It was a good run. The fawning over partnerships between the private sector and public institutions is cooling off quickly.
Major development partnerships over the past few years have championed the inclusion of the private sector. From agriculture investments in the New Alliance to the United States Agency for International Development’s new innovation lab, major corporations are teaming up with aid donors to spark change. Back-slapping inside the development beltway over the ‘innovative partnerships’ has touted the benefits of the arrangements.
“The relationship illustrates what can be achieved by supporting responsible private-sector-led economic growth in a focused way,” wrote Canada’s Minister for International Development, Christian Paradis, and Executive Vice President and CEO of the International Finance Corporation Jin-Yong Cai, last year. “It creates jobs and prosperity in developing countries and Canada alike. And it provides an opportunity for Canadian companies to tap into the growth in demand in developing economies.”
The past week has seen handful of reports that all call into question the nature of partnerships with the private sector and what they can actually accomplish. A published proposal by the European commission seeks to put more support behind the private sector as a force of development.
It recommends a ‘strategic framework for strengthening the role of the private sector in achieving inclusive and sustainable growth.” Campaigners say that the program runs the risk of putting the profits of companies over the people who are supposedly helped.
“Using public resources to ‘leverage’ private finance is of great concern due to the high risk of profit-making motives outweighing poverty reduction objectives,” said María José Romero, policy and advocacy manager at the European Network on Debt and Development.
Caution about partnerships were also a key part of a report by the UK watchdog the Independent Commission for Aid Impact. It analyzed the nature of private-public partnerships carried out by the UK’s Department for International Development. The private sector holds potential in helping developing countries ‘exit from aid dependency,” says the report.
That potential is not necessarily realized in the current way that the Department for International Development (DFID) is operating. The ‘highly ambitious’ approach by the agency has not led to a coherent set of goals and coordination in terms of accomplishing development goals. Essentially, the report says that there is not really much direction in the role of private sector.
DFID needs to recognise that the private sector is not a developmental panacea. References to ‘the miracles’ that companies are able to perform risks underplaying the role that donors like DFID and country governments have in ensuring that economic development provides benefits to the poorest in society.
The recommendations for DFID focus on setting clear goals and remaining aware of the potential shortcomings of working with the private sector.
“The European Commission highlights social services as an opportunity for private sector engagement, but areas like health and education should not be determined by profit margins,” said Hilary Jeune, Oxfam’s EU policy advisor.
“Governments should provide free and public essential services for all, and maintain stringent rules for any business which might risk hindering social and environmental progress.”
Her sentiments were echoed in the Economist’s Bello column. It focused on efforts in Latin America to boost infrastructure. Attempts to utilize the private sector have led to failures in achieving necessary progress. The column concludes that governments must resume their responsibilities for such work. Governments in the region are better and borrowing remains relatively cheap.
PPPs have worked well for ports and airports and, in Chile, for urban motorways with heavy traffic. But they should be a complement to, not a substitute for, public investment in roads, railways and metros.