Promoting the private sector’s role in development (Originally published 04/11/11)

Official Development Assistance (ODA) from rich industrialised countries to poorer developing nations was once considered pivotal in achieving growth and development. Official north-south financial flows remain a vital factor in the combat against poverty. In the 21st Century, however, the global architecture of development cooperation is changing rapidly.The ranks of official donors now include newly industrialised countries like South Korea and emerging economies such as China, India and Brazil. Significantly also, development cooperation is no longer the exclusive preserve of governments. Private actors have emerged as key aid donors, with private aid – including aid provided by foundations, corporations, non-governmental organisations, and individuals – increasing rapidly over the past decade.In addition to bringing additional capital, these new actors are also injecting fresh know how and innovative ideas into development cooperation. Official and private aid can complement each other and it is increasingly important that official and private donors work together to promote development.The emergence of private actors as a leading source of development assistance is good news. With many Western governments implementing austerity measures, significant cutbacks expected in ODA – making it ever more difficult to meet the United Nations’ 0.7 percent of GDP as aid target - and public opinion in industrialised states grappling with “donor fatigue”, the mobilisation of private sector funds for fighting poverty is significant.The focus on non-state actors has coincided with the emergence of new global challenges such as combating climate change, averting global health pandemics and securing international peace.Taking on these and other tasks requires innovative responses and expertise which can be provided by the private sector. Recognising the added value of private donors, national governments and international development agencies (IDAs) have started to work closely with the private sector to mobilise investments for sectors such as healthcare, water and sanitation, agriculture, and financial services, including microcredit and micro-insurance.Private actors bring in a new dynamic, new money, new approaches and new solutions to key challenges facing developing nations. But private development assistance (PDA) is no panacea – and certainly no substitute for ODA. In fact, private assistance may - in some cases – even undermine the effectiveness and efficiency of the development landscape, thereby impacting negatively on the sustainable development of poor countries.The Development Aid Committee of the Organisation of Economic Cooperation for Development (DAC) is seeking to remedy this by ensuring that the private sector is involved in the debate on development effectiveness.Clearly, given the array of challenges facing donors and developing nations, it is essential that private and public actors in development cooperation work with each other to ensure that assistance is used most efficiently and effectively.Development cooperation actors need to undertake a thorough review of their experiences to date on public-private cooperation to chart a course for the future. They should take a closer look at the potential for synergies and conflicts of interest and evaluate past successes to understand just what works and what does not. This is essential if successful cooperation projects are to be up scaled and replicated.The focus should also be on more information and research, evaluation and transparency to ensure that PDA is subjected to the same rigorous conditions as ODA currently is. Private development assistance actors must find a way to make their efforts sustainable and must ensure the involvement of local actors in the planning and delivery of their assistance.

In keeping with the increased role of the private sector, the debate on aid effectiveness should be enlarged to include “development effectiveness”. Common principles also need to be agreed to promote greater cooperation between the public and private sectors, with the objective of increasing the understanding of the respective contributions towards common development objectives, building on existing initiatives.In partnering with governments and international agencies, private and public donors should agree on common development outcomes and engage with each other in transparent and inclusive dialogues on their priorities.The “revolution” that non-state actors have triggered in international development cooperation, through their individual actions and through coalitions and alliances with other private donors as well as with official aid agencies, is significant. The current aid revolution should therefore be welcomed – but also closely monitored.