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Private Sector Contributions to International Development

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Government programs play a significant role in international development, but represent only a portion of ongoing projects and potential opportunities. Public-private partnerships (PPPs), and private sector initiatives, are increasingly prevalent and necessary to support the complex nature of human development.

PPPs were identified as an opportunity for growth in the 2010 QDDR and are expected to remain in focus in the 2014 Review. Such partnerships allow the public and private sector to share risk, and planning and contribution responsibilities while leveraging resources and involving more experts and a wider network to bring new ideas to the table. Partnering with private organizations also increases the likelihood of a successful program continuing after government funding has ended.

The opportunity for private sector investment in development, separate from PPPs, is also growing.

When there is a gap in the market for basic services, the government often steps in to provide for those left behind- for example, building state-run health clinics in communities without healthcare. However, there is another option- to create a market within the gap.

Let’s continue with the example of healthcare. Areas without access do not lack demand for healthcare, but rather a supply of appropriate and affordable options. As long as the clinic meets these criteria, it will provide the supply to meet the existing demand. The clinic can be a state-run free clinic, or a for-profit community health center.  Both bring care to where it is needed, but private sector firms are built to maximize profit as efficiently as possible while government-run organizations are notoriously inefficient and unnecessarily costly.

The reality of politics can also make private investment a more attractive option for development. As we’ve seen with the US foreign aid budget, lengthy debates can be only the beginning of the issues. With so many stakeholders and decision makers, programs lack a clear definition of success and unified methodology for measuring impact. The private sector may not be free of such problems, but individual organizations have less voices at the decision making table than governments. Less perspectives to consider and interests to meet tend to result in greater agility and focus.

Firms must maximize profit to survive. Shouldering too much of the development and governance responsibility can easily drive up costs, causing a firm to fail. This is an inherent characteristic of the market system and underscores the need for strong public and private partnerships.

Coordinated government and private sector participation in development allows for the strengths of one to minimize the weaknesses of the other. The long-term success and impact on international development of PPPs has yet to be established, but their historic success in domestic economic development suggests a great potential for progress.

 

For More on PPPs:

Foreign Assistance: Private-Public Partnerships, FAS

National Council on Public-Private Partnerships

International Institute for International Development Report

 

More in this Series:

What the Fight for Foreign Aid Funding is Really About: Defining Success in International Development

Telling the Story of (US) AID

Pope Francis and USAID

Missing Ambassadors of Africa

LTG Kennedy and BGen Cheney LA Times Op-Ed

Where Are All the Ambassadors?

Intro the Series on Foreign Aid, Diplomacy, and Development

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