By Noshua Watson
Official development assistance (ODA) from the OECD is dwarfed by financial flows to developing countries from private sources. If you add together ODA, philanthropy, private sector investment and remittances, they equalled $677.5 billion in 2009. ODA represented less than one-fifth of those flows.
The development community has perceived but not yet fully articulated the problems with having the private sector in development. And there are definitely problems. Who holds private actors accountable? What gives them the right to interfere? Even if they are doing the right thing, who’s going to tell them no? These questions need to be answered, but their existence doesn’t mean the private sector should be pooh-poohed.
Jean-Michel Severino and Olivier Ray, the former head of Agence française de développement and his advisor, argue that the growth of the private sector’s formal role in development is largely because the development community has successfully expanded the agenda from reducing economic inequality to include access to basic services and protecting global public goods. The expansion of that agenda has created opportunities for private actors, both for-profit and not-for-profit.
Severino and Ray have identified that the way that funds are aggregated is on a spectrum from centralised and state-driven to market-driven and the timing of development funding is on a spectrum from discrete projects to continuous flows. Crossing the aggregation mechanisms and different time horizons creates a matrix of modes of financing.
Private actors are found all over that matrix. Microfinance organisations are an example of recurrent private financing that is more continuous, as it is intended to leverage the effect of other funds. This framing of where funds come from and how they are used exposes the importance of partnerships, whether with other private organisations or public institutions.
Most of the private funding of development comes from poor people themselves. Nearly half of the aforementioned financial flows from the OECD to developing countries were from remittances. The fragmentation of remittance flows and their person-to-person nature makes them difficult to track. But their flagrantly monetary and non-institutionalised nature may also explain some of the development community’s lack of interest.
Private or public, the challenge to development institutions is learning how to coordinate or incentivise diffuse actors (especially poor ones!), not elbow them out of the arena.