Private Sector Development – A New Business Plan for Development?

Private sector development (PSD) has taken on an increasingly prominent role in international development cooperation in recent years. Many donors, including the EU, attribute a key role to the private sector in their development strategies and the proportion of international development cooperation funds that are used for PSD has risen sharply in the last decade.

The definition of PSD is very broad and includes various levels of interventions. PSD comprises strategies for strengthening the private sector in developing countries or the support of activities of businesses from donor countries in developing countries, with the aim of reinforcing positive development outcomes. Another level of intervention is the improvement of framework conditions for local or international investors. A fourth and relatively new aspect of PSD is the collaboration of development cooperation in particular with the international private sector through partnerships with companies or by using public development finance as leverage for private sector financing.

The key significance of the private sector in development cooperation since the early 1990s has been accompanied by a paradigm shift in economic and development policy, which began in the 1980s, away from the central role of the state as the prime engine of development towards the private sector. The state’s role in most PSD approaches is to create a positive investment climate and a business-enabling environment with stable framework conditions. The financial crisis since 2008 as well as the economic and political rise of emerging economies, which is due inter alia to the strong role of the state and interventionist economic policies, have led at least in debates to a gradual change in thinking. Some of the focus has therefore shifted once again towards the state’s role in development and more interventionist economic and industrial policy in particular.

The panel will build amongst others on ÖFSE and NSI research on PSD. It will first analyse current PSD trends within a broader theoretical framework. As a second aspect, it will give an overview over PSD strategies of different bilateral and multilateral donors, especially in regard to their partnership approaches. Finally, the question how current PSD strategies fit into present and historical country experiences in terms of economic and especially industrial development and policy will be analyzed.