Private sector development strategy

Private sector development strategy

Published Jan 2004

Author

A. Vives

Publisher

Focus themes

Focus regions

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Promoting the private sector as a catalyst for sustainable growth and better living conditions

There is a wide consensus on the role that private enterprise can play in driving economic growth, reducing poverty and generating income by creating new jobs. In recent years, the context for private sector development in Latin America and the Caribbean has changed dramatically, becoming more dynamic and challenging. However, the private sector in the region still suffers from the poor business climate. The cost of doing business remains persistently high and the public institutions needed to support a dynamic private sector continue to be inadequate. This paper describes the characteristics of the private sector in the region as well as the nature of existing constraints. It also presents some strategies to promote private sector development.

The paper starts by defining what the private sector is. It argues that promoting private sector development requires finding a good balance between the complementary functions of the state and the private sector. Given the disappointing economic growth record and the persistence of poverty in Latin America and the Caribbean, the paper attempts to analyse the causal relationship between economic growth and poverty reduction.

The next part of the paper focuses on the role of private sector in achieving development goals, a role which can be improved by attracting private participation in the delivery of goods in order to enhance operational efficiency and coverage; using the private sector to produce services on behalf of the public sector; and using the private sector as a partner in socially and environmentally responsible development.

The paper then focuses on issues that are facing private sector development. The main issues discussed in the paper are:

  • market and government failures
  • scale of firms, informality and poverty
  • capital constraints on private sector growth.

To achieve the private sector development objectives, the report proposes four inter-related strategic directions:

  • developing the business environment in coordination with public sector and other multilateral institutions
  • providing financial support for specific private sector projects by improving the legal and regulatory framework and enhancing the institutions needed to deepen the financial and capital markets
  • leveraging developmental impact in underserved markets by addressing the special needs of small, low-income countries
  • engaging the private sector in dialogue and action by encouraging socially and environmentally responsible behaviour in the private sector.

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