How the private sector can advance development

By Lorenzo Pavone, OECD Development Centre EMnet Co-ordinator; Kate Eklin, Policy Analyst; Myriam Grégoire-Zawilski, Programme Assistant; Josep Casas, Trainee

The Millennium Development Goals (MDGs) launched in 2000 centred on addressing basic human needs throughout the developing world. The recently adopted Sustainable Development Goals (SDGs) for the post-2015 era focus on economic growth, social inclusion and environmental protection as interconnected dimensions of broader global development. Unlike the MDGs, achieving this new set of ambitious goals calls for bolder action from diverse actors across society, whose collective efforts outweigh what they could deliver individually. And the private sector is not least among these actors. Why? Business-led initiatives, such as research and development partnerships, knowledge-sharing platforms, technology and skills transfer, and infrastructure investment have the potential to kick-start development, enable productivity gains, generate better quality jobs, strengthen skills and promote technological advances.

Challenges exist, however, to maximising the private sector’s role in economic development.  Both the conditions businesses face and how they act have consequences. On one hand, businesses often work in difficult environments, where corruption is rampant, the rule of law is not enforced, and infrastructure and services are poor. On the other hand, 34 new specific complaints against businesses were lodged under the OECD Guidelines for Multinational Enterprises[1] in the last year. Alleged violations span across 13 different sectors involving human rights, due diligence, supply chains, stakeholder engagement and the environment.

Still, the private sector is often an agent of change and a potential partner for implementing the SDGs. While doing no harm and minimising risk of adverse impacts remain priorities, business strategies can align around the SDGs and galvanise action for development. Evidence from Asia, Latin America and Africa shows how private sector contributions not only stimulate economic growth but also can help implement the SDG agenda.

Developing SMEs in Asia: Small- and medium-sized enterprises (SMEs) often lack the resources to invest in innovation to fuel productivity and development. Yet, strengthening SMEs may help drive these processes and foster local entrepreneurship. Recognising this possibility, SDG Target 8.3 specifically aims to “promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalisation and growth of micro-, small- and medium-sized enterprises, including through access to financial services.” By partnering with SMEs, multinational firms strengthen local entrepreneurship, create skilled employment, and promote knowledge- and technology-transfers. Over the past nine years, Airbus’ sourcing from India, for example, has grown 12-fold and reached USD 400 million, employing more than 350 engineers and developing a network of over 35 supply chain partners.[2]

Building education and skills in Latin America:Investing in the right skills is crucial too for growth. It is key for increasing productivity, attracting investment and creating better job opportunities. The new global agenda also values developing skills that the labour market demands. SDG Target 4.3 seeks to “substantially increase the number of youth and adults who have relevant skills, including technical and vocational skills, for employment, decent jobs and entrepreneurship” by 2030. This is particularly important in Latin America, which experiences the most severe mismatch between skill endowment and employers’ needs. Compared to a global average of 21% and an average of 15% in OECD countries, 36% of companies in Latin America struggle to find properly trained employees.[3] Costa Rica, however, shows that it is possible to narrow that gap, with the private sector contributing greatly to strengthen skills, improve education opportunities and achieve one of the highest literacy rates in the region. Private companies in Costa Rica partnered with national universities and the National Institute for Learning to improve their curricula, favour on-site learning, and provide cutting-edge targeted training in semiconductor manufacturing and microelectronics.[4]

 Improving infrastructure in Africa: Due to poor infrastructure, Africans often find it cheaper to trade around the world than with their own neighbours. Intra-African trade represents only 11% of Africa’s total trade with the world, compared to 50% intra-regional trade in Asia and 70% in Europe, according to the African Economic Outlook 2014. Shipping a car from China to Tanzania costs less than bringing it from Tanzania to neighbouring Uganda. According to the African Development Bank, Africa’s infrastructure deficit is approximately USD 50 billion. The private sector has an important role to play, mainly through public-private partnerships to build core infrastructure as a pillar for economic growth and development. SDG 9 seeks to “build resilient infrastructure, promote sustainable industrialisation and foster innovation.” Governments can benefit from private sector expertise in building an efficient infrastructure network and creating an environment conducive to industrial development. The good news is that investment in African infrastructure has increased in the last few years, especially from private firms. The value of infrastructure mega projects under construction in Africa grew by 46.2% in 2014 to reach USD 326 billion (Deloitte). For example, TAQA, an Abu Dhabi energy company, is building a USD 330 million gas-fired power plant in Ghana, contributing to expanding the country’s electrification rate, still limited at 64% according to World Bank indicators.

Doing business and doing well are not mutually exclusive. Profit-seeking and sustainability objectives can align. To better mitigate risks and realise the benefits of private sector action, informed dialogue between policy makers and businesses will be crucial. That is why business and government leaders are discussing ways multinational corporations can promote economic and social development through meetings of the Emerging Markets Network (EMnet) organised by the OECD Development Centre. Through this frank exchange of knowledge and best practises on doing business in emerging economies, both public and private sectors can better define their contributions to mutual interests. While the private sector can be the engine of growth, innovation and job creation, government’s efforts to establish stable and supportive environments are critical. The bottom line is clear: An array of actors is lining up to realise the post-2015 agenda. Governments have a role to play with these actors, including the private sector. Such collective action will move the global community closer to achieving the SDGs.

[3] OECD/CAF/ECLAC (2014), Latin American Economic Outlook 2015: Education, Skills and Innovation for Development, OECD Publishing.

[4] OECD (2012), Attracting knowledge-intensive FDI to Costa Rica: challenges and policy options, Making Development Happen Series No. 1, OECD Publishing.

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