achieving inclusive and sustainable growth, as laid out in its 2014 Communication. As part of this approach, it aims to achieve a number of policy goals and objectives, including:

  • Finding new ways to harness the potential of the private sector as a financing partner, implementing agent, advisor or intermediary to achieve effective and efficient delivery of EU support.
  • Supporting Access to Finance and financial inclusion (microfinance) for enterprises, particularly for micro, small and medium enterprises (MSME).
  • Providing support to governments in designing institutional, organisational and regulatory frameworks that are conducive to private sector development and ensuring that the private sector has the human resources it needs, through support for improved workforce skills and vocational training.
  • Supporting the development of a dynamic business sector, as a basic pre-requisite for economic growth, poverty reduction, income generation and the creation of decent jobs for all, including women and young people.
  • Promoting Sustainable and Responsible Supply Chains, to ensure that workers’ interests are protected when engaging the private sector in development processes.
  • Helping to improve the business and investment climate, especially for MSMEs.
  • Promoting the private sector as a key driver in priority areas that have a strong multiplier impact on development, such as agriculture and energy.

The EU provides substantial support through national, regional and thematic programmes under the European Development Fund (EDF) and the Development Cooperation Instrument (DCI).

At national level, for the period 2014-2020, support is provided in 21 countries across a wide range of activities related to private sector development, including regulatory reforms, capacity-building, Business Development Services, increased Access to Finance and support for improved Competitiveness, with a particular focus on strengthening local MSMEs. Many other developing countries receive PSD support through programmes and projects in sustainable agriculture, agribusiness, energy, infrastructure and the green sector.

The EU supports PSD in many regions, for example, through the integration of the local value chains into regional and Global Value Chains, improving regional policies and regulatory frameworks, strengthening regional intermediary business organisations, developing capacity building of regional institutions responsible for standards and norms, and encouraging the growth and expansion of SMEs.

At the thematic level, significant support for private sector development was provided under the 10th EDF Intra-ACP strategy. This support continues under the 11th EDF Intra-ACP strategy for the period 2014-2020, with a number of private sector development programmes being funded. These include programmes aimed at:

  • supporting business-friendly national and regional policies;
  • increasing financial inclusion and access to finance (particularly for SMEs); and
  • promoting ACP-EU private sector development knowledge management.

An important element of the EU support is the Blending mechanism, whereby EU development assistance is used to leverage private investment to finance major development projects with the potential to create jobs.

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