Impact of Private and Public Sector in the economic Development
Private sector companies are an essential pillar for achieving the goal of sustained economic growth and poverty reduction.
Some 90 percent of all economic activity is created by the private sector in the region, as are nine out of every 10 jobs (1). The private sector is an essential ally for providing basic services such as infrastructures, as well as investment and innovation. However, businesses face many barriers that impede investment, firm expansion, job creation, and, in the end, sustainable growth.
Just read this and you can understand the role of private sector in the economic development.
As the Monterrey Consensus emphasised, private investment is a
powerful catalyst for innovation, economic growth and poverty reduction.
Much more investment will be needed if many developing countries are
to reach the Millennium Development Goals, especially that of halving by
2015 the proportion of people living on less than a dollar a day. Official
development assistance (ODA) has a critical role to play in improving the
environment for private sector activity and in helping enterprises to
respond to new and changing demands, and thus in helping to pave the
way for robust growth.
With this background, the OECD launched the “Initiative on Investment
for Development” in 2003. This policy guidance for donors on using ODA
more effectively to promote private investment for development is one
component of the Initiative.The other components are the Policy Framework
for Investment (PFI) and sharing the OECD’s experience with using peer
reviews to build capacity for investment policy in developing countries.
Preparation of the policy guidance occurred in two phases, carried out
in close collaboration between the Development Assistance Committee
(DAC) and Investment Committee. The first, analytical phase noted that
donors spent around 20% of their aid on a variety of investment-enhancing
activities and highlighted the need for donors to be more strategic, better
co-ordinated and guided by more systematic learning of what works and
what does not work. They also need to address better the binding
constraints, at national and sectoral levels, that are holding back more
domestic and foreign investment.
This policy guidance, prepared in the second phase, and which also
builds on DAC work on promoting pro-poor growth, has as its main message
that donors should focus on helping to lower the costs of investment, reduce risks, improve competition and develop human and institutional capacities.
It stresses that economic infrastructure, financial market development and
building the capacities of enterprises are priority areas for mobilising
investment in the near term and that reforming the investment climate
requires political will, drive and leadership to take on entrenched interests
and inertia. Development agencies consequently need to stay the course,
but they also need to change the way they do business. For example, their
internal incentive and evaluation systems should not work against staff
pursuing longer-term, programmatic and possibly higher risk interventions.
This policy guidance was approved by the DAC on 15 March 2006 and
welcomed by OECD Ministers at the annual meeting of the OECD Council
at Ministerial Level on 23-24 May 2006. It complements more general
guidance on improving the design, delivery and effectiveness of development
co-operation, notably the “Paris Declaration on Aid Effectiveness”
In order to achieve its aims the OECD has set up a number of specialised
committees. One of these is the Development Assistance Committee,whose
members have agreed to secure an expansion of aggregate volume of
resources made available to developing countries and to improve their
effectiveness. To this end, members periodically review together both the
amount and the nature of their contributions to aid programmes, bilateral
and multilateral, and consult each other on all other relevant aspects of their
development assistance policies.
The members of the Development Assistance Committee are Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece,
Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway,
Portugal, Spain, Sweden, Switzerland, the United Kingdom, the United States
and the Commission of the European Communities.
DAC- Development Assistance Committee
FDI -Foreign direct investment
GDP -Gross domestic product
ICT -Information and communication technology
IFC -International Finance Corporation (World Bank Group)
MDG- Millennium Development Goals
ODA-Official development assistance
PPP -Public-private partnership
SME -Small and medium-sized enterprise
UNCTAD United Nations Conference on Trade and Development
Vigorous and sustained economic growth, fuelled by investment and
entrepreneurship, is needed for the private sector to create more jobs and
increase incomes of the poor. In turn, this will generate the revenues that
governments need to expand access to health, education and infrastructure
services and so help improve productivity. But in many developing countries,
investment rates are too low, productivity gains are insufficient, incentives
for innovation are inadequate, returns on investment are not sufficiently
predictable, and not enough secure, safe and adequately paid jobs are
being created in the formal economy.
Developing countries and their donor partners consequently need to
do much more to address the market failures and structural impediments
that are holding back productive investment (both domestic and foreign),
and to do it better, for longer periods and in a more strategic way.Developing
countries can help foster an investment climate that enables the private
sector to flourish and fulfil its role as the main engine of growth.To do so,
they can pursue macro-economic stability, improve the functioning of
market-regulating institutions and strengthen procedures for contract
enforcement and dispute settlement. Developing country governments
can also improve the coherence of their policies in a range of areas – such
as trade, tax, competition and investment promotion – that affect the
volume of investment and its development impact.
A review of past practices by development agencies highlights that:
i) Donors are supporting a vast range of activities – at the
macro-economic, enabling environment and enterprise levels
– that affect investment.They spend around 20% of their aid on
these. But little evaluative material on the impact of interventions
on promoting investment is available.
ii) Insufficient attention has been given to enterprise and
supply-side capacity development, and to promoting the institutional and policy reforms that lie at the heart of efforts to promote private sector development.
iii) Donors have focussed too much on assisting specific types of
firms (e.g. certain sizes, activities or sectors). Experience has
shown this can lead to market distortions and poor sustainability.
To help developing countries mobilise more productive investment,
and improve the effectiveness of interventions that support this objective,
development agencies need to:
i) Be more strategic, and their interventions need to be harmonised
and guided by more systematic learning of lessons.
ii) Focus on helping to lower the costs of investment, reduce risks,
improve competition and develop human and institutional
capacities in developing countries.
iii) Give high priority to economic infrastructure investment and
financial market development, as key areas for promoting
investment in the near term.
iv) Pay greater attention to the determinants of domestic investment,
both formal and informal, and to strengthening the capacities
of local firms to respond to new investment opportunities and
to expand business relationships with foreign investors.
v) Enhance the contribution of investment to pro-poor growth (i.e.
increase the impact of growth on poverty reduction) by making
labour, land and other markets work better for the poor, tackling
Constraints to women’s entrepreneurship, reducing barriers to
Formalisation, promoting environmental sustainability,
Expanding access to knowledge and technology and unleashing
The economic potential in rural areas.
vi) Encourage entrepreneurship and innovation by supporting
education and vocational training, research and development
activities and technology transfers.
vii) Promote responsible business practices in such areas as labour
relations, the environment and anti-corruption.
viii) Build on analyses of country and sector-specific constraints, at
national and local levels, to private sector development and
encourage publication and public debate about the results. Help build up the capacities of developing countries to carry out such
assessments.
ix) Seek out reliable, representative and accountable domestic
partners who can drive reform programmes and help catalyse
change.
x) Use market-based approaches to supporting firms. Targeted
assistance should avoid distortions and firms receiving direct
support should be selected based on their expected capacity to
innovate, create jobs and provide services at local market
conditions.
xi) Promote structured and inclusive public-private dialogue, at
national and local levels, so as to bring micro and small
entrepreneurs and informal firms and workers into consultation
and decision-making processes.This will help to build demand
for reform and for investments that will improve the investment
climate.
xii) Evaluate the cumulative impact of their interventions on
promoting investment and share examples of successful and
unsuccessful practices.
Reforming the investment climate requires political will, drive and
leadership to take on entrenched interests and inertia. Development
agencies need to stay the course and support “change agents” within the
public and private sectors and civil society.
Development agencies also need to change the way they do business.
They need to have access, individually or collectively, to an appropriate
range of aid instruments.Their internal systems should not work against
staff pursuing longer-term and riskier interventions. Staff working on the
range of subjects relevant for promoting investment should be well
co-ordinated. More of the goods and services that development agencies
procure can be sourced on competitive terms in developing countries, to
support local private sector development. Finally, public sector partners
in developing countries can be encouraged to engage more with the private
sector, such as through public-private partnerships.
If the country goes through this way up to a % there will be a development ,if the private and public sectors come on this way ,the chances of developments are more high ,that developments does not create any poverty .
But the main problems that are facing here, private sector mainly aims profit rather than concentrating proper economic development, they are not concentrate on any aspects of the economic rules and policies, that creates higher development by creating higher poverty, at the same time private sector gives more investment opportunity, that tends to investors to make investment rather than investing public sectors.
