Monday, 19 May 2014

More ‘strategy’ needed in private sector development?

Jodie Thorpe photo
Last week was a busy week in the ‘business and development’ world. On Tuesday, the European Commission published its Communication on ‘A Stronger Role of the Private Sector in Achieving Inclusive and Sustainable Growth in Developing Countries’. Within 24 hours, civil society groups including Eurodad, Concord and Oxfam had responded with warnings that the EU’s focus on the private sector risked privileging narrow investment interests over development objectives. And then on Thursday, The Independent Commission for Aid Impact (ICAI) published a report on the Department for International Development’s (DFID) private sector development work, questioning how well DFID’s approach is transforming the private sector as a tool for economic growth and poverty reduction. The common thread through all was a question of strategy and theory of change.

ICAI’s assessment of DFID
I have to say that I have some reservations about ICAI’s assessment – principally that once you look behind the headlines, much of the critique has little to do with DFID’s private sector approach specifically. Instead, many of the findings seem to reflect general challenges in delivering aid and development. For example, the report points out that the target culture incentivises a focus on reporting results at the output rather than at the outcome or impact levels, with decisions potentially driven more by the need to meet office targets than calculations around the strategic use of resources. I don’t think these issues are unique to private sector work – or to DFID for that matter.

However, I believe that ICAI do make one crucial point: that DFID needs to better define and articulate where it can add most value in private sector development, relative to other stakeholders. ICAI particularly question DFID’s capacity to influence the regulatory environment for business and international trade rules, and point out that it is difficult to assess how such changes impact on end beneficiaries.

The European Commission and the private sector
Comparing DFID’s approach to the new communication from the European Commission, there are substantial differences. The Commission emphasises job-creating businesses in the formal and informal sectors (DFID’s framework barely acknowledges that job creation varies between companies or mentions the informal sector). Even more importantly, the Commission focuses on a ‘differentiated approach’ (again absent in the DFID framework), recognising the need to identify where the profit incentives of private actors coincide with public interests, and how different private actors require different conditions and incentives to contribute to development.

That said, the European Commission does also echo DFID’s focus on creating better regulatory environments in partner countries. Here the EU development commissioner, Andris Piebalgs, would do well to reflect on ICAI’s cautions to DFID. What capacity does the EU have to influence the regulatory environment for business in developing countries, and how would these changes actually translate to positive impacts on end beneficiaries?

Towards a more strategic approach
In a recent working paper, IDS’ Business and Development Centre sets out some key ways we see business and development becoming more effective and strategic. These include firstly understanding alignment between business and development goals – where does alignment exist, what can strengthen it and where are the costs to increasing alignment prohibitive. Secondly, prioritising interventions – focusing on a small number of select initiatives that tackle the greatest obstacles to development, which in turn requires understanding how particular policies or barriers affect the poor. And thirdly, employing adaptive approaches that drive long-term transformative change.

By Jodie Thorpe, Research Fellow, Institute of Development Studies