The Private Sector and its role in
Development Cooperation
Devising a trade union perspective
TUDCN SEMINAR ON THE PRIVATE SECTOR IN DEVELOPMENT
28-30 OCTOBER 2013, Barcelona
What is it?
 What is not (but linked to): Private sector development
 Pro-business regulatory reforms within the domestic arena
 Incentives for foreign direct investment (tax, EPZ), trade facilitation, access
to credit and capital markets
 “downsizing” of the role of the State (privatisation, ‘corporatisation’ of stateowned companies, sector-wide de-regulation)
 World Bank “Doing Business” country ranking methodology
 What it looks like: private sector for development
 Specific contractual partnerships between a public party (donor, other ODA-
related institution) and a private party (MNE, domestic company and/or an
investor)
 for the purpose of achieving specific development objectives
Putting a figure
Sector distribution of ODA
2006-2011
Distribution of ODA in the top 3 sectors (base
100 = 2006)
180.0
IX. Unallocated /
Unspecified
160.0
VIII. Humanitarian Aid
140.0
120.0
VII. Action Relating to
Debt
100.0
VI. Commodity Aid /
General Prog. Ass.
80.0
IV. Multi-Sector / CrossCutting
60.0
190
180
I. Soci a l Infra s tructure
& Servi ces
170
160
140
II. Economi c
Infra s tructure &
Servi ces
130
III. Production Sectors
150
120
III. Production Sectors
110
40.0
II. Economic
Infrastructure & Services
20.0
I. Social Infrastructure &
Services
0.0
2006 2007 2008 2009 2010 2011
100
2006
2007
2008
2009
2010
2011
The discussion
 What is it?
 Putting a figure
 Typology
 The drivers
 The international agenda
 Government & private sector drivers
 The critique
 Impact on development goals
 A trade union perspective
Typology
 Commercial based relationships
 Financial assistance and investments
 Public procurement & PPPs
 Networking and policy advocacy
 Co-financing of local partnerships & networking
 Advisory services and capacity building programmes
 Standard setting and policy advocacy
Categories of PSD engagement and
types of contractual relationship
Philanthropic
CSR initiative
Category of
engagement >
Private forprofit project
Public-private
partnership
Public
procurement,
incl. ODA
projects
Networking,
standard setting
and policy
advocacy
Type of contractual
relationship
Grants
X
X
Public loans
X
X
Public equity
X
X
X
X
Insurance
guarantees
Source: OECD & RoA 2012.
X
&
X
X
Typology of initiatives
Role of the public party >
Role of the private party
Donor
Creditor
Shareholder
Customer
Insurer
Operator of for-profit project
Subsidies
Loans
Equity investment;
PPP
PPP
Public
guarantees,
export credit
PPP
Public procurement;
PPP
Sub-contractor of public
works
Recipient of non-commercial
benefits
Local
partnerships &
networking;
Capacity
building;
Standard-setting
The Burgeoning International Agenda
 The Busan Partnership for Effective Development Co-
operation
 The Joint statement
 “Equal partners”
 The G20 Process





Infrastructure under the sun of PPPs
Changing the “business model” of MDBs
Private investment and job creation
Indicators on economic value added and job creation
Tax accountability
Busan Partnership
 The shared principles




ownership of development priorities by developing countries
effectiveness focused on results
“inclusive partnerships”
accountability through greater transparency to beneficiaries and to citizens at
large (“subject to legitimate concerns about commercially sensitive
information”)
 the role of the private sector
 Engage with “business associations, trade unions and others” on the reform of
the regulatory environment for private investment, FDI & PPP;
 Participation of the private sector in the design of policies
 Innovative financial mechanisms to mobilise private finance
 Aid for trade agenda (productive capacities, market failures, access to capital
markets and reducing financial and credit risk)
Building block Public Private cooperation
 Joint statement
 “Lower barriers” to business registration, reforming property
rights systems and tax systems
 use ODA to “leverage private sector investment” including “
blending”
 Donors & DFIs to help reduce risk management and
exposure of private sector.
 private sector recognised “as an equal” partner
The G20 process
 WG on Development (2010-2012)
 Open call for PPPs
 Align procurement rules which PPP arrangements.
 Support creation of “PPP units” & “PPP practitioner networks”, pooling
information on infrastructure projects
 Construction Sector Transparency Initiative (CoST) to promote competition
of PPP procedures
 Changing the “business model” of MDBs
 Weak recommendations on private investment and job creation, but
good work on tax accountability
 Work plan on long term investment (2013)
 Old wine in new bottles
 Links with workers’ pension funds
Shaping Donor Policy – What are the
drivers?
 Government drivers
 Tied Aid
 The Public finance gap
 Promoting private business per se
 Private sector drivers
 Access to markets and to policymakers
 The “inclusive business” model
Tied aid
 “putting Dutch interest first, more so than in the past”;
 “it is in Sweden’s as well as Sida’s interest that Swedish
businesses are suppliers in development assistance-financed
calls for tender”
 “it is a strategic priority in Danish development cooperation
to work for a stronger private sector”
 Italian stimulus package (Decreto Fare ) of June 2013
broadens the list of eligible countries for which Italian
companies can benefit of ODA support
Source: incl. ECDPM
Private sector drivers
 Access to market
 USAID-UNICEF-Gates Foundation-Unilever: reducing the risk
of viruses “provides an opportunity for Unilever to get access
and recognition in new markets” (ECDPM)
 Busan Building Block « country hubs » promoted by
International Business Leaders Forum (IBLF)
 The « inclusive business » model
 Turning the poor & the extreme poor into a “USD 5tr. market”
(Bottom-of-the-Pyramid)
 WBCSD, Business Call to Action, IFC
 Not really inclusive!
Source: incl. ECDPM
Impact on development goals
 Little due diligence
 Reality of Aid 2012 “donors have have undertaken little due diligence in assessing the
distributional impacts, or the potential effects of various forms of private sector
development on the livelihoods, assets and capacities of poor populations”
 Audit by the World Bank’s Compliance Advisor/Ombudsman (CAO): the IFC “knows very
little” about the environmental or social impacts of its financial market lending” (USD 20
bn)
 French CAS “the rationale for the [inclusive business] theory is to work on the basis of
success stories, thereby omitting projects that may have encountered difficulties”
 Rights-based approach to development?
 Busan & G20: references & broad statements are rarely put into practice or implemented
with the same level of commitment
 7 out of 22 donors have reference, while half made explicit reference to two or more of
the common voluntary standards or guidelines (North-South Institute & Canadian Council
for International Cooperation)
Comparing PPPs with public sector
procurement
 Research & literature review by PSI-RU
Factor
Comparing
Evidence indicates
Cost of capital
Debt interest + dividends
PPP more expensive
Cost of construction
Comparative costs and completion
PPP more
expensive/neutral
Cost of operation
Comparative efficiency
Neutral
Transaction costs
Procurement + monitoring,
management
PPP more expensive
Uncertainty
Incomplete contracts, contingent
liabilities, impact on service
PPP riskier
Devising a trade union perspective
 Impact indicators and monitoring
 Macro: Shielding ODA & ensuring policy coherence
 Focus ODA on poverty alleviation & access to social security
 Country ownership and public services
 Micro: Setting conditions to PSD
 ILO standards and the Decent work agenda
 Social dialogue as a foundation of inclusiveness
 Corporate accountability and transparency
Shielding ODA
 “There is obviously a space for PSD, but we cannot accept the
they highjack ODA for their own good. Combined with ODA
budget reduction, PSD will make it even worst for true rights
based approach (like ours) and communities alternative
development projects”.
 “unacceptable that ODA be spent for the growth of their
domestic enterprises, when they already do have many other
canals to support their development.”
 “trade unions should qualify the private investment firms as an
investment and not as ODA”
Country ownership and public services
 Capacity building
 Democratic and inclusive ownership of development
 In contrast to traditional public procurement, PPPs have
many hidden costs and are excessively complex contracts for
governments to handle.
Conditions for PSD
 ILO standards and the Decent work agenda
 Social dialogue as a foundation of inclusiveness
 Corporate accountability and transparency