This post originally appeared on the OECD Development Matters blog ahead of the Private Finance for Sustainable Development Week in Paris, France.
Getting Private Sector Engagement on the Right Track: Four Essential Ingredients
Developing countries face complex challenges that require solutions from a strong private sector in partnership with government and society. Many in international development are actively contemplating how to move such partnerships forward. Notably, USAID issued a new Private Sector Engagement Policy to “embrace market-based approaches as a more sustainable way to support communities in achieving development and humanitarian outcomes at scale.” As part of Private Finance for Sustainable Development Week, the Global Partnership for Effective Development Co-operation (GPEDC) is hosting a Specialised Policy Dialogue on Private Sector Engagement through Development Co-operation, which will identify actions to scale up private-sector partnerships in ways that effectively use public resources and attract business investments to create shared value.
Business is now starting to make its mark on the Sustainable Development Goals (SGDs) with innovative initiatives for clean energy, water stewardship and green cities, to name a few. Around 80% of United Nations Global Compact companies are acting on the Global Goals. Business has already been an integral part of past development successes, driving economic growth and creating nine out of ten jobs. Still, the current trajectory is not adequate. The business sector has more to do to fulfill its potential as a responsible investor in emerging markets and an effective partner with the development community.
Clearly, business must show initiative and leadership to become a valued partner. However, development partners and governments for their part must better understand business to avoid missed opportunities to work together. A better appreciation of private sector motives, roles and needs is essential to attracting business interest and getting productive partnerships off the ground.
What can the development community do to get private sector engagement on the right track? This question has no short answer because of the variety of engagement modes and the complexity of collective action. Our experiences and those of others reveal four basic ingredients for productive collaboration:
- Alignment of goals
- Platforms for engagement
- Enabling environment
- Managing mutual commitments
Without these ingredients, policies and technical standards cannot produce the necessary incentives and opportunities to drive partnerships forward. Together, these ingredients add up to trust and competence for collaboration.
First, alignment of goals: Too often, development partners and governments treat the private sector as an implementer and a funder, but not as a stakeholder and source of expertise. This top-down approach easily produces misalignment of objectives, low awareness of priorities and neglect of core business strengths. That’s why public and private representatives jointly stated in Busan in 2011 that “consultation with the private sector in the elaboration of national and sector plans is a prerequisite to broadening country ownership of the development process and ensuring inclusive growth.”
“Engage early and often,” is the first principle laid out in USAID’s new policy. Through upstream engagement and relationship building, public and private sectors can identify shared interests and common goals that form a solid basis for co-operation. Co-creation of solutions aligns efforts and capitalises on the private sector’s self-identified incentives. How can this co-creation work? The Global Alliance for Trade Facilitation is a model, for example, of how governments and companies can work together to target and design reforms that connect developing countries and poor people to export markets.
To be sure, governments’ role is to promote the public interest and defend appropriate standards of finance and conduct. That should not preclude conversations with for-profit organisations about sustainable development strategies and market-based solutions.
Second, platforms for engagement: The choice of where and how to engage has profound implications for connections made, issues addressed and quality of collaboration. In-country local platforms matter to local ownership and the alignment of private-sector partnerships with national development priorities. Any doubt about the potential of in-country platforms should be dispelled by the public-private dialogue platforms in Kenya. This locally driven engagement process helped Kenya move up a phenomenal 68 ranks in the Doing Business indicators since 2014.
Many in the development community appreciate the need to “speak the language” of business; yet it is arguably more important to reach business through relevant platforms. Even large companies have limited bandwidth to participate in platforms created by others, especially if they struggle to link their participation to corporate strategies. Many companies do understand partnerships for sustainable developmentthough. Often, the best approach may be to build on existing initiatives rather than expecting the private sector to show up to new ones. Investments will be required in the capacity of both private and public actors to collaborate.
Third, enabling environment: The enabling environment for business and the enabling environment for engagement itself have a strong bearing on outcomes. Commonly, those who focus on sustainability see the business environment as a separate concern. Yet, the rule of law and effective institutions are key to company survival, attracting investment and sustainable development. Whether it comes to competitiveness reforms or codes for responsible business conduct, quality companies seek a level playing field.
Innovative partnerships also depend on an enabling environment for open, transparent dialogue and engagement. Transparency builds legitimacy while freedom of association allows business and civil society organisations alike to engage as equal partners with government. Governments should also allow room for technological and business model innovations needed to achieve the 2030 Agenda. Accordingly, the regulation of innovative fields should be flexible and proportionate to risk.
Fourth, managing mutual commitments: The principle of mutual accountability applies to public-private co-operation. In a number of cases, businesses that have partnered with government or development actors have discovered that expectations of roles and commitments were not sufficiently clear or fixed. Risk management can be fraught for private and public actors alike. Thus, governance mechanisms, good project design and credible commitment are important to sustain partnerships.
Finally, in setting targets and making commitments, one must strive to expand the envelope for sustainable investing and inclusive business while staying realistic about what the private sector can bear. Crucially, specific business cases must be identified, many of which are associated with the SDGs. In fact, realising these goals could be worth USD 12 trillion in 60 markets (in food, cities, energy and health). Yet without a solid business case, no amount of “de-risking” in the short term will help. The best partnerships between business and the development community will begin around shared value, where both the development purpose and the business case are clear.
Ultimately, it will take time to establish the partnerships of the future as we learn better ways to collaborate and build trust. Even as scaling up of private-sector engagement is urgently needed, this engagement must proceed in a principled, effective fashion. The GPEDC’s emerging principles for private sector engagement through development co-operation will be an important guidepost to this new frontier in sustainable development.