Levels and areas of intervention

Most donors and many developing countries have designed their own policies and programmes in support of the private sector. There is broad consensus as to which are the levels of intervention (see the examples of donor policies and programmes on PSD mentioned above):

o on the international level (or meta-level), countries and donors are involved in policy dialogue related to issues such as trade regime, debt reduction, global financial system and global public goods, but also coordination and alignment of policies and interventions;

o on the national level, three main levels of intervention are distinguished:

• at the macro level, the interventions are geared towards enhancing the macro-economic, institutional and regulatory framework in order to stimulate local and foreign investment, good governance and stability;

• at the meso level, efforts focus on the improvement of the institutional environment that frames business decisions, supporting intermediary institutions such as the financial sector, education institutions or representative organisations, as well as the provision of infrastructure;

• at the micro level, direct financial or non-financial support is provided to market actors and enterprises.

It is a common perception that these different levels are inter-related: on the one hand the higher level(s) of the system set the parameters (both in terms of opportunities and hindrances/constraints) for any developments taking place at the lower level(s); on the other hand the actors at the lower level(s) determine and shape the resources of a society and are able to influence the higher level(s). In line with this perception, many donors and policy makers advocate for a holistic, systemic or integrated approach to PSD.¹⁸

However, there is no consensus as to which concrete measures are the most effective ones to set in motion private sector growth and development. This comes down to the discussion among policy makers and donors, and the resulting lack of consensus, of whether direct interventions (believing in the effectiveness of direct support to market actors) or rather support to catalytic interventions and framework conditions (believing in a subsequent trickle-down effect) work best.

17Somehow inspired by Amartya Sen (Sen 1999), see the approach of Making Markets Work for the Poor (M4P), developed by DfID, which focuses on giving the poor more assets and more access to markets so that they can participate in the growth process more (see DfID 2000), which also provides the basis for DfID’s PSD strategy (DfID 2008). Also the discussions around the Bottom (or Base) of the Pyramid (see Prahalad 2006) and the Bottom Billion follow a similar line of argument (see Collier 2007).

18 Examples of these are SIDA, UNIDO and the BMZ/GTZ, who use it as a standard approach in project/programme implementation. A holistic, systemic or integrated approach not only refers to the fact that interventions should cover all levels presented here and their interdependencies, but also refers to the fact that especially environmental and social issues should be considered next to economic and financial ones, together with the inherent trade-offs.

22 This has led to a wide range of activities commonly supported or implemented in the field of PSD, which also reflects the complexity of dealing with the various intervention levels mentioned above.

The table below provides a summary of interventions at the various levels relevant for PSD.

Table 1: Examples of PSD interventions at the meta-, macro-, meso- and micro-levels Level of

• lobbying and advocacy in multilateral fora (WTO, World Bank, IMF, etc.)

• improve access to international markets (mainly Europe and North America) for developing countries

• build trade negotiation capacity in developing countries

• regional integration Debt reduction

• lobbying and advocacy

• support bilateral and/or multilateral debt relief for poorest countries Access to foreign capital

• Setting up bilateral and international investment treaties

• Promote and facilitate FDI

• Create opportunities for establishment of business linkages between foreign and domestic firms

Global public goods and global governance related to issues such as

• Environmental protection, climate change, pollution, biodiversity

• International/Global financial system

• Communicable diseases such as HIV/AIDS, malaria, flues

• Knowledge and technology transfer, intellectual property rights Policy coordination

• Reduce tied aid

• Enhance policy coordination and coherence among donors

N

• encourage appropriate policies aimed at macro-economic stability (such as low inflation, deregulation, fiscal and monetary stability, and rational factor prices)

• strengthen economic, industrial, labour and fiscal policy in developing countries through technical assistance, training and exposure

• development and enforcement of appropriate supporting policy and legal, regulatory and administrative framework

• facilitate harmonisation of the regulatory system with international practices and legal frameworks

• encourage development of capital market, including sound banking supervision

• encourage privatisation where suitable

• less bureaucracy, simplification of regulations

• ease of business establishment, ease of bankruptcy procedures

• improve revenue collection and tax administration

• encourage sustainable natural resource use

• stimulate investment in disadvantaged areas Physical infrastructure and human capital

• ensure provision of and access to basic infrastructure (power, water, telecommunications, internet)

• ensure provision of public goods (i.e. information, technology, etc.)

• build/improve infrastructure to trade and compete (roads, ports, railways, power, water, telecommunications, IT)

• build domestic capability to trade and compete

• improve human capital (education, skills training, health services)

• introduce social security and pension schemes Good governance and rule of law

• fight corruption, reduce the scope of corruption

• lower regulatory risk, fostering predictability and stability in the business environment

• increase transparency in application of rules/laws, promoting the rule of law and its enforcement

• encourage decentralisation where suitable

23

• introduce mechanisms to strengthen accountability of public and private sector institutions

• prevent conflicts (based on gender and/or ethnic discrimination) and promote peace, stability and social cohesion

Policy coordination

• Encourage coordination among government, donors and representatives of civil society and private sector

• Enhance policy coordination and coherence among donors

• Promote alignment

Institutional environment to provide financial, physical and human resources/capital for PSD

• encourage formation and strengthening of a variety of institutions (labour unions, employer organisations, Chambers of Commerce, business associations, federations, etc.)

• support research and technology organisations and academia (agricultural research and extension, scientific research, innovation support, training institutions)

• entrepreneurship promotion

• support development and strengthening of intermediary financial institutions, competitive banking system, financial sector deepening, savings instruments, venture capital, micro-finance

• support development of risk insurance markets

• standards and certification services, quality infrastructure

• encourage business linkages, institutions providing match-making operations

• establish mechanisms and/or institutions through which the public and the private sectors can engage in dialogue and feedback

Micro

Financial and non-financial support to market actors, mainly enterprises

• support business training

• support for specialised consulting services

• improve access to technology, technology and knowledge transfer

• improve access to information on business opportunities and prices

• increase local procurement

• support participation in local, regional and international trade fairs

• support SME development

• support MSE development

• support registration and formalisation of enterprises

• improve access to finance through micro-credit schemes, provision of risk capital, special loan or grant schemes, guarantee schemes, local investment funds, and other instruments

Source: Compiled by the author, based on OECD 1995, Schulpen/Gibbon 2001 and 2002a, UNDP 2004, DCED 2008.

The most prominent themes in PSD, for which interventions on all above-mentioned levels are necessary, include:

o creating an “enabling environment”¹⁹ (mainly referring to macro-economic reforms and general policy-making, as well as the regulatory and institutional framework affecting the business and investment climate),

o financial sector development (including micro-finance and -insurance), o BDS (Business Development Services),

o vocational and skills training,

o supporting business linkages, clusters and networks,

19“Enabling environment” is a commonly used expression. Although, there is wide consensus that it is necessary to improve framework conditions for all enterprises in a country, there is no consensus on what exactly falls under it.

See DCED 2008 for a recent attempt in establishing common guidelines for donor interventions, in which still six

“contested issues” are listed.

24 o enterprise development (meaning schemes targeting SMEs and/or MSEs),

o entrepreneurship development (including support to start-up businesses).