Mapping Private Sector Engagements in Development Cooperation
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by José Di Bella, Alicia Grant, Shannon Kindornay, and Stephanie Tissot Mapping Private Sector Engagements in Development Cooperation September 2013
Transcript of Mapping Private Sector Engagements in Development Cooperation
by
José Di Bella, Alicia Grant,
Shannon Kindornay, and Stephanie Tissot
Mapping Private Sector Engagements in Development Cooperation
September 2013
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Contents
Acknowledgements ......................................................................................................... iii
About The North-South Institute ...................................................................................... iii
About the Authors ........................................................................................................... iii
Acronyms and Abbreviations ........................................................................................... v
Executive Summary ........................................................................................................vi
Policy recommendations and future research ..............................................................xi
Introduction ..................................................................................................................... 1
Background: The Private Sector and Development Cooperation .................................... 2
Research Questions ........................................................................................................ 5
Methodology .................................................................................................................... 5
Sample: Identification of development cooperation actors ........................................... 6
Sources of data............................................................................................................ 7
Framework analysis ..................................................................................................... 7
Research limitations .................................................................................................... 8
Conceptualizing the Private Sector and Development .................................................... 8
Private sector ............................................................................................................... 9
Private sector development ....................................................................................... 10
Private sector in development ................................................................................... 11
Private sector engagements for development ........................................................... 12
Motivations for Engagement .......................................................................................... 13
Development cooperation actor motivations .............................................................. 13
Engagement considerations ...................................................................................... 15
Modalities ...................................................................................................................... 16
Policy dialogue .......................................................................................................... 17
Knowledge sharing .................................................................................................... 18
Technical cooperation ................................................................................................ 18
Capacity development ............................................................................................... 19
Grants and donations ................................................................................................ 20
Finance ...................................................................................................................... 20
Illustrating development cooperation actors’ engagement with the private sector ..... 21
Directionality .................................................................................................................. 25
Eligibility and Additionality ............................................................................................. 29
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Eligibility requirements ............................................................................................... 29
Additionality ............................................................................................................... 31
Which Private Sector? ................................................................................................... 32
Monitoring and Evaluation ............................................................................................. 36
Conclusion .................................................................................................................... 38
Key findings ............................................................................................................... 38
Policy recommendations and future research ............................................................ 41
References .................................................................................................................... 44
Annex 1: Empirical Cycle in Pre-structured Qualitative Surveys ................................... 48
Annex 2: Development Cooperation Actors Examined .............................................. 49
Annex 3: Framework Analysis Data Collection and Definitions ..................................... 56
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Acknowledgements
The authors would like to thank Lisa Burley, Kate Higgins, Teralynn Ludwick, Fraser
Reilly-King, and Rodney Schmidt for their comments. They also thank Michael Olender
for copy-editing the final draft.
The North-South Institute (NSI) thanks Foreign Affairs, Trade and Development Canada
(DFATD) for its support and the International Development Research Centre (IDRC) for
its program and institutional support grant. This research report does not necessarily
reflect the views or opinions of NSI, its Board of Directors, DFATD, IDRC, or anyone
consulted in its preparation.
José Di Bella and Stephani Tissot also want to give special thanks to the IDRC for its
funding provided through the Research Awards program under the Corporate Strategy
and Evaluation Division and the Donor Partnerships Program.
The authors accept responsibility for any misinterpretations of data or factual errors in
this research report.
About The North-South Institute
Founded in 1976, NSI is Canada’s leading independent policy research institution
specializing in effective international development. Ranked in 2012 as the world’s top
small think tank by the Global Go To Think Tank Index, NSI’s mission is to conduct
high-quality, policy-relevant research and stimulate constructive dialogue and debate
that contribute to a safe and prosperous world free of poverty and extreme inequality.
About the Authors
José Di Bella is a research award recipient at the International Development Research
Centre. He is currently working in the Corporate Strategy and Evaluation Division and
his research is focused on private sector policies and strategies of emerging bilateral
development agencies in Latin America. In the past, he has conducted research on
small and medium-sized enterprises in relief and reconstruction contexts. He has
worked for the private sector in Mexico and multilateral development organizations in
the Central America and the Middle East. He holds a MRes in international development
from the University of Bath in the United Kingdom, a MSc in international cooperation
for development from the Institute of Advanced Study of Pavia in Italy, and a BA in law
from Universidad Iberoamericana in Mexico.
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Alicia Grant is pursuing her MA in globalization and international development at the
University of Ottawa and is a research assistant at The North-South Institute. Her
current research focuses on policy coherence for development and Canada’s whole-of-
government approach in Latin America. She has also studied the governance of
transnational corporate activity and the relationship between human rights, transnational
corporations, and the regulation of international trade and investment. She holds a BA
in political science from the University of Guelph.
Shannon Kindornay leads The North-South Institute’s work on development
cooperation for its Governance for Equitable Growth program. Her research focuses on
development cooperation, governance of the international aid architecture, aid
effectiveness, and aid and the private sector. She is the co-editor of a recently released
edited volume, Multilateral Development Cooperation in a Changing Global Order
(Palgrave Macmillan, 2013). Prior to joining NSI, she worked on human rights,
governance, and trade and development. She holds a MA from Carleton University’s
Norman Paterson School of International Affairs and a BA in global studies and political
science from Wilfrid Laurier University.
Stephanie Tissot is a research award recipient at the International Development
Research Centre. She is currently working with the Donor Partnership Division and her
research is focused on the development outcomes of public-private partnerships and
the value of cross-sector engagement for organizations and beneficiaries. Previously,
she supported the consulting and knowledge functions of the Just Governance Group, a
Canadian firm offering multi-disciplinary services to advance initiatives on good
governance, human rights, justice, conflict and peace, and strategic development. She
holds a certificate in corporate social responsibility strategy and management from
McGill University, a MA from Carleton University’s Norman Paterson School of
International Affairs, and a BA in international relations from the University of British
Columbia.
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Acronyms and Abbreviations BMZ Federal Ministry for Economic Cooperation and
Development (Germany)
BRIC Brazil, Russia, India, and China
DAC Development Assitance Committee (OECD)
DFI development finance institution
IFI international financial institution
INGO international non-governmental organization
MDG Millennium Development Goal
NGO non-governmental organization
OECD Organisation for Economic Co-operation and Development
PPP public-private partnership
SMEs small and medium-sized enterprises
SSDC South-South development cooperation
UN United Nations
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Executive Summary
Development cooperation actors are looking to the private sector as a key partner for
achieving sustainable development results, recognizing private firms as sources of
innovation, expertise, and finance to be harnessed in addressing development
challenges (HLF4 2011). Increasingly, many private sector actors are going beyond
their regular business operations and actively pursuing innovative business strategies
and inclusive, sustainable business models aimed at maximizing profits while
contributing to development (WBCSD 2010; Lucci 2012).
The literature on the private sector’s involvement in development points to the
increasing linkages between development cooperation actors and the private sector.
However, no study has systematically examined how the roles of the private sector
differ across development cooperation actors. As such, our picture of private sector
involvement in development is incomplete.
This research report makes a unique contribution to the literature by mapping how
development cooperation actors across the international aid architecture seek to
engage the private sector for development. It builds on the existing literature with new
empirical research based on a detailed, systematic examination of more than 100
development cooperation actors’ policies for engaging the private sector. The research,
conducted between February and April 2013, moves beyond case studies and success
stories on private sector engagements for development. It presents aggregated findings
and draws important policy implications and recommendations from them. This report
serves as a useful source of information for policy-makers concerned with gaining a
better understanding of how development cooperation actors seek to engage the private
sector, on what terms, and where policy gaps remain.
Key concepts
The report seeks to provide greater clarity on key concepts relating to the role of the
private sector in development. Different actors, including the private sector, donors, and
civil society, have varied understandings of private sector engagements in development.
The report disinguishes between private sector development, private sector in
development, and private sector engagements for development.
Private sector development refers to activities carried out by governments, financial
institutions, and development organizations geared toward creating an enabling
environment for business to flourish, including channelling resources to small and
medium-sized enterprises (SMEs). It includes activities of development cooperation
actors aimed at increasing private sector investment in developing countries.
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The private sector in development refers to the roles of and activities carried out by
the private sector as part of its regular core business operations that affect development
outcomes and economic growth. This can result in positive impacts such as job
creation, provision of goods and services, and taxation, and negative impacts such as
environmental degredation and poor labour practices.
Private sector engagements for development refer to instances when engagement
with the private sector goes beyond the traditional impacts of the private sector in
development, such as economic growth, job creation, and provision of good and
services. Private sector engagements for development include private actors’ active
pursuit of positive development outcomes. This occurs through, for example, funding
and/or carrying out development projects, adopting and implementing inclusive
business models, aligning core activities to explicitly contribute to the achievement of
development outcomes, creating inclusive value chains, adopting and supporting the
widespread adoption of responsible business practices in areas such as environmental
sustainability and human rights, improving accountability and transparency in business
operations, and targeting the transfer of technologies to host communities.
Key findings
Modalities of private sector engagements
One of the main objectives of this research was to classify and unpack the various
forms of development cooperation actors’ engagement with the private sector.
Researchers identified six modalities of engagement: policy dialogue, knowledge
sharing, technical cooperation, capacity development, grants and donations, and
finance. The research shows that development cooperation actors are engaging with
the private sector for development in ways that do not necessarily fit within what might
conventionally be seen as partnership modalities (public-private partnerships, advanced
market commitments, challenge and innovation funds, co-financing, etc.).
The degree to which development cooperation actors engage in each of the
modalities varies, depending on their mandate and functions. For example,
international financial institutions (IFIs) and bilateral development finance institutions
(DFIs), not surprisingly, engage mostly in finance. The United Nations (UN) engages
predominantly with the private sector through policy dialogue and receiving donations.
Bilateral donor engagement focuses on the provision of grants and technical assistance
to the private sector. For international non-governmental organizations (INGOs),
donations from the private sector are the primary modality, followed by knowledge
sharing. For think tanks, knowledge sharing is the primary modality of engagement.
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Overall, the findings show that across development organizations, there are higher
numbers of engagements that involve transfers of financial resources. There are lower
numbers of engagements in knowledge sharing, capacity development, and technical
cooperation.
Directionality
Researchers also looked at the direction of resource transfers (both monetary and non-
monetary) between actors. This is important for understanding the nature of the
relationships between development cooperation actors and the private sector.
Researchers identified the following forms of resource flows:
from development cooperation actors to the private sector;
from the private sector to development cooperation actors;
bi-directional flows—exchanges between development cooperation actors and
the private sector; and
co-directional flows—instances where development cooperation actors and the
private sector jointly provide a resource to another party or for a specific initiative.
The findings on directionality confirmed what is already fairly well known about
some development cooperation actors’ engagements with the private sector. For
example, IFIs and DFIs provide grants and finance to the private sector. Bilateral donors
are co-funding activities with the private sector, making use of both grants and finance
in these efforts. The UN, INGOs, and think tanks largely receive donations from the
private sector, rather than provide grants to it.
In nearly all cases where policy dialogue and knowledge sharing are occurring, there
are exchanges between development cooperation and private sector actors, rather than
development cooperation actors seeking to influence private sector actors’ policies or
vice versa. Development cooperation and private sector actors are working together on
policy development. Where technical cooperation and capacity development are
occurring, they tend to flow from a development cooperation actor to the private sector.
Researchers found no cases in which the private sector was providing these services to
development cooperation actors.
Eligibility and additionality
Researchers looked at the eligibility requirements and additionality conditions for private
sector engagements. Eligibility requirements for engagement refer to development
cooperation actors’ criteria regarding the private sector actors’ characteristics, such as
their financial viability or corporate track records. Additionality refers to the expected
outcomes of a collaborative effort, such as contributions to the realization of human
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rights, increased investments in high-risk markets, or improved provision of social
services.
The data show that many development cooperation actors stipulate certain
criteria that private sector actors must meet in order to be eligible for partnership
or engagement. Some development cooperation actors require their private sector
partners to uphold certain social or environmental standards, while others focus on
technical requirements, such as years in operation, financial viability, managerial and
personnel capacity, and the provision of audited financial statements. Some UN
agencies, bilateral donors, and INGOs also provide a list of exclusion criteria for
potential partners. They indicate, for example, that they will not partner with firms that
are involved in the manufacturing of weapons, drugs, or pornography, or are in violation
of international human rights, humanitarian, environmental, transparency, or financial
standards.
In many cases, limited public information exists on the specific criteria used by
development cooperation actors to assess the additionality of engagements with
the private sector. With few exceptions, IFIs and DFIs cite broad development
outcomes, but most have no publicly available specific indicators. Bilateral donors also
tend to point to broad outcomes, though some (Finland, Denmark, and the Netherlands)
offer more specific outcome metrics that measure jobs created, gender equality
outcomes, and environmental sustainability, inter alia. Little information was available
on UN agencies, INGOs, and think tanks, though in some instances UN agencies
provide specific details regarding the conditions for partnership activities and outcomes
they expect to achieve (the International Labour Organization, Food and Agriculture
Organization, and International Fund for Agricultural Development, for example).
Overall, the research shows that where additionality conditions are stated,
development cooperation actors focus on development impacts in beneficiary
countries as their main concern. These are often broadly understood as referring to
contributions to economic growth and the improvement of living standards. Across
development cooperation actors, there is less focus on ensuring financial additionality—
or whether the private sector partner would have made an investment without
development cooperation actors’ support—in engagements with the private sector.
Which private sector?
The nationality and size of private sector actors has important implications for the
impacts that private sector engagements have on inclusive economic growth and
poverty reduction. Targeting national (donor country), foreign (multinational), or
domestic (recipient country) firms determines whether the benefits accrue primarily to
firms in developed or developing countries. For development cooperation actors, this
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represents a trade-off. For example, donors may want to work with bigger, more
experienced, and better-organized firms because they can deliver larger-scale
development results, set an example for other firms, and require less supervisory
support (Heinrich 2013, 13). These companies are less likely to need additional funds to
carry out development activities. Smaller companies, on the other hand, are often the
most credit constrained, and in need of funds (Kwakkenbos 2012). At the same time,
smaller companies may also require stronger involvement of development cooperation
actors’ project staff for technical advice and support to succeed (Heinrich 2013, 10).
The data show that, at the policy level, most opportunities for private sector
engagement appear to be open to any private sector actor— large or small—and
national, foreign, and domestic firms. However, these findings are somewhat
theoretical. They do not show which private sector actors are actually engaging with
development cooperation actors, since assessments of individual engagements were
not conducted. Rather, the findings represent development cooperation actors’ stated
eligibility requirements for private sector actors to engage, as well as cases where no
eligibility requirements were stated.
Based on this research, it is premature to assess which private sector actors are
benefiting from the increasing push for private sector engagement in
development. While a particular program may have no restriction on the type of private
sector actor (in terms of nationality or size) that can participate, a detailed review of
actual engagements and activities may show that only certain types of private sector
actors are participating.
Nevertheless, there do not appear to be strategies in place for targeting various types of
private sector actors or addressing different modalities across development cooperation
actors. Notably, few development cooperation actors are strategically targeting
their private sector engagements toward SMEs or larger firms in developing
countries. SMEs have the potential to have significant positive impacts on development
outcomes due to their economic importance in developing countries. Targeting these
firms is an important means of enhancing the development impacts of private sector
engagements. Specifically, directing more finance to these firms could increase the
development impacts of these partnerships by alleviating credit constraints that SMEs in
developing countries often face.
Monitoring and evaluation
The data from the research show that the availability of information on project
results and assessments of collaborative efforts is limited. Most actors provide
information on the number of engagements or the expected results of their initiatives,
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but it seems that relatively little has been done to monitor and evaluate collaborative
processes and outcomes.
Policy recommendations and future research
A number of recommendations for development cooperation actors arise from this
research.
1) Publicly articulate policy frameworks for engaging the private sector for
development. There is a need for development cooperation actors to better
articulate the policies that guide their engagements with the private sector. This
includes the goals, means, terms, and expected outcomes of private sector
engagements.
2) Clearly articulate and detail the specific goals of engagements with the
private sector for development. This is important for demonstrating
transparency on private sector engagements, as well as ensuring accountability
for development outcomes.
3) Include knowledge sharing, capacity development, and technical
cooperation as important modalities for engaging the private sector in
development. Strategic efforts to share knowledge and technical expertise might
present new opportunities for improved development outcomes.
4) Develop organization level strategies for engaging the private sector,
including provisions for different modalities. Development cooperation actors
should establish organization level strategies for private sector engagement
informed by their needs and activities, to better leverage private sector resources
and support.
5) Stipulate clear eligibility requirements for private sector partners.
Development cooperation actors typically require that potential partners meet
technical criteria and demonstrate commitment to development objectives. In the
case of the private sector, a number of reporting and standard-setting initiatives
exist, including the UN’s Global Compact and Guiding Principles on Business
and Human Rights. Commitment to and compliance with these initiatives may
serve as a useful minimum eligibility benchmark for potential private sector
partners.
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6) Be clear on which private sector actors are best placed to achieve
development efforts, particularly in terms of their nationality and size.
There are benefits to working with larger and smaller private sector actors, both
in developing and developed countries. Development cooperation actors should
be aware of the trade-offs relating to nationality and size of private sector actors
when considering collaborative efforts. These trade-offs should be informed by
the goals that development cooperation actors aim to achieve.
7) Establish clear guidelines and indicators for ensuring financial and
development additionality in collaborative efforts with the private sector.
More work needs to be done for development cooperation actors to demonstrate
that the activities they undertake with the private sector, particularly those that
involve transfers of public money, support outcomes that otherwise would not
have happened if either partner was working on its own. As development
cooperation actors move forward on engaging the private sector, the creation of
additionality guidelines and indicators will be important for justifying the provision
of public money to the private sector, which otherwise can be seen as a subsidy.
8) Improve the availability of monitoring and evaluation results on
engagements with the private sector through transparent reporting. The
disclosure of information would help improve the accuracy of information and
build confidence that these partnerships can support positive development
outcomes.
9) Report not only on information regarding the outcomes of collaborative
efforts but also the value of the partnership itself. Efforts are needed to
develop and implement more rigorous methodologies that systematically assess
the value of private sector engagements and can inform future collaborative
efforts.
A number of important areas for future research arise from this report.
1) There is a need for more research to assess which private sector actors are
benefiting from engagement with development cooperation actors. This would
require a detailed review of actual engagements and activities.
2) Further research could look at different types of collaborative efforts, including
their outcomes. This report has only looked at development cooperation actors’
engagements with the private sector for development. However, many
developing country governments are also working with the private sector through
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policy dialogue and in formal partnerships to deliver social goods, for example.
3) Further research on context-specific obstacles for and risks of private sector
engagements in development policies and programming is needed, including on
potential areas of converging interests in thematic and modality-specific
activities.
4) More research is needed on the impacts of private sector engagements for
development in practice, not only in terms of their impacts on the ground but also
the value that they create for participants, such as changes to organizational
behaviour and reputation. There is a need to generate a better understanding of
relationship dynamics between actors and what constitutes successful
engagements and partnerships.
5) Research on recent local innovations and practices in developing countries
should also inform private sector engagements going forward, including what role
the state and civil society play in these engagements.
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Introduction The international development community has become progressively more concerned
with the roles of the private sector in development. Development cooperation actors are
looking to the private sector as a key partner for achieving sustainable development
results, recognizing private sector actors as sources of innovation, expertise, and
finance to be harnessed in addressing development challenges (HLF4 2011). Through
their regular business operations, private sector actors can contribute to economic
growth, job creation, investment, technology transfers, and innovation, and deliver
goods and services. Increasingly, many private sector actors are going beyond their
regular business operations and actively pursuing innovative business strategies and
inclusive, sustainable business models aimed at maximizing profits while contributing to
development (WBCSD 2010; Lucci 2012).
The expanding role of the private sector has led to calls for greater private sector
involvement in international discussions on aid effectiveness and in the establishment of
the post-2015 development framework that will replace the Millennium Development
Goals (MDGs) (Lucci 2012; Watson 2012). These trends signal an important shift
whereby the private sector is not only being afforded greater space to contribute to
national and international policy discussions on development, but is also expected to
serve as a key development partner. While there is nothing new about the development
community promoting private sector development, the more recent focus on
partnerships between development cooperation actors and the private sector to deliver
development outcomes will have important implications for development policy and
practice. These partnerships deserve further research.
The literature on the private sector’s involvement in development points to the
increasing linkages between development cooperation actors and the private sector
(Nelson 2011; Byiers and Rosengren 2012; Kindornay and Reilly-King 2013). However,
much of it looks at the role of the private sector in relation to particular actors such as
bilateral development finance institutions (DFIs) and multilateral and bilateral donors,
leaving out other increasingly important actors. No study has systematically examined
how the roles of the private sector differ across development cooperation actors,
namely United Nations (UN) agencies, regional development banks, international
finance institutions (IFIs), South-South development cooperation (SSDC) providers,
non-governmental organizations (NGOs), development policy think tanks, and
foundations. As such, our picture of private sector involvement in development is
incomplete.
This research report seeks to unpack the roles of the private sector in development
cooperation through an examination and mapping of the ways in which development
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cooperation actors are engaging and collaborating with the private sector. It makes a
unique contribution to the literature by building on the existing literature with new
empirical research based on a detailed, systematic examination of over 100
development cooperation actors’ policies for engaging the private sector. The research,
conducted between February and April 2013, moves beyond case studies and success
stories on private sector engagements for development. It presents aggregated findings
and draws important policy implications and recommendations from them.
The report clarifies key concepts relating to the private sector and development
cooperation. It delineates the modalities of private sector engagements for
development, moving beyond the historic focus on contractual partnerships to include
monetary and non-monetary modalities, such as policy dialogue and knowledge
sharing, which come in the form of varying degrees of formalization and
institutionalization.
As development cooperation actors move toward establishing the post-2015
development framework, which looks set to prioritize the dual objectives of the
elimination of extreme poverty and sustainable development, the private sector will
continue to be sought by development cooperation actors as a collaborator and a
source of innovation. This report serves as a useful source of information for policy-
makers concerned with gaining a better understanding of how development cooperation
actors seek to engage the private sector, on what terms, and where policy gaps remain.
Background: The Private Sector and Development Cooperation
There is a growing body of literature on private sector development partnerships,
including assessments of their value and policy recommendations. To date, authors
have examined the relationship between the private sector and a group of specific
development cooperation actors, largely focusing on traditional providers of
development cooperation—bilateral and multilateral donors. A recent preliminary review
of the increasing links between different types of donors (multilateral, bilateral, DFIs)
and the private sector concluded that there is a need for more extensive mapping and
analysis of engagement between development cooperation actors and the private
sector (Nelson 2011).
A number of authors have critically assessed bilateral and multilateral donor
partnerships with the private sector and identified areas that require more attention,
such as ensuring that the outcomes of such partnerships are properly monitored and
evaluated (Kindornay and Reilly-King 2013; Kindornay, Higgins, and Olender 2013;
Heinrich 2013; see also BCLC 2009 and Conley and Dukkipati 2012). IFIs and DFIs
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have received considerable attention, with a number of authors calling into question the
development impacts of their support for the private sector (Kwakkenbos 2012; Spratt
and Ryan-Collins 2012; Bracking and Gahno 2011; te Velde 2011; Perry 2011; Ellmers,
Molina, and Tuominen 2010; ActionAid International et al. 2010).
There is also a growing body of literature on partnerships between NGOs and the
private sector, including assessments of organizational characteristics, motives, and
history of partner interaction, that suggests these engagements have the potential to
achieve social change (Gazley and Brudney 2007; Austin 2000; Austin and Seitanidi
2012a,b; Googins and Rochlin 2000; Thomson and Perry 2006; Seitanidi, Koufopoulos,
and Palmer 2010; Selsky and Parker 2010; Stadtler 2012; Kolk, van Dolen, and Vock
2010). A number of studies have highlighted the potential of business and NGO
engagement to co-create value for organizations and society. These studies note that,
while private sector actors and NGOs often enact contradictory value creation logics
(partly because they espouse divergent expectations and have distinct identities and
organizational and sectoral backgrounds), it is possible to overcome these
dissimilarities and create shared value (Mukherjee Reed and Reed 2009; Austin and
Seitanidi 2011; Stadtler 2012; Le Ber and Branzei 2010).
Much less is known about the roles of the private sector in SSDC and how development
policy think tanks and foundations engage the private sector. In particular, there is little
documentation from provider and recipient countries on SSDC initiatives that involve
private sector partnerships, particularly in the grant-based elements of SSDC
(Kindornay, Heidrich, and Blundell 2013). Think tanks play an important role in
development, identifying and offering solutions to development challenges (Kharas and
Blomfield 2013). They engage with the private sector as a potential donor and through
research, though it is unclear which policies guide this engagement and the extent to
which it occurs. Similarly, while much has been written about the inceasing role of
foundations in development, particularly their business model (see, for example, OECD
2003 and Marten and Witte 2008), less is known about how they engage with private
sector actors.
It is clear that most types of development cooperation actors are engaging with the
private sector. What is less clear is how approaches to private sector engagement differ
across development cooperation actors, including which forms such interactions take
and on what terms.
A number of authors have attempted to classify development cooperation actors’
engagements with the private sector. Bruce Byiers and Anna Rosengren, researchers at
the European Centre for Development Policy Management, (2012, 9–11) suggest that
partnerships with the private sector for development can be understood as falling within
two categories: activities aimed at increasing private sector investment in development
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and those aimed at harnessing private sector finance for development. In the former
case, donors create incentives for private sector investment by sharing risks and
making use of challenge and innovation funds, grants, and other forms of subsidies. In
the latter case, they leverage private sector finance through mechanisms such as
private-public partnerships (PPPs), private equity, and infrastructure funds.
The German Federal Ministry for Economic Cooperation and Development (BMZ)
recently published a characterization of forms of partnership with the private sector.
BMZ suggests that basic forms of cooperation with the private sector include a number
of elements: sponsoring and co-financing, multi-stakeholder dialogues and formal
networks, competitive grants, PPPs, public finance aimed at encouraging private (co)-
investment in developing countries, and financial and advisory services for private
investors (BMZ 2011, 6).
In their review of bilateral donor strategies on economic growth and the private sector,
Shannon Kindornay and Fraser Reilly-King (2013) provide a similar typography of donor
partnerships with the private sector. In particular, their review of donor statements
relating to partnering with the private sector suggests that broader ambitions exist
beyond leveraging private finance. Donors are including the private sector in dialogues
surrounding national development plans, advocating for global standards that affect the
private sector, and encouraging more sustainable and inclusive business practices.
These studies show that there are many ways of understanding “partnership” with the
private sector. It can include formal and informal collaborative efforts such as policy
dialogue, traditional support for private sector development, innovative partnerships
aimed at leveraging private sector investment in emerging markets, PPPs, and
innovative partnerships through, for example, advanced market commitments.1
Moreover, in a number of instances, development cooperation actors and the private
sector are working together, but without the label of “partners.” There is a wide range of
activities to engage the private sector. Drawing from and building on the typographies
discussed above, this research seeks to provide greater clarity to the meaning of private
sector engagements for development by aggregating and simplifying different types of
activities into six key modalities of engagement.
1 Advanced market commitments are stimulations of demand by donors for a specific product for which there is a need (for example, cheap vaccines) but where the private sector may not see a profitable market. Funding may be pledged, though is only committed if the product is created. The GAVI Alliance—a PPP that aims to increase access to immunization in poor countries—makes use of this model.
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Research Questions The existing literature has enhanced the development community’s knowledge about
how development cooperation actors are partnering with the private sector. However,
there is a need to look across different types of development cooperation actors to gain
a more comprehensive understanding of private sector engagements for development.
This research seeks to fill this gap by mapping how development cooperation actors
engage with the private sector for development and identifying the different types of
modalities through which these actors interact. The initial guiding research questions
were:
How are development cooperation actors engaging with the private sector to
support the achievement of development goals?
What are the main modalities of engagement between development cooperation
and private sector actors?
What are the terms and conditions (policy frameworks) under which
engagements are occurring between development cooperation and private sector
actors?
Which types of private sector actors are development cooperation actors
targeting for engagement?
Methodology The research was conducted through a collaborative approach involving four
researchers, two from the International Development Research Centre and two from
The North-South Institute. In order to ensure consistency across research contributions,
researchers followed a strict methodology and met regularly over the course of the
project to consult on data collection and analysis. This section provides a brief overview
of the research method.
Qualitative survey A qualitative survey and framework was used to map the roles of the private sector in
relation to the international aid architecture. Harrie Jansen (2010) provides a useful
overview of this method in social science. A qualitative survey is a systematic method
for determining diversity on some topic of interest within a given population. In the case
of this research, the overarching topic is the ways in which development cooperation
actors engage the private sector. Researchers employed a pre-structured approach to
establish their framework for analysis wherein some topics and dimensions were
defined beforehand.
6
In mapping how the roles of the private sector differ across development cooperation
actors, researchers did not look at the number of individual private sector partnerships,
but rather the type and number of modalities of engagement that development
cooperation actors engage in (policy dialogue, finance, etc.).This iterative process
allowed researchers to identify which types of modalities partners are engaging in and
on what terms. Annex 1 provides an overview of the empirical cycle in pre-structured
qualitative surveys, which was carried out for this research. It is an adaptation from the
overview by Jansen (2010).
Sample: Identification of development cooperation actors
The research sought to map the roles of the private sector in relation to the international
aid architecture, which is “the set of rules and institutions underpinning the framework
through which aid flows to developing countries” (Kharas and Blomfield 2013). The aid
architecture includes the organizations and government departments and agencies—
development cooperation actors—that operate at international, national, and local levels
and are linked by flows of aid, technical expertise, and knowledge. These include IFIs,
DFIs, UN agencies, the Organisation for Economic Co-operation and Development
(OECD), bilateral providers of official development assistance and the European
Commission, SSDC providers, foundations, and a range of civil society organizations,
including international NGOs (INGOs) and domestic NGOs, development policy think
tanks, universities, and emerging multi-stakeholder initiatives and coalitions engaged in
development.
The selection of development cooperation actors for the sample was guided by a set of
generic parameters, which included:
organizational type and size (budget);
scope of operations (global, regional, national);
availability of information; and
feasibility of timely examination of sample.
In total, 104 development cooperation actors were included in the sample (see Annex 2
for the detailed selection method and list of organizations). Table 1 lists the number of
organizations examined by type of development cooperation actor. In 2011, the
examined bilateral donors accounted for approximately 88 per cent of total official
development assistance, which was US$133.7 billion (calculated by authors, using
Bhushan 2013). The four SSDC providers examined—Brazil, Russia, India, and China,
collectively known as the BRIC grouping—account for a significant proportion of total
SSDC (Zimmermann and Smith 2011). Researchers examined 12 INGOs, the
combined annual budgets of which in 2012 accounted for more than US$7.6 billion.
7
Eleven development policy think tanks, which accounted for approximately US$160
million in 2012, were examined.
Table 1. Sample of development cooperation actors
Sources of data
The research was conducted between February and April 2013. Researchers looked at
development cooperation actors’ policies on, and engagements with, the private sector.
The review was confined to an examination of publicly available information, including
policy documents, strategy papers, websites, and media releases. While the research
would have benefited from a review of individual projects carried out by selected
development cooperation actors in conjunction with the private sector, the availability of
this information varied greatly across development cooperation actors. In order to
ensure consistency, researchers did not analyze individual projects.
Framework analysis
The data were collected and organized through a framework analysis approach.2
Framework analysis is often used in policy research when the sample is pre-designed
2 See Srivastava and Thomson (2009) for a full review of this research approach.
8
and/or issues have been identified a priori. Based on their familiarization with the key
issues related to private sector engagements in development, researchers identified a
thematic framework based on the dimensions of private sector engagements being
studied (see Annex 3). This information was then indexed and charted. Researchers
began with a larger list of dimensions. The framework was then tested against a small
subset of the sample and further refined.
Research limitations
There are a number of notable limitations to this research. The analysis is based on
publicly available policies, not actual practice. In some cases, development cooperation
actors may not have developed a policy for engaging the private sector, but
engagement may still be occurring. In order to ensure consistency in data collection,
researchers limited the scope of the research to information regarding engagement at
the policy level in policy documents and on websites. Information regarding policy
frameworks for engagements between the private sector and SSDC providers and
foundations in particular was largely unavailable. This means that SSDC providers and
foundations are generally excluded from the analysis that follows.
Researchers were aware that a wide range of partnerships and enagements between
development cooperation and private sector actors exists but much is not always
documented or publicly available. Nevertheless, the policies identified provide an
important indication of the types and terms of engagements that are occurring between
development cooperation actors and the private sector.
Finally, other development cooperation actors, such as development consulting firms,
universities, and social enterprises, play important roles in the achievement of
development goals. Due to time constraints, they were excluded from the sample.
Other actors, such as multi-stakeholder coalitions, were excluded because by their very
nature they are difficult to track—the participation of multiple actors and sectors can
make information gathering difficult. These coalitions deserve further scrutiny in their
own right, especially as they become increasingly established (see Kindornay, Higgins,
and Olender 2013 for a preliminary discussion).
Conceptualizing the Private Sector and Development Different actors, including the private sector, donors, and civil society, have varied
understandings of private sector engagements in development. They often lack a
shared language on, and understanding of, development (and therefore, the roles of the
private sector therein) and there are different views on what partnerships with the
9
private sector entail (CSRI, IBLF, and Edelman 2005; Davies 2011; Kindornay, Higgins,
and Olender 2013). It is therefore useful to define key concepts and terms (see Box 2).
The following concepts have been synthesized from the existing literature and empirial
evidence. These distinctions are meant to provide clarity on the different meanings of
terms when discussing the private sector and development.
Box 1. Key concepts: Private sector and development
Private sector
The private sector refers to organizations that have a core strategy and mission to
engage in profit-seeking activities, whether by production of goods, provision of
services, and/or commercialization. This includes financial institutions and
intermediaries, small and medium-sized enterprises (SMEs), individual entrepreneurs,
farmers, co-operatives, and large corporations operating in the formal and informal
sectors. This definition excludes independent foundations, NGOs, and civil society
organizations (including business associations).
10
While some reports on the roles of the private sector in development include
foundations and NGOs as part of the private sector (see, for example, Allison 2012 and
Davies 2011), this characterization obscures understandings of the roles of the private
sector in development by lumping together organizations whose mandates and
functions vary greatly. Indeed, independent foundations share more in common with
INGOs, such as Oxfam, than they do with private corporations (Felsen and Besada
2013).
In contrast, many major corporations have established foundations that function as
either branches of companies or have links in terms of their mandates and governing
structures to carry out corporate social responsibility activities on behalf of companies.
Given that clear linkages exist between these types of foundations and companies, their
activities can be seen as part of regular business operations embedded in companies’
core profit-seeking activities. They do not act as independent development cooperation
actors, although the activities that they carry out or support may be similar to those of
other independent foundations and NGOs. These types of foundations were thus
included in the definition of the private sector used in this research.
This distinction is important for this research because actors’ mandates, objectives, and
strategies have implications for the analysis that follows and for thinking through the
roles of the private sector in development. When development cooperation actors refer
to the private sector as a partner for achieving development goals, they are typically not
referring to independent foundations or NGOs, but rather the for-profit private sector.
Private sector development
Private sector development refers to the activities traditionally supported by
development cooperation actors, national and local governments, and investors and the
private sector themselves. The objective of private sector development is to promote an
environment conducive to the establishment and growth of the private sector in
developing countries.
Typically, activities related to private sector development have included interventions at
the macro, meso, and micro levels (Gibb, Foster, and Weston 2008; Kurokawa, Tembo,
and te Velde 2008; Kindornay and Reilly-King 2013). Macro-level interventions focus on
creating a business-enabling environment—building economic, legal, and regulatory
foundations (property rights, financial regulations, governance frameworks, and public
financial management policies) to ensure that the right conditions exist for the private
sector to thrive. Meso-level interventions are those that target market failures and
imperfections to enhance competitiveness and integrate all actors into national,
regional, and international markets. Such interventions include aid for trade, building
value chains, and transfer of technological innovations. Finally, micro-level interventions
11
include investments in firms and people and entail building support services to enhance
longer-term private sector development and growth. Examples include technical and
financial support for SMEs and investments in health, education, and vocational skills
training to foster a thriving workforce (Kindornay and Reilly-King 2013).
As shown by Kindornay and Reilly-King (2013), Melina Heinrich (2013) and Kindornay,
Kate Higgins, and Michael Olender (2013), development cooperation actors are working
with the private sector to achieve their private sector development objectives, making
use of PPPs, challenge and innovation funds, and other financial and in-kind incentives
for private sector engagement and investment. Private sector development is an
important subset of the goals that development cooperation actors are seeking to
achieve through engaging the private sector for development.
Private sector in development
The private sector plays an important role in development through its regular business
operations. It contributes to economic growth through investment-related activities, job
creation, and the provision of goods and services. Through regular business operations,
private sector actors can also contribute to building the local private sector, promoting
environmental sustainability, training employees, and tackling bribery and corruption
(CSRI, IBLF, and Edelman 2005, 7).
Jane Nelson (2011, 84–90) provides a succinct review of how different private sector
actors contribute to development. In addition to capital markets and financial institutions,
large domestic firms employing over 250 people are key drivers of private investment in
developing countries. Multinational corporations also contribute substantially to flows of
private capital from developed to developing countries.
It is widely recognized that micro firms and SMEs play crucial roles in furthering growth,
innovation, and prosperity in developing countries. SMEs typically account for more
than 95 per cent of all firms outside the primary agriculture sector and generate
significant domestic and export earnings (OECD 2004). They also provide a major
source of employment. The World Bank’s World Development Report 2013 notes that
“micro- and small enterprises account for the bulk of employment [in developing
countries], even in middle-income countries” (World Bank 2012, 105).
Although private sector actors often produce positive development results, their
operations can also have negative impacts on development through, for instance,
environmental degradation, corruption, tax avoidance, poor labour standards, and
human rights abuses (Nelson 2011). In response to the actual and potential negative
impacts that the private sector has on development, several initiatives have been
established at the global level for the promotion of better corporate practices, such as
12
the UN Global Compact.3 In many cases, private sector actors can improve their
development impacts if a number of changes are implemented, such as improving
transparency in supply chains, improving access to supply chains for local producers,
protecting local communities affected by corporate land and water use, reducing
greenhouse gas emissions, committing to fair prices for small-scale producers, and
addressing the exploitation of women (Hoffman 2013).
Private sector engagements for development
Private sector engagements for development—the key focus of this report—refers to
when private sector actors go beyond traditional business practices to achieve
sustainable development outcomes. Private sector engagements for development
include activities such as funding and/or carrying out development projects, adopting
and implementing inclusive business models, aligning core activities to contribute to the
achievement development outcomes (including health and education objectives),
creating inclusive value chains, adopting and supporting the widespread adoption of
responsible business practices, incorporating climate sensitivity into business
operations, implementing human rights principles in business operations including
gender and child human rights frameworks, improving accountability and transparency
in business operations, and targeting the transfer of technologies to host communities.
For many private sector actors, engaging the private sector for development has meant
incorporating development-related activities into core business strategies and models.
Private sector engagements for development include engagements between
development cooperation actors and the private sector to support and achieve
development goals. For example, development cooperation actors are encouraging
private sector participation in policy dialogues aimed at informing international agendas
on development cooperation. Challenge and innovation funds and programs are being
used to develop products and services that will benefit the poor. Advanced market
commitments have been used to promote the creation of vaccines in health and further
research in agriculture. A number of development cooperation actors are also
supporting and/or participating in knowledge platforms aimed at better understanding
the potential roles of the private sector for development and generating best practices.
These activities engage the private sector in an attempt to address broad development
challenges and actively contribute to a broader range of development outcomes. They
take on a number of different forms, including formal contractual-based partnerships
and support for poverty alleviation projects and programs, interactions in policy and
3 The UN Global Compact, which was launched in 2000, is a voluntary corporate social responsibility initiative that brings together over 8,700 corporate participants which agree to follow 10 principles in areas related to human rights, labour, the environment, and anti-corruption (UN 2008; 2013).
13
knowledge exchanges, and forms of informal engagements with other development
cooperation actors.
Motivations for Engagement Partnerships and cross-sector engagements are conceived by many organizations as
opportunities to combine the capabilities and resources of different actors to deliver
outcomes that surpass those of any sector acting in isolation (Googins and Rochlin
2000). The attractiveness of engagements between development cooperation actors
and the private sector has increased in recent years. The decline in confidence in
traditional aid and the complexity of major development challenges have demonstrated
the importance of engagement among multiple actors to achieve development goals
(Lucci 2012).
Development cooperation actor motivations
Development cooperation actors are increasingly concerned with engaging the private
sector. This concern has come in a context where aid—as a proportion of available
finance to developing countries—has decreased significantly compared to other flows,
including trade, foreign direct investment, and remittances. These flows have grown
exponentially over the past several decades. Though aid also increased over this
period, donors are now, with few exceptions, implementing fiscal austerity programs
that are decreasing or freezing resources allocated to aid budgets. These constraints,
faced by both donors and civil society organizations, mean that development
cooperation actors are looking for new sources of finance (Lucci 2012, 1). Donors are
seeking to leverage non-aid flows with their shrinking aid budgets through innovative
financing mechanisms, private sector–inspired solutions, and direct partnerships with
private sector actors.
The international development community is also increasingly recognizing that
responding to the scope and scale of global development challenges requires private
sector support (Lucci 2012; Watson 2012; HLF4 2011; DCED 2010). As development
partners, private sector actors brings expertise, innovation, and resources to the table
(Kindornay, Higgins, and Olender 2013; Lucci 2012, 1). Beyond financial
considerations, development cooperation actors have also begun to recognize the value
of private sector expertise and innovation and are seeking to leverage these non-
financial resources for development. Partnerships can also contribute to better social
and economic outcomes through more inclusive business models.
Equally important, developing countries are increasingly recognized as key markets and
investment sites for donor countries’ firms and investors, and aid agencies are
14
increasingly working with these firms to promote development-friendly investments (see
Heinrich 2013).
Private sector motivations
Private sector actors have started to see convergence between their business interests
and development priorities (Lucci 2012). Many firms have begun to engage in corporate
social responsibility activities and green marketing campaigns based on strategic
decisions that allow them to differentiate themselves from other companies within
competitive markets. As Kindornay, Higgins, and Olender (2013, 1–2) from The North-
South Institute, point out, “their motives for engagement vary in terms of the extent to
which they ‘make good business sense’ (i.e. lead to security of a sustainable supply of
key inputs or the establishment of or improvements in a buyer-seller relationship) and/or
are part of commitments by a company to social causes.” For many private sector
actors, development challenges can also translate into business opportunities (WBCSD
2010; Davies 2011, 4).
Firms are increasingly recognizing that they can no longer afford to ignore their social,
environmental, and economic impacts, especially under increasing scrutiny by civil
society organizations and the media (Lucci 2012, 1). In their examination of business
impacts on development, Caroline Ashley, Carolin Schramm, and Karen Ellis (2009, 5),
highlight that “investors, consumers, staff and other local stakeholders want to know
that a business contributes postively to society and the economy” (see also Covey and
Brown 2001). Most firms are now reporting on topics well beyond their finances to this
effect. In an examination of business motivations for engaging in international
development, “corporations explained that by conducting their operations with
consideration for the well-being of local populations, they can establish a vital
environment for doing business, better manage risk, improve the quality of life in
developing countries, and increase profitability over time” (CSRI, IBLF, and Edelman
2005, 8; see also Selsky and Parker 2010).
Private sector actors have different motivations and capacities that can be harnessed
for development. Table 2, compiled by Christina Gradl, Subathirai Sivakumaran, and
Sahba Sobhani (2010),4 provides an overview of the various motivations and capacities
for private sector engagements for development by business type.
4 This table is largely a replication of Table 1 by these authors (see Gradl, Sivakumaran, and Sobhani 2010, 7). The title has been changed here as well as slight modifications to the text. The row on non-profits has been removed.
15
Table 2. Capacities and motivations for private sector engagements in development by
business type
Engagement considerations
It is important to note that the converegence between business interests and
development priorities—which implies a number of common goals and objectives—is
not necessarily straightforward. Engagements between different actors are based on
overlapping goals and strategies, all of which may not be in perfect unison—indeed,
motivations vary across actors (Kindornay, Higgins, and Olender 2013).
Poverty alleviation and positive social change remain at the core of development
practice. But private sector actors are motivated by differentiation—or brand
recognition—and costs. As such, firms engage in corporate social responsibility
activities and green marketing campaigns based on strategic decisions to differentiate
themselves and their actions within competitive markets. They also make choices based
on costs and what will benefit the firm in the short run and, increasingly, the long term.
Partners in any private sector engagements for development (whether they are PPPs or
policy dialogues) bring a mix of converging and conflicting interests (Covey and Brown
2001) dictated by their core mandates, strategies, and functions. While it is outside the
scope of this research to address the converging and conflicting interests of
development cooperation and private sector actors across the modalities of
engagement examined, it is important to recognize this reality when interpreting the
16
motivations for, and engagements between, development cooperation and private
sector actors.
Modalities One of the main objectives of this research was to classify and unpack the various
forms of engagement between development cooperation actors and the private sector.
Researchers identified private sector engagements through the use of specific
modalities, which do not necessarily fit within what might conventionally be seen as
partnership modalities (PPPs, advanced market commitments, challenge and innovation
funds, co-financing, etc.). Some of the modalities of engagement, such as policy
dialogue and knowledge sharing, may include and might result in institutional
partnerships and engagements, but this is not always the case. Often private sector
engagements are ad hoc in nature. Table 3 lists the six modalities of engagement
identified by researchers and used to classify and examine the roles of the private
sector across development cooperation actors.
Table 3. Modalities of private sector engagements for development5
5 See Annex 3 for full definitions of each modality.
17
Policy dialogue
Development cooperation actors are increasingly seeking to support multi-stakeholder
policy discussions which involve a range of public and private actors. Private sector
actors are increasingly seeking to engage in and promote development agendas. Multi-
stakeholder dialogues are intended to find common ground and create agendas where
all parties’ interests are represented in policy formulation processes at international,
national, and local levels. For example, organizations such as the World Business
Council for Sustainable Development are providing inputs into, and actively participating
in, international discussions on the future of sustainable development. Policy-makers
and academics alike are calling for greater involvement by the private sector in the
creation and implementation of the post-2015 development framework (Lucci 2012;
Watson 2012).
In other cases, policy dialogue aims to improve corporate practices, such as the UN
Global Compact which includes principles on human rights, labour, the environment,
and anti-corruption. Other industry standard-setting initiatives such as the Roundtable
on Responsible Soy,6 which seeks to improve the sustainability of soy production, have
also emerged.7
The mechanisms for policy dialogue across development cooperation actors vary in
their degree of formalization and institutionalization. For example, formal relations
between the OECD and representatives of business and industry are conducted
through the Business and Industry Advisory Committee to the OECD, which contributes
to most areas of the OECD’s work through policy dialogue and consultations (OECD
2013b). In addition to policy dialogues between individual UN agencies and the private
sector, which are a prominent form of UN engagement with the private sector (see
Figure 3 below), the UN Global Compact and the Business Call to Action8 initiatives are
institutionalized policy dialogue fora. Australia supports the facilitation of policy
dialogues with the private sector to help inform its work internationally and seeks input
from firms on relevant aid policies as they are being developed (AusAid 2012).
6 The Roundtable on Responsible Soy is a multi-stakeholder initiative that aims to facilitate global dialogue on the sustainable production of soy (Roundtable on Responsible Soy Association 2013). 7 Importantly, these initiatives include more than just policy dialogue. They engage in knowledge sharing and the implementation of development projects and programs as well. 8 Business Call to Action is a global leadership platform founded in 2008 and supported by bilateral donors, UN agencies, the Clinton Global Initiative, and the International Business Leaders Forum. To accelerate progress on the MDGs, it challenges businesses to develop inclusive business models (BCtA 2013).
18
Knowledge sharing
Knowledge sharing is also becoming increasingly common among development
cooperation and private sector actors. It entails interactions aimed at exchanging
experiences and best practices among organizations and firms. Knowledge sharing
occurs in spaces where different actors engage to explore various issues and seek to
advance solutions by sharing new methods, tools, and innovative approaches to diverse
problems. This differs from policy dialogue in that, though such exchanges may lead to
new policies or behavioural changes, their goal is learning-oriented. They are not
specifically geared at changing the policies of individual actors or developing shared
policy frameworks, though this does not preclude other modalities from being informed
by knowledge exchanges.
Most, though not all, types of development cooperation actors feature knowledge
sharing as a form of engagement with the private sector (see Figure 1 below). For
example, Australia, the United Kingdom, Switzerland, and Sweden are supporting multi-
stakeholder networks and platforms on the private sector and development (see, for
example, M4P Hub 2013 and B4MD 2013) while others, such as France, are supporting
ad hoc events. A number of UN agencies have made knowledge sharing with the
private sector an important part of their engagement strategies.
Existing networks and knowledge institutions are increasingly generating and sharing
ideas and know-how on the roles of the private sector in development. Think tanks are
producing research and policy-relevant findings traditionally focused on informing public
sector decision making, academic inquiry, and peer-learning processes. Organizations
such as the Overseas Development Institute, The North-South Institute, and the
Institute for Development Studies, as well as donor-funded fora such as the Donor
Committee for Enterprise Development, are all contributing to knowledge generation on
the roles of the private sector in development (see, for example, Lucci 2012, Watson
2012, Kindornay and Reilly-King 2013, and Heinrich 2013, respectively).
Technical cooperation
Technical cooperation is mostly provided in the context of development finance or
grants. The principal development cooperation actors participating in this modality
include IFIs, bilateral donors, and, to a lesser extent, DFIs (see Figure 1). Technical
cooperation aims to enable private sector actors to effectively engage in development
cooperation and/or improve firms’ operational capacities and effectiveness. In the case
of bilateral donors, they either provide the technical cooperation themselves or provide
funding for possible partners to purchase consultancy services. The technical
cooperation is geared toward project preparation, including feasibility studies and
implementation and evaluation activities.
19
Capacity development
Capacity development activities aim to enhance individual and/or organizational
learning and develop the abilities of actors to perform functions, solve problems, and
achieve objectives. The primary development cooperation actors engaging in this
modality are UN agencies (see Figures 1 and 3).
In addition to capacity development activities related to private sector development for
SMEs, the UN focuses its capacity-building activities on improving the capacities of
private sector actors to change or modify core business operations to be more
development-friendly. Examples of this include the Joint UN Programme on HIV/AIDS –
International Labour Organization initiative aimed at improving HIV prevention,
treatment, care, and support services for workers (UNAIDS 2007). The Office of the
High Commissioner for Human Rights has also begun a work stream aimed at enabling
firms to implement human rights principles into their business operations (OHCHR
2013). The work entails engagement between consultants and firms on how the firms
can implement business and human rights principles into their operations. The UN
Industrial Development Organization supports capacity development through its
approach to core business and value chain partnerships, which aims to harness the
private sector and change the way firms operate to be more in line with development
goals (UNIDO 2012).
Only two instances of capacity development were identified for bilateral donors—
Australia and Germany (Figure 4). The Australian Agency for International Development
supports a fellowship program for professionals from developing countries for short-term
study, research, and professional placements. The goal of the program, which is open
to private sector and civil society organizations in Australia, “is to develop appropriately
trained current and aspiring leaders in priority areas, who, in the short to medium term,
will be in a position to advance key regional policy objectives and increase institutional
capacity of partner countries” (AusAID 2013).
The German government offers support to potential partners through its Capacity
Development for Partnerships with the Private Sector program. The program trains
public sector actors and civil society organizations to more effectively achieve their own
objectives by cooperating with the private sector (Schumacher, Görg, and Herde 2011,
5). It offers services to help improve capacity for engaging in development programs
with the private sector, PPPs, and stakeholder dialogues (Schumacher, Görg, and
Herde 2011, 5). The goal is enabling development cooperation actors to better engage
with the private sector.
20
Grants and donations
Grants and donations do not necessarily imply institutionalized partnerships. In many
instances, they are provided to support a specific project that reflects some area of
shared interest between organizations and firms. In the case of grants, many donors
explicitly target core business operations in their partnerships.
UN agencies, INGOs, and think tanks are the main beneficiaries of donations from the
private sector (see Figure 1). The bulk of UN agencies receive donations from the
private sector, yet some examples exist where the UN is providing grants or in-kind
contributions for initiatives with the private sector. For instance, the Food and
Agriculture Organization provides in-kind donations and services for joint campaigns
and accepts the private provision of human, logistic, managerial, and financial
resources for specific activities (FAO 2012, 8). The International Fund for Agricultural
Development provides grants to challenge funds aimed at engagement with the private
sector for private sector development in Africa (IFAD 2012).
Donations to INGOs, which make up the bulk of their engagement with the private
sector, followed by knowledge sharing (see Figure 5), tend to be project specific.
Donations centre on an area of common interest with the private sector actor engaged.
Think tanks receive institutional funding from private sector sources, as well as funding
for specific research work.
In the case of bilateral donors (see Figure 4 below), most grants to the private sector
are for co-financed activities (a finding that is consistent with Kindornay and Reilly-
King’s [2013] review of bilateral donors). Generally speaking, grants are provided on
terms that aim to leverage additional financing from the private sector, often through the
use of matching initiatives whereby each actor contributes 50 per cent of project
financing.
Finance
DFIs and IFIs are the main providers of finance to the private sector. This modality
largely pertains to what Byiers and Rosengren (2012, 9–11) call activities aimed at
harnessing private sector finance for development. This includes leveraging private
finance and promoting private sector investment through the provision of finance to the
private sector in the form of PPPs, private equity, guarantees, and infrastructure funds.
It is also important to note the emerging finance activities undertaken by bilateral
donors. While these actors traditionally have worked with other governments and
INGOs, mechanisms for direct financing from bilateral development agencies to private
sector actors are emerging. For example, the United Kingdom’s Department for
21
International Development has started a private sector department to finance private
actors and help create a favourable business environment for investment in developing
countries. Denmark, France, Finland, and Sweden provide finance in the form of
concessional credits and loans. A recent report on the role of the private sector by the
Standing Committee on Foreign Affairs and International Development in Canada’s
House of Commons called for the department responsible for foreign aid to create new
mechanisms to provide direct finance to private sector actors (Allison 2012).
The capacities of bilateral donors to manage these types of credit or loan operations
remain unknown and the emergence of this role for their agencies raises crucial
questions about how they will handle the inherent tensions that often exist between
commercial and development objectives. Projects that are commercially viable may not
have the greatest development impacts and vice versa. It remains to be seen how
bilateral donors will prioritize these sometimes competing goals, especially given the
track records of DFIs that have faced challenges ensuring that development objectives
are prioritized alongside commercial objectives (Kwakkenbos 2012; Spratt and Ryan-
Collins 2012; Ellmers, Molina, and Tuominen 2010; ActionAid International et al. 2010).
Illustrating development cooperation actors’ engagement
with the private sector
A simple coding method was used to graph the modalities that each type of
development cooperation actor engages in. The following figures present the findings
from the data collected. They show the percentage of development cooperation actors
engaging in each modality for each type of actor. For example, 100 per cent of IFIs
provide finance to the private sector while less than 60 per cent engage in technical
cooperation as a stated modality for private sector engagement (see Figure 1 below).
22
Figure 1. Development cooperation actors’ engagement with the private sector
The mapping exercise shows that development cooperation actors are engaging the
private sector across different modalities to varying degrees (Figure 1). The mapping
also reflects the nature of development cooperation actors’ respective areas of work.
For example, DFIs and IFIs, not surprisingly, engage mostly in finance (Figures 2 and
4). The UN engages predominantly with the private sector through policy dialogue and
receiving donations (Figure 3). Bilateral donor engagement focuses on the provision of
grants and technical assistance to the private sector (Figure 4). For INGOs, donations
from the private sector are the primary modality, followed by knowledge sharing (Figure
5). The prevalence of knowledge sharing as the primary modality for think tanks is not
surprising given their mandate and activities in development (Figure 6).
Overall, the findings show that across all development cooperation actors there is a low
level of engagement in knowledge sharing, capacity development, and technical
cooperation. While financial resources are key to advancing development goals and
programs, strategic efforts to share knowledge and technical expertise might present
new opportunities to shape business models and influence core strategies of private
23
sector actors. At the same time, development cooperation actors can learn from the
private sector.
Figure 2. IFIs’ engagement with the private sector
Figure 3. Engagements with the private sector by the UN and OECD
24
Figure 4. Engagements with the private sector by bilateral donors9 and DFIs
Figure 5. INGOs’ engagements with the private sector
9 Includes the European Commission.
25
Figure 6. Think tanks’ engagement with the private sector
Directionality Directionality refers to the direction of the transfer of resources (both monetary and non-
monetary) between development cooperation actors and the private sector. Table 4
provides an overview of the possible forms that resource transfers can take.
Table 4. Forms of directionality in private sector engagements for development
26
Table 5 provides a detailed overview of what directionality means for each modality
examined. It is important to note that researchers did not find all forms of directionality
across all types of modalities.
From the data collected, researchers created a figure for directionality to better
determine the transfer of resources between participants in collaborative efforts (see
Figure 7 below). It highlights the most commonly found resource transfers across
modalities by development cooperation actors. It provides a general picture and should
not be read as the only ways in which resources are being transferred by the
development cooperation actors examined.
27
Table 5. Understanding directionality across modalities of private sector engagement
28
Figure 7. Direction of resource transfers in development cooperation actors’ engagement
with the private sector
29
The findings on directionality confirmed what is already fairly well known about some
development cooperation actors’ engagements with the private sector. For example,
DFIs and IFIs provide grants and finance to the private sector. Bilateral donors are
sharing risk with the private sector through co-financing activities, making use of both
grants and finance for these efforts. The UN, INGOs, and think tanks largely receive
donations from the private sector, rather than provide grants to it.
In nearly all cases where policy dialogue and knowledge sharing are occurring, there
are exchanges between development cooperation and private sector actors, rather than
development cooperation actors seeking to influence private sector actors’ policies or
vice versa. Development cooperation and private sector actors are working together on
policy development. Where technical cooperation and capacity development are
occurring, they tend to be provided by development cooperation actors to the private
sector. Researchers found no cases in which the private sector was providing these
services to development cooperation actors.
Eligibility and Additionality In addition to mapping modalities, researchers looked at the eligibility requirements and
additionality conditions for private sector engagements. Eligibility requirements for
engagement refer to development cooperation actors’ criteria regarding the private
sector actors’ characteristics, such as their financial viability or corporate track records.
Additionality refers to the expected outcomes of a collaborative effort, such as
contributions to the realization of human rights, increased investments in high-risk
markets, or improved provision of social services.
In practice, a development cooperation actor could refuse to work with a private sector
actor because of its corporate track record (an eligibility requirement), even if their
collaborative effort will lead to significant development outcomes. Conversely, a private
sector actor that meets eligibility requirements may not end up collaborating with a
development cooperation actor because, from the latter’s perspective, the proposed
engagement will not lead to development outcomes that are sufficiently significant
(additionality conditions).
Eligibility requirements
The data show that many development cooperation actors stipulate certain criteria that
private sector actors must meet in order to be eligible for partnership or engagement.
Some development cooperation actors require their private sector partners to uphold
certain social or environmental standards, while others focus on technical requirements,
such as years in operation, financial viability, managerial and personnel capacity, and
the provision of audited financial statements.
30
In the case of IFIs and DFIs, eligibility usually refers to minimum technical and legal
prerequisites for private sector actors to access finance. For IFIs, eligibility tends to
include technical aspects, such as letters of credit, pre-investment feasibility studies,
and economic viability assessments. Most DFIs stipulate technical requirements and a
number of them have investment codes or policies that set out specific criteria related to
corporate track records. Austria, Finland, and the Netherlands clearly state that firms
must have good corporate track records in terms of human rights, labour rights, and
social and environmental considerations in order to be eligible to receive finance.
In general, bilateral donors do not have significant eligibility criteria for partners beyond
nationality and technical requirements. Few donors have articulated criteria relating to
corporate behaviour, with Sweden and Denmark being exceptions.
The majority of UN agencies do not provide information on their eligibility criteria for
engaging the private sector (17 of the 26 organizations examined did not publish
information on this subject). The remaining nine agencies have clear criteria for
engaging for-profit private sector actors. Some of the requirements include compliance
with social and environmental standards, respect for internationally recognized
principles and guidelines, history of ethical programs and methods of operation,
commitment to the agency’s core values and support for its mandate, and positive
public image. Two UN entities and one initiative—UNAIDS, UNESCO, and UN Global
Compact—clearly identify the types of private sector actors that they would not engage
with, such as those involved or complicit in human rights abuses, the sale or
manufacture of armaments and weapons, exploitative and/or corrupt practices, and
sensitive sectors such as tobacco, gambling, and pornography.
Overall, INGOs describe their eligibility criteria for engaging the private sector broadly.
Many INGOs state that in order to engage, private sector actors must share the
organization’s mission and goals and show that their engagement is in line with the
organization’s values and work. Of all the INGOs examined, only three—Oxfam, Plan
International, and Save the Children—have specific eligibility requirements for entering
into partnerships. For example, Plan International will only partner with firms that
demonstrate a commitment to corporate social responsibility and have an affinity with its
mission and core values. It also indicates which types of firms it will not work with,
including those manufacturing armaments, weapons, tobacco, or alcohol and those in
legal violation of international human rights, humanitarian, environmental, transparency,
or financial standards. Save the Children has an assessment procedure to ensure that it
partners with firms committed to corporate social responsibility and the goals and values
of its organization. While the details of this procedure and related policies are not
publicly available, the organization acknowledges the need to have more specific
eligibility standards for entering into partnerships with private sector actors. Other
31
INGOs noted that they have criteria in place, but relevant information was not publicly
available.
In the case of think tanks, there is no publicly available information regarding their
eligibility criteria for engaging the private sector. There is only one institution, the
Overseas Development Institute, that has very broad criteria (“commitment to
development” is one criterion) for one of the partnerships that it is engaged in—
Business Action for Africa.
Additionality
Additionality involves considerations about the extent to which public money is used to
achieve development outcomes that otherwise would not have happened (Heinrich
2013; Kindornay and Reilly-King 2013). Researchers distinguished between financial or
input additionality and development additionality. Financial additionality refers to an
investment that a private sector partner would not have made without donor support
(Heinrich 2013, 14). Development additionality refers to the development outcomes that
could not have been achieved without working in partnership. Heinrich (2013, 14)
suggests that the latter can be conceptualized in two ways. The first is the extent to
which donor support has enhanced the scope, scale, and speed of a project or brought
about changes in long-term business strategies—what she refers to as behavioural
additionality. The second is output or outcome additionality, which refers to the results
achieved by a partnership that could only have been achieved with donor support
(Heinrich 2013, 14; see also Kindornay and Reilly-King 2013, 33).
Financial and development additionality are typically assessed before project
implementation and relate to the counterfactual: has donor support brought about
changes or would those results have happened anyway? Assessments create a number
of difficulties for development cooperation actors, which must rely on judgment calls
prior to project implementation. These assessments are often not publicly available
(Heinrich 2013; Kindornay and Reilly-King 2013) and reviews to date suggest that, at
least for donor-funded partnerships, assessments tend to focus more on commercial
viability and expected development impacts rather than financial additionality. In her
review of donors’ programs aimed at supporting the private sector, Heinrich found that
many of them do not “define minimum levels of threshold criteria for eligibility of
businesses based on expected development outcomes,” nor do they list specific
development outcomes that donors are seeking to achieve (Heinrich 2013, 18). It is
difficult to judge whether additionality is being achieved in private sector engagements.
It is nearly impossible to know how much additional finance donors have leveraged from
the private sector (Kwakkenbos 2012).
32
Overall, the data collected for this research support other authors’ findings. They show
that development cooperation actors focus on development impacts in developing
countries as their main concern in engagements with the private sector. Additionality is
often broadly understood as referring to contributions to economic growth and the
improvement of living standards.
IFIs and DFIs refer to broad approaches to economic, social, and environmental
sustainability, but most do not have specific indicators in their respective financing
programs. The Netherlands Development Finance Company specifically requires firms
adhere to three conditions: play a catalytic role that maximizes finance flows to target
groups; provide financial additionality, which requires the provision of finance that does
not exist in the markets of a particular region; and ensure good governance, in the
widest sense, including on social and environmental terms. There is one notable case
where specific indicators are set out as conditions in development finance. The Swiss
Investment Fund for Emerging Markets presents a set of eight indicators with 42 sub-
indicators that include gender equality, worker training, and institution building (see
SIFEM 2013).
Bilateral donors offer different degrees of specificity in their conditions for projects, a
finding that is consistent with Kindornay and Reilly-King’s (2013) examination of bilateral
donor support for the private sector. Some donors, such as Finland and Denmark, state
specific development objectives that must be achieved by the partnership, while most
focus on broad development outcomes. In general, most have requirements related to
financial additionality, though how this is assessed in practice is generally unclear.
Researchers found little information on additionality considerations by INGOs and think
tanks. In most instances, there was no information available. Organizations that
indicated they consider additionality conditions (CARE, Christian Aid, Mercy Corps,
Oxfam, Plan International) also indicate that engagements with the private sector must
contribute to their broad development goals.
Which Private Sector? One of the goals of this research was to assess the types of private sector actors
targeted by development cooperation actors. The nationality and size of private sector
actors have important implications for the impacts that private sector engagements have
on inclusive economic growth and poverty reduction. Targeting national (donor country),
foreign (multinational), or domestic (recipient country) firms determines whether the
benefits accrue primarily to firms in developed or developing countries. The size of the
private sector actor and the sector in which it operates also matters in terms of the
impacts on job creation, integration of firms into national, regional, and global value
33
chains, and the scope and scale of inclusive business models supported by
development cooperation actors.
The nationalilty and size of companies present trade-offs for development cooperation
actors in terms of additionality. For example, donors may want to work with bigger, more
experienced, and better-organized firms because they can deliver larger-scale
development results, set an example for other firms, and require less supervisory
support (Heinrich 2013, 13). These firms are less likely to need additional finance to
carry out development activities. Smaller companies, on the other hand, are often the
most credit-constrained and in need of finance (Kwakkenbos 2012). At the same time,
smaller companies may also require stronger involvement by development cooperation
actors’ project staff in the forms of technical advice and support to succeed (Heinrich
2013, 10).
These same issues apply to firms’ nationality (Heinrich 2013, 11). Donor country and
foreign firms are often more experienced and it is easier for donors to check their
backgrounds before beginning a partnership. Companies from developing countries
often have greater knowledge of local contexts, but development cooperation actors
face more “risks in terms of due diligence, financial robustness and ability to achieve
results at scale” (Heinrich 2013, 11). Larger companies have a higher potential for
achieving large-scale development impacts, while smaller companies, typically from
developing countries, are most likely to need additional finance, meaning financial
additionality will be higher but the number of beneficiaries—the development
additionality—may be smaller (Heinrich 2013, 18).
Identifying the types of private sector actors being engaged by development
cooperation actors proved somewhat problematic. In a limited number of cases,
development cooperation actors explicitly stipulate that they will work with any private
sector actor, whereas in most other cases they are silent on this issue, leaving
researchers to assume that restrictions based on nationality and size do not exist.
The data show that, at the policy level, most opportunities for private sector
engagement appear to be open to any private sector actor—large or small—and
national, foreign, and domestic firms (see Figures 8 and 9 below). However, these
findings are somewhat theoretical. They do not show which private sector actors are
actually engaging with development cooperation actors, since assessments of individual
engagements were not conducted. Rather, the findings represent development
cooperation actors’ stated eligibility requirements for private sector actors to engage, as
well as cases where no eligibility requirements were stated. This means that while a
particular program may have no restrictions on the type of private sector actor (in terms
of nationality or size) that can participate, a detailed review of engagements and
activities may show that only certain types of private sector actors are participating.
34
Figures 8 and 9 chart the opportunities for engagement identified across the modalities
and development cooperation actors selected in this research. The charts present the
total numbers of engagement opportunities that researchers identified under each
modality by development cooperation actor. This means that if a bilateral donor has 10
grant-based financing mechanisms for engaging the private sector, each targeting
different types of private sector actors, then they have all been accounted for here.
Across modalities, researchers indicated whether development cooperation actors
targeted national firms from developed countries, foreign firms, or domestic firms in
developing countries (see Figure 8). Researchers also documented whether
development cooperation actors targeted SMEs, large companies, or all private sector
actors (see Figure 9).
Overall, Figures 8 and 9 illustrate that at the policy level, it is unclear which
characteristics development cooperation actors find desirable in potential partners in
terms of their nationality—national (donor country), foreign (multinational), or domestic
(recipient country)—and size, from micro enterprises to large firms in the formal and
informal sectors. The figures show that most engagement opportunities are open to
firms of any nationality and size. Notable exceptions to this do exist, however,
particularly for DFIs and bilateral donors, which have programs that are only open to
their national private sector actors and typically relate to promoting investments in
development-related private sector activities.
Figure 8. Nationality of the private sector firms targeted
35
Figure 9. Size of the private firms targeted
For development cooperation actors that provide grants to the private sector,
opportunities tend to be open to any sized actor without nationality restrictions. In
practice, there is little targeting of grants toward domestic private sectors in developing
countries, though many bilateral donors do support matching initiatives that provide
grants to firms for partnerships or joint ventures between firms in developed and
developing countries.
No development cooperation actors target their capacity development activities
specifically at SMEs or domestic firms. It should be noted, however, that SMEs in
developing countries are often primary beneficiaries of private sector development
programming—efforts aimed at establishing domestic private sectors in developing
countries—which supports firms in developing countries through activities aimed at
increasing their competitiveness and integrating them into markets, improving access to
finance, and improving skills and labour standards through workplace learning and
training programs. This type of support is not the same as technical cooperation or
capacity development that other private sector actors receive when collaborating for
development.
This distinction is important, since it indicates that SMEs are seen as beneficiaries of
development cooperation, rather than partners for development. It has implications for
what modalities such as technical cooperation and capacity development mean for
SMEs. In the case of private sector development activities, it means support for them to
build their professional and productive capacities, improve business skills, integrate into
markets, and improve working conditions. In the context of private sector engagement
for development, technical cooperation involves development cooperation actors
offering advice and providing advisory services to the private sector to promote
36
participation in development cooperation activities. Capacity development in this context
involves building capacity to consider and improve on the developmental effects of
operations. Obviously, technical cooperation and capacity development in different
contexts have very different purposes and outcomes. Data in this research suggest that
the international development community sees SMEs as beneficiaries of development
and has yet to consider SMEs as partners for development.
For the most part, policy dialogue and knowledge sharing opportunities appear to be
open to all private sector actors. Development cooperation actors do not target these
activities at SMEs or domestic firms, which tend to have fewer resources available for
participation in them. Including a broader range of stakeholders—specifically SMEs and
domestic firms—in these activities is important in order to better understand the diverse
needs and perspectives of the private sector as a whole.
Across modalities and development cooperation actors, there do not appear to be
strategies in place for targeting various types of private sector actors for development.
In particular, few development cooperation actors are strategically targeting their private
sector engagements toward SMEs or domestic firms in developing countries. Due to
their economic importance in developing countries, SMEs have the potential to have
significant positive impacts on development outcomes. Targeting domestic firms is
another important means of enhancing the development impacts of private sector
engagements. Evidence suggests that spending aid locally is a more effective way to
drive sustainable economic development than having aid delivered through foreign
firms. Investing in locally produced goods and services to support development projects
creates a “double dividend,” whereby locals not only benefit from the outcome of a
project, such as a new road, but they also receive the monetary profits from completing
that project (Ellmers 2011, 25). Investing locally can also help build the capacities of
local enterprises and people, extending the benefits of development activities (Ellmers
2011; see also Kwakkenbos 2012). Through partnerships with domestic private sectors,
development cooperation actors can also make value chains more inclusive and create
jobs and income opportunities that enable people to lift themselves out of poverty.
Monitoring and Evaluation The application of monitoring and evaluation tools and frameworks is particularly
important for private sector engagements in development. It allows individuals and
organizations to access consolidated information that indicates a project’s or program’s
progress, builds on experience and knowledge, contributes to transparency and
accountability, reveals mistakes, and offers paths for learning and improvement
(CommDev 2013).
37
The importance of monitoring and evaluating projects and programs is clear in the
international development community and increasing as budget-constrained donors
seek “value for money” in their development cooperation activities. There is less clarity
when it comes to the difference between assessing project and program outcomes and
assessing engagement and partnership models. In most cases, development
cooperation actors monitor and evaluate their own projects and programs. They assess
the effectiveness of engagements and partnerships on very few occasions. This
infrequency derives from the notions that engagements and partnerships are difficult to
monitor and evaluate and it is difficult to develop a measurable set of outcomes that
focus both on the impacts of a partnership (what has the partnership enabled in terms of
development impact?) as well as the partnership itself (were partners able to effectively
work together under the terms of the engagement?).
Engagements and partnerships vary in terms of governance, size, modalities, and
purpose, so monitoring and evaluating them can be complex and overwhelming
(Pattberg et al. 2012). Nevertheless, evaluation frameworks and innovative methods of
assessment have been put forward (these include tools such as the most significant
change technique, appreciative inquiry methods, and outcome mapping, and the
Accountability, Learning, and Planning System) (see also Caplan et al. 2007). Less is
known about the application and effectiveness of these tools and systems in practice.
The data in this research show that the availability of information on project, program,
and partnership results is limited. With the exception of bilateral donors, most
development cooperation actors do not seem to report any evaluations of their
engagements and partnerships, at least publicly. Of all the INGOs included in this
research, only two noted that they had tools, policies, and principles in place for
partnership standards and evaluation.
Most actors provide information on the number of partnerships or the expected results
of their partnership initiatives, but it seems that relatively little has been done to monitor
and evaluate partnership processes and outcomes. Efforts are needed to develop and
implement more rigorous methodologies that can systematize the value of
engagements and partnerships.
In addition, the disclosure of information on these engagements and partnerships would
help improve the accuracy of information and may build more constructive and
transparent engagements with stakeholders and members of civil society. The
information gap suggests that assessing whether engagements and partnerships with
the private sector are effective is a challenging task. The application of monitoring and
evaluation tools and frameworks would help generate systematized evidence on the
links between private sector engagements and improved development outcomes.
38
Conclusion The emerging discussion on private sector engagements for development is taking
place in a changing landscape. Development cooperation actors have evolved over the
past decade as they have faced new challenges such as increased pressure to diversify
sources of finance, new calls for effectiveness in the delivery of development
assistance, and new and increasing Southern influence in international development.
The roles of the private sector in development have also become more prominent in
recent years. Private sector actors are increasingly recognizing the importance of
participating in broader debates on development policies and social change. They are
also realizing that poverty alleviation and sustainability make business sense as well as
development sense.
Though some convergence exists, the political agendas, ideological perspectives, and
economic models espoused by these actors vary greatly. Some private sector actors
may continue to prioritize short-term financial benefits while ignoring the broader
influences that determine their longer-term political, social and environmental
sustainability. In these circumstances, engagements among actors with divergent and
incompatible goals will not generate positive and lasting development impacts.
Nevertheless, engagement between and among development cooperation and private
actors may have the potential to turn divergent interests into new sources of innovation
and facilitate joint problem solving. However, a key issue in emerging engagements with
the private sector is the question of the roles and responsibilities of the state, especially
as they relate to the delivery of public goods. Engagements will have to address the
potential obstacles associated with working with private sector actors for the
implementation of development projects and programs usually attributed as
responsibilities of governments. These obstacles include issues such as mission drift,
ensuring institutional autonomy and public accountability, co-optation of actors, financial
instability, difficulty of monitoring progress and evaluating results, and expenditure of
considerable institutional time and resources to support collaborative activities.
Understanding the relationship dynamics between actors and what constitutes
successful engagements and partnerships will be important areas of future research.
Key findings
This research unpacked the roles of the private sector in development cooperation
through an examination and mapping of the ways in which development cooperation
actors are engaging the private sector. A number of key findings emerged.
39
Modalities for engagement and directionality
Various modalities of private sector engagements for development exist,
and these modalities can entail different levels of engagement and
commitment from informal and ad hoc arrangements to institutionalized
partnerships. These include policy dialogue, knowledge sharing, technical
cooperation, capacity development, grants and donations, and finance. The
degree to which development cooperation actors engage in each of these varies,
depending on their mandate and functions.
Overall, the findings show that across development cooperation actors,
there are higher numbers of engagements that involve transfers of financial
resources. There are lower numbers of engagements in knowledge sharing,
capacity development, and technical cooperation.
The findings on directionality confirmed what is already fairly well known
about some development cooperation actors’ engagements with the private
sector. For example, IFIs and DFIs provide grants and finance to the private
sector. Bilateral donors are co-funding activities with the private sector, making
use of both grants and finance in these efforts. The UN, INGOs, and think tanks
largely receive donations from the private sector, rather than provide grants to it.
Policy dialogue and knowledge sharing tend to be bi-directional in nature,
representing exchanges between those engaged in these modalities. Technical
cooperation and capcity development flow from development cooperation actors
to the private sector.
Characteristics of private sector partners and conditions for engagement
Researchers looked at the eligibility requirements and additionality conditions for private
sector engagements. The data show that:
Many development cooperation actors stipulate certain criteria that private
sector actors must meet in order to be eligible for partnership or
engagement, though this varies in terms of the extent to which criteria
focus on a private sector actor’s characteristics, such as its financial
viability or corporate track record.
In many cases, limited public information exists on the specific criteria
being used by development cooperation actors to assess the additionality
of engagements with the private sector, with few exceptions.
40
Where additionality conditions are stated, development cooperation actors
focus on development impacts in beneficiary countries as their main
concern. These are often broadly understood as referring to contributions to
economic growth and the improvement of living standards. Across development
cooperation actors, there is less focus on ensuring financial additionality—or
whether the private sector partner would have made an investment without
development cooperation actors’ support—in engagements with the private
sector.
At the policy level, it is unclear which characteristics development
cooperation actors find desirable in potential partners in terms of their
nationality—national (donor country), foreign (multinational), or domestic
(recipient country)—and size, from micro enterprises to large firms in the formal
and informal sectors. The figures show that most engagement opportunities are
open to firms of any nationality and size. With few exceptions, there do not
appear to be strategies in place for targeting various types of private sector
actors, which has implications for scope and scale of development outcomes
achieved through partnerships. Notably, few development cooperation actors
are strategically targeting their private sector engagements toward SMEs
or firms in developing countries.
Based on this research, it is premature to assess which private sector
actors are benefiting from the increasing push for private sector
engagement in development. While a particular program may have no
restriction on the type of private sector actor (in terms of nationality or size) that
can participate, a detailed review of actual engagements and activities may show
that only certain types of private sector actors are participating.
Monitoring and evaluation
The data from the research suggests that there is more work to be done by
development cooperation actors in evaluating their engagements with the private sector.
The data show that the availability of information on project and
partnership results is limited. Most actors provide information on the number
of partnerships or the expected results of their initiatives, but it seems that
relatively little has been done to monitor and evaluate partnership processes and
outcomes.
41
Policy recommendations and future research
A number of recommendations for development cooperation actors arise from this
research.
1) Publicly articulate policy frameworks for engaging the private sector for
development. There is a need for development cooperation actors to better
articulate the policies that guide their engagements with the private sector. This
includes the goals, means, terms, and expected outcomes of private sector
engagements.
2) Clearly articulate and detail the specific goals of engagements with the
private sector for development. This is important for demonstrating
transparency on private sector engagements, as well as ensuring accountability
for development outcomes.
3) Include knowledge sharing, capacity development, and technical
cooperation as important modalities for engaging the private sector in
development. Strategic efforts to share knowledge and technical expertise might
present new opportunities for improved development outcomes.
4) Develop organization level strategies for engaging the private sector,
including provisions for different modalities. Development cooperation actors
should establish organization level strategies for private sector engagement
informed by their needs and activities, to better leverage private sector resources
and support.
5) Stipulate clear eligibility requirements for private sector partners.
Development cooperation actors typically require that potential partners meet
technical criteria and demonstrate commitment to development objectives. In the
case of the private sector, a number of reporting and standard-setting initiatives
exist, including the UN’s Global Compact and Guiding Principles on Business
and Human Rights. Commitment to and compliance with these initiatives may
serve as a useful minimum eligibility benchmark for potential private sector
partners.
6) Be clear on which private sector actors are best placed to achieve
development goals, particularly in terms of their size and nationality. There
are benefits to working with larger and smaller private sector actors, both in
developing and developed countries. Development cooperation actors should be
aware of the trade-offs relating to size and nationality of private sector actors
42
when considering collaborative efforts. These trade-offs should be informed by
the goals that development cooperation actors aim to achieve.
7) Establish clear guidelines and indicators for ensuring financial and
development additionality in collaborative efforts with the private sector.
More work needs to be done for development cooperation actors to demonstrate
that the activities they undertake with the private sector, particularly those that
involve transfers of public money, support outcomes that otherwise would not
have happened if either partner was working on its own. As development
cooperation actors move forward on engaging the private sector, the creation of
additionality guidelines and indicators will be important for justifying the provision
of public money to the private sector, which can be seen as a subsidy.
8) Improve the availability of monitoring and evaluation results on
engagements with the private sector through transparent reporting. The
disclosure of information would help improve the accuracy of information and
build confidence that these partnerships can support positive development
outcomes.
9) Report not only on information regarding the outcomes of collaborative
efforts but also the value of the partnership itself. Efforts are needed to
develop and implement more rigorous methodologies that can systematically
assess the value of private sector engagements and can inform future
collaborative efforts.
A number of important areas for future research arise from this report.
1) There is a need for more research to assess which private sector actors are
benefiting from engagement with development cooperation actors. This would
require a detailed review of actual engagements and activities.
2) Further research could look at different types of collaborative efforts, including
their outcomes. This report has only looked at development cooperation actors’
engagements with the private sector for development. However, many
developing country governments are also working with the private sector through
policy dialogue and in formal partnerships to deliver social goods, for example.
3) Further research on context-specific obstacles for and risks of private sector
engagements in development policies and programming is needed, including on
potential areas of converging interests in thematic and modality-specific
activities.
43
4) More research is needed on the impacts of private sector engagements for
development in practice, not only in terms of their impacts on the ground but also
the value that they create for participants, such as changes to organizational
behaviour and reputation. There is a need to generate a better understanding of
relationship dynamics between actors and what constitutes successful
engagements and partnerships.
5) Research on recent local innovations and practices in developing countries
should also inform private sector engagements going forward, including what role
the state and civil society play in these engagements.
44
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Annex 1: Empirical Cycle in Pre-structured
Qualitative Surveys Table 1.1. Empirical cycle conducted for mapping the private sector in development cooperation
This table is an adaptation from the overview by Jansen (2010).
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Annex 2: Development Cooperation Actors
Examined
International financial institutions
For this study, IFIs were chosen on the basis of regional and sub-regional presence in
developing countries. The selection of institutions was not meant to be exhaustive, but
rather meant to include the main regions of the Global South where this type of actor
carries out activities.
The broad regions of Latin America, Africa, Asia, and the Middle East were the main
areas considered. Within these areas, sub-regional actors were considered. In Latin
America, the Inter-American Development Bank, Andean Development Corporation,
and Central American Development Bank were included to cover the activities of IFIs
operating across the broad region. In Africa, the African and Islamic Development
Banks were considered, since they are the two key development finance institutions
operating across the sub-Saharan and North African sub-regions. In Asia, the Asian and
Islamic Development Banks are the relevent institutions for consideration. The
International Finance Corporation, the private sector lending window of the World Bank,
was also included, given its global reach and mandate.
The IFIs selected have traditionally worked closely with the private sector. Private sector
actors are sources of funding for investments, partners in development finance, sources
of expertise, and beneficiaries in private sector development initiatives across the
various regions considered. Table 2.1 lists the IFIs examined and their respective
region(s) of concentration.
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Table 2.1. International finance institutions examined
United Nations and the OECD
UN agencies were selected on the basis of their mandates. All UN agencies with a
development mandate that have publicly available information about their engagement
with the private sector were included. Box 2.1 provides a list of the UN agencies
examined. The OECD was also included, since it is an inter-governmental organization
comprised of bilateral donors working on development, among other issues.
Box 2.1. United Nations agencies and initiatives examined
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Bilateral donors
Bilateral donors were selected on the basis of initial research conducted by Kindornay in
an examination of bilateral donor approaches to the private sector (see Kindornay and
Reilly-King 2013). Based on this work, Kindornay identified the bilateral donors that are
engaging significantly with the private sector and/or have developed a policy framework
for engagement that is publicly available. The European Commission was also included.
The bilateral donors examined are listed below:
Australia
Austria
Canada
Denmark
Finland
France
Germany
Japan
Norway
The Netherlands
Switzerland
Sweden
United Kingdom
United States
Development finance institutions
All bilateral DFIs were included in the study, in addition to two European Union DFIs.
This is for a number of reasons. First, the number of bilateral DFIs was manageable for
the purposes of this study. Second, information regarding their activities is readily
available. Third, bilateral DFIs are one of the main ways in which developed countries
engage the private sector on development. In many cases, bilateral donors that were
not included in the examination of official development assistance providers were
captured in this category through their respective DFIs. Table 2.2 provides a list of
bilateral DFIs examined.
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Table 2.2. Development finance institutions examined
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South-South development cooperation providers
The scoping exercise intended to include the emerging development donors that make
up the BRIC grouping. These actors are increasingly important in the international
development cooperation landscape. While they have significant flows of resources
(see Table 2.3), there is still scarce systematic information on their projects and
strategies, including those related to the private sector.
Table 2.3. Estimate of gross development cooperation flows from selected countries
beyond the OECD’s Development Assistance Committee (DAC)
The first steps were to identify the agency or ministry in charge of development
cooperation. Some of these agencies or ministries have public information about their
projects and brief statements about their work with the private sector. However,
comprehensive reports on their activities and engagements with private sector actors
are unavailable, making it difficult to ascertain the extent to which these agencies are
partnering with, supporting, or working with private sector actors. As such, the analysis
throughout the study does not consider these actors, since that would require further
exploration that goes beyond the scope of this research.
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Foundations
The independent philanthropic foundations examined in this study were selected based
on the size of their contributions to development. The top 10 independent foundations
contributing to development, as identified by Noel Salazar (2011), were included. Table
2.4 lists them and the size of their contributions.
Table 2.4. Top 10 philanthrophic foundations contributing to development
International non-governmental organizations
The study limited the examination of NGOs to large INGOs. This approach was taken to
ensure that the analysis of NGO engagement with the private sector was based on a
manageable sample size for which clear criteria for inclusion could be developed. It was
also expected that more information about INGOs’ partnerships with the private sector
than smaller NGOs’ partnerships with the private sector would be available.
The INGOs that were examined included those not-for-profit organizations working in
development (i.e., mandated to work on poverty reduction) with an international scope
and global operations. In order to further limit the number of INGOs, only those with
operating budgets above US$100 million were examined. Only the international
secretariats of these organizations (i.e., main international offices as opposed to
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regional or country offices) were examined, as it was unfeasible to examine the regional
and country offices of each one of these organizations during the data collection period,
and it was important to maintain consistency in the methodology applied. The
organizations examined include:
ActionAid
Aga Khan Foundation
BRAC
CARE
Catholic Relief Services
Christian Aid
Mercy Corps
Norwegian People’s Aid
Oxfam
Plan International
Save the Children
World Vision International
Think tanks
Think tanks play a vital, unique role in the international development community. They
provide policy research, analysis, and advice, and often operate independently from
government and other political bodies, which allows them to assume a mediating
function between government and the public. They serve as trustworthy, non-partisan
voices that help donors and implementing agencies understand issues and make
informed choices about domestic and international concerns. They also facilitate the
building of networks and fora for the exchange of knowledge between and among key
stakeholders such as civil society organizations and public and private actors (McGann
2005).
The think tanks examined were selected based on the 2012 Global GoTo Think Tank
Report. Institutions working on themes related to international development were
selected. A sample of top think tanks were selected according to region for regional
variation, so that North America, South America, Europe, Africa, the Middle East, and
Australia were covered. The following think tanks were included in the study:
Center for Global Development, United States
Center for Strategic and International Studies, United States
International Insitute for Sustainable Development, Canada
Institute of Development Studies, United Kingdom
Overseas Development Institute, United Kingdom
Instituto de Estudios Avanzados en Desarrollo (INESAD), Bolivia
Fundación Salvadoreña para el Desarrollo Económico y Social (FUSADES), El
Salvador
Ibn Khaldoun Center for Development Studies, Egypt
Institute of Statistical, Social and Economic Research, Ghana
Centre for Development and Enterprise, South Africa
Lowy Institute for International Policy, Australia
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Annex 3: Framework Analysis Data Collection
and Definitions Table 3.1. Framework for examining development cooperation actors’ engagement with the private sector for development
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Table 3.2. Framework analysis definitions for data options
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