Development: a new trend
Over the last few decades, many development objectives have been pursued through multilateral and bilateral donors channelling aid to developing nations through governments, Non-Governmental Organisations (NGOs), United Nations agencies and initiatives such as the Global Fund.
The first decade of the 21st century’s main goal was poverty reduction, but Private Sector Development (PSD) has recently received much priority. The aim of PSD is to get the economic fundamentals right, such as fiscal, monetary and trade policies, privatisation and ‘cutting red tape’.
However, current support models are not geared enough towards PSD. Meaningful development can only take place in countries where the private sector is robust and equipped to drive growth, create jobs, generate income and taxes, attract investors and ultimately have a positive impact on people.
Private Sector Development (PSD) a priority
This trend is reflected in direct PSD support programmes, such as challenge funds, capacity-building support for Small and Medium Size Enterprises (SMEs), financial sector deepening initiatives, new models of public service provision in social sectors involving the private sector, investment climate initiatives and support for regional trade organisations. Interestingly, there are a growing number of programmes that ‘use’ the private sector as a mechanism to deliver development services, such as challenge funds.
Many see this as far more sustainable than other solutions, such as NGOs or the United Nations, and more efficient than governments. More and more, donors see PSD in developing countries as essential to achieve the United Nations Millennium Development Goals, particularly the eradication of extreme poverty.
Two approaches guiding PSD are Making Markets Work for the Poor (M4P) and Pro-Poor Growth, which aim at increasing growth by making market systems work more efficiently and fairly. This enables poor people to participate in, and benefit from growth. PSD initiatives guided by these approaches are increasingly likely recipients of donor support.
Examples of PSD initiatives
The Africa Enterprise Challenge Fund (AECF) is a US$100 million fund supported by the governments of Australia, Denmark, Netherlands and the United Kingdom and the International Fund for Agricultural Development (IFAD). Hosted by Alliance for a Green Revolution in Africa (AGRA), it assists small-scale farmers to boost farm productivity and lift themselves out of poverty, while safeguarding the environment.
This challenge fund invites for-profit, private sector companies to compete for investment support for ideas in agri-business, rural financial services, renewable energy and climate change. An independent mid-term review released in June 2011 showed that the fund will benefit one million poor rural people over the next three years through 58 grants awarded through 11 competitions, which attracted more than 3 000 applications.
Trademark East Africa (TMEA) is another notable PSD project funded by Denmark, Netherlands, Sweden and the United Kingdom. It is part of a regional integration programme to improve the East African trading environment. Still in its early stages, TMEA aims to boost trade in the region by dramatically reducing costs and improving the regulatory environment.
Development advisory organisations
KPMG Africa Development Advisory Services (DAS) and partners are the Fund Managers for the AECF. KPMG DAS is assisting TMEA to establish its head office in Nairobi and branches in Kampala, Dar es Salaam, Kigali, Bujumbura and Arusha, as well as financial management, Fiduciary Risk Management and Fiduciary Risk Assessments, etc.
Private sector development is a substantial and growing trend among many of the world’s major donors. As a result, development advisory organisations with experience in traditional fund management and advisory approaches must up-skill. Knowledge and thought leadership, strategy, positioning, and culture must face a revamp to remain in step.