Aid effectiveness
Aid, Paris and the private sector: how to square the circle
Is aid support for the private sector damaging development?
Authors:
J. Estrup
Publisher:
Danish Institute for International Studies , 2009
Support for private-sector development has been a key priority for donors for a number of decades. This has been predicated on the belief that the market will stimulate wealth creation; sustain and create livelihoods and in turn empower respective communities. Indeed there has recently been an upsurge in the emphasis placed on private-sector led growth – see the reports of the Commission on Growth and Development in 2008 and the Danish Africa Commission in 2009. However is supporting inherent commercial activities the appropriate channel to alleviate poverty reduction? And with ever-increasing importance placed on meeting the Paris Declaration (PD) commitments does such a policy meet the best principles of aid effectiveness?
This paper explores the issue of private sector development (PSD) within overseas development assistance, and focuses on three key areas:
- the rationale behind donor predilection for PSD
- the practical process i.e. which objectives are pursued in programmes and how they match with residing development paradigms
- ODA policy coherence i.e. what level of coherence is achieved in the policy of the development community when aiming both at private sector development and aid effectiveness.
The author offers a number of findings/conclusions regarding such rationale, practice and policy coherence. These include:
- donors agree on the need for a rationale, however ideological differences are making their policies diverge
- even with the recognition of the need for such a legitimating rationale, donors do support individual enterprises directly, without concern for problems of market distortion and for clear evidence of sustainable development
- increasingly there is an understanding in parts of the donor community of the possibilities of achieving pro-poor growth through PSD by interventions that make markets work for the poor i.e. including them through market access and empowering assets
- donors have shown little interest in harmonising their approaches in supporting PSD. Indeed the development community in its drive for aid effectiveness has neglected the problems of coordination between PD principles and approaches to PSD
- to achieve the objectives of PSD a hybrid approach which respects both private and public implementation modalities is required. However such a policy does not comply with the PD principles of using country systems and avoiding parallel implementation structures.
