PRIVATE SECTOR AND
DEVELOPMENT
A CSO PERSPECTIVE
By Jiten Yumnam
Focal Point Person, Rural Sector, Asia,
CSO partnership for Development Effectiveness
mangangmacha@gmail.com
Increasing Emphasis on private
sector and partners of development
“We recognize the central role of the private sector in
advancing innovation, creating wealth, income and
jobs, mobilizing domestic resources and in turn
contributing to poverty reduction”
- Busan Partnership for Effective Development Cooperation
(BPd) – Fourth High Level Forum, Busan, November 2011.
Increasing Emphasis on Private Sector as
partners of development
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OECD-Development Assistance Committee (DAC)
emphasized on the private sector as key for
development. OECD launched its Principles for Private
Sector Participation in infrastructure in 2007.
Multilateral Banks, Bilateral Donors emphasizing on
private sector led economic growth and development.
WTO, DFIs, Donors, Government creating enabling
environment for Private Sector
Public Private Partnerships
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There is overwhelming focus on PPP model of development. Most PPP
projects followed Build-Own-Operate) model with the private sector
running the project
There’s a larger trend of neglecting the social infrastructure in PPPs.
Private sectors, with high profit motives, often favours development of
roads, railways, ports and electricity etc, as user fees charging is more
feasible. And such projects have a market that combines construction with
the provision of related services, viz, operation of toll road), than social
infrastructure projects, viz, health and education.
There’s limited regulatory framework to ensure PPP operation promote
democratic ownership, effectiveness and accountability.
DFI’s and Private sector promotion
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A primary bilateral donor engagement with the private
sector has been through Development Finance Institutions
(DFIs), such as World Bank’s International Finance
Corporation, or bilateral development finance agencies.
Investments to the private sector by international
financial institutions (IFIs) crossed US$40 billion In 2010
and expected to exceed US$100 billion by 2015.
In Belgium, donor investment in private sector
development grew from 44.6 million in 2008 to 123.6
million in 2011, almost exclusively through BIO-Invest,
the Belgian DFI.
Enabling Environment for Private Sector
Participation – Role of Government
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Goverment’s Policy Formulations for Public Private Partnerships (Bangladesh - “Draft
of PPP Policy” in 2011. Mexico - Public-Private Partnerships legislation.
New policies to facilitate land for corporate bodies (India - Land Acquisition Act,
2013). Inconsistent application of law and safeguards. Series of policy reforms
Policy deregulations, such as weakening of environment laws such as on EIAs/SIAs to
protect communities rights and to ensure their rightful participation in decision making
(Amendments on EIA Notification, 1993)
Reluctance to implement Int’l Human rights standards that can promote democratic
ownership (UN Declaration on Indigenous Peoples Rights, 2007)
Protection for corporate bodies (private security forces, militarization etc), inaction on
violations by corporations.
Allowing FDIs, subsidies, Tax reforms, policy changes etc
Enabling Environment for Private Sector Led
Development – Role of IFIs – India
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Privatisation and private sector participation pursued vigorously through
Structural Adjustment Programmes and Country Strategic Plans of IFIs In June
1991, India launched first comprehensive economic policy reform program,
which the World Bank supported with a $500 million structural adjustment
operation (SAL), approved in December 1991 till 1993.
India has taken up following measures to implement SAP :
New Industrial Policy allowing more foreign investments., Opening up more
areas for private domestic and foreign investment, Part disinvestment of
government equity in profitable public sector enterprises., Sick public sector units
to be closed down., Reforms of the financial sector by allowing in private banks.,
Liberal import and export policy, Cuts in social sector spending to reduce fiscal
deficit, Amendments to the existing laws and regulations to support reforms,
Market approach and less government intervention, Liberalization of the
banking system, Tax reform
The budget of 1994-95, of which health care forms just 0.58% is an indication
of the government willingness to adopt Bank's policies.
Private Sector and Development – Priority Setting and
Improving Coherence:
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The private sector is indeed a major actor for creating
economic opportunities for people living in poverty,
through investment, generating employment, creating
innovation and generating revenue for social sectors.
But not all such investment has an impact on poverty
and growing socio-economic inequalities in many
countries experiencing strong economic growth. In many
cases, there are adverse realities and impacts with
private sector.
Private Sector and Key Aid Effectiveness Principles
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Private sector involvement in development can be more
effective as development actor by improving its performance
on promoting democratic ownership and human rights.
Private sector involvement in development is afflicted with
human rights challenges across Asia Pacific region, ranging
from exclusive decision making, mis prioritization,
misinformation, limited impacts appraisal impacts, lack of
accountability etc and cases abound.
The development principles of private sector, i.e to seek profit
and associated practice is often incompatible with the
development priorities of many marginalized communities and
which maintained inseparable relationship with their land for
survival, and this impinge on development results
Specific Cases of human rights challenges in
private sector involvement in development
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Lafarge Limestone Mining funded by World Bank and
Asian Development Bank in Meghalaya, India’s NE
Mega Dams construction in India’s North East
WB’ Road project, JBIC’s Tuirial HEP Project in Mizoram
The liquefied natural gas project, financed by the
Australian Government’s Export Finance and Insurance
Corporation in Papua New Guinea
Mining in Cordillera and West Papua (Mining increased
concentration of economic wealth, conflicts with
indigenous people over land rights)
Displacements in mining in Orissa, SEZs, Ports etc.
Water Privatisation in India
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Water privatization has been emphasized by the Government of India’s
National water policy (National Water, 2002) to address the issue of water
scarcity and for planning, development and management of water resources.
Most of the privatization in India follows the BOOT model.
The Pilot water privatisation in Mumbai led to price hike and inaccessibility of
water service by many of the marginalized and poor, such as the slum dwellers.
The national water policy also encourages interlinking of rivers to improve water
availability in water scarce areas (interlinking, 2005). The proposed river linking
scheme has water privatization at its heart of funding, which will further isolate
the water source and responsible water management from local communities.
Communities questioned the merits of such a scheme on numerous grounds
including lack of consultation, absence of impact assessment, ecological disasters
from river diversion schemes around the world, as well as adverse environmental
impact due to submergence soil salinity and water logging.
Power Sector privatisation in India and
challenges
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The privatisation of power sector of New Delhi led to
steep rise in tariffs. This is in spite of a 328% increase of
tariffs for domestic consumers after privatisation – Rs
1.37 per unit in 2002 to Rs 5.87 per unit in 2013.
The Comptroller and Auditor General of India report had
stated that the assets of Delhi Vidyut Board were
undervalued by a whopping Rs 3,107 crores! In addition,
the Delhi government paid the private companies 10
times more as subsidy – 3,500 crore – than what they
brought in as equity.
Private sector and Food sovereignty:
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Involvement of private Agri-business companies in agriculture had
already led to wide adverse impacts on small scale farmers across
Asia, such as high farmers massive suicides among farmers in India.
At the 2012 G8 Summit, USA launched the “New Alliance to Increase
Food and Nutrition Security”, for partnerships with the private sector
to focus their non-aid resources for smallholder producers. President
Obama announced the participation of 45 companies in the Alliance,
including agribusiness companies such as Cargill, DuPont and
Monsanto, and committed US$3 billion.
An assessment of global food crisis, impacts of private sector
involvement in agriculture in developing countries should precede any
decision for emphasizing on private sector in Agriculture.
Challenge – Private Sector
Increasing Disparity between Rich and Poor:
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Increased private sector involvement in development processes
is also associated with increasing disparity and widening
inequality among the rich and the poor in many countries
across Asia and Pacific.
Donors’ promotion of privatization has increased the price of
basic services such as water, electricity, health, education etc.
Private sector engagement in development is seemingly not
stimulating pro-poor growth and hence needs introspection to
bridge the gap between the gap between rich and poor.
Private sector participation & challenges
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Private sector involvement in development will be more effective if the
Donors, DFIs, and Governments ensure enabling environments are more
geared towards upholding development rights of marginalized
communities and according due sensitivity to the survival rights.
Many donors still need to fulfil commitments to human rights and aid
effectiveness principles into their private sector strategies.
As development standards progress, private sectors’ human rights
commitments and implementation also need to keep similar pace.
Many corporate bodies and bilateral donors are yet to adopt the UN
Declaration on the Rights of Indigenous Peoples, 2007 and to
recognize their inherent right to Free, Prior and Informed Consent
despite their operations in indigenous peoples land and territories.
Enabling Environment Donors and Private Sector Participation
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With most donors insisting on supporting their own
corporations, it difficult to reconcile corporate private
sector interests with achieving development goals.
There is a clear rule that Finnfund must support “Finnish
interest”, first which meant creating commercial benefits
for Finnish business.
AusAID indeed launched its AUS$127 million Australian
Mining for Development Initiative (AMDI) in October
2011 with the official aim of promoting “sustainable
mining” in developing countries.
Can there be real poverty reduction by focussing on
benefits of corporations in developed countries, and not
by empowering private sector and informal economies in
developing countries.
Key challenges with Bilateral Donors
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Inclusive development priority setting and holistic
impact assessment process very limited.
Absence of Information disclosure
Non integration of Accountability mechanism
Limited integration of social safeguard mechanism
Relinquish responsibility while emphasizing on
country system
Not keeping pace with advances on HRBA/IP rights
(JBIC has no plan on Indigenous Peoples)
Key Challenges with IFIs
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The IFI’s funding creates enabling environment for the private
sector and not so much for communities and environment
Priority setting often exclusive, Emphasizing on consultations as
against consent, inadequate Impact assessment
The High Voltage transmission lines across India’s North East
and GMs countries, funded by ADB and World Bank only
encouraged mega dams constructions by private parties, which
again sought additional profits from CDM mechanism without
informing affected peoples.
Challenge with information & accountability for violations,
inaccessibility , limitation of accountability mechanism of IFIs
Way forward – Private Sector and
Development
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For private sectors to be a true partners in
development, they must collaborate in ways that
improve the social and economic rights of marginalized
populations, focus on the economic empowerment of
women, create conditions for decent work, and fund to
promote socio-economic inclusion and social protection.
Private sector can only contribute in development if it
maintains country ownership and bring effective
development result for the vulnerable populations.
Way Forward – Private Sector and Development
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Defining development priorities should not just be exclusive
domain of the private sector, the donors and the DFI’s etc.,
but should ensure the rightful participation and involvement
of communities
Private sector tends to insist on short term measures for quick
profits. However, development needs a long term
intervention. For example ‘poverty reduction’ is a long-term
process and the success of response depends on many
factors, such as political turmoil, natural calamity, literacy,
economic policies etc.
Securing check and balances to ensure compliance to best
development standards oriented toward peoples’ and
ecological rights is crucial.
Way Forward – Private Sector and Development
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Restore donor commitments to increase ODA resources dedicated
to poverty eradication and reducing inequality. Ensure that aidsupported private sector investments, private sector development
give priority to the local private sector and social economy consistent
with aid effectiveness principles and commitments Under Busan
Partnership and Action for Development Cooperation.
Corporations, which invest in developing countries, should
promote human rights under existing international human rights laws
and should not collude in human rights violations by the partner
country government, such as forced evictions or forced labour.
All Government should issue enforceable human rights and
environmental guidelines for corporations and monitor their
compliance with rightful participation of the civil society from the
developing country.
Way Forward – Private Sector and Development
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International Financial Institutions, Bilateral
donors should ensure formulation and compliance of
social, environmental and human rights safeguards
for their investment in private sector and in project
implementation, in accordance with prevailing
development best practice standards.
Bilateral donors also need to formulate social,
environment and human rights safeguards.
Way Forward – Private Sector and Development
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Implement the ILO Decent Work Agenda and apply ILO
core labour standards in the implementation of aidsupported private sector investments and sector development
initiatives, the OECD Guidelines for Multinational Enterprises.
Put transparency and accountability at the heart of all
private sector engagement and development.
Full public access to all project documentation and affected
populations to have a rightful voice and hold private sector
actors accountable to development results. Companies should
report on their financial affairs, including tax and
procurement procedures, on a country basis.
Way forward – Private Sector and
Development
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Definition of Alternatives is something missing out.
Alternatives to development with community
participation can promote development which can
minimize impact on people and environment and
can indeed also offer solutions for sustainable
development.
Way Forward – Private Sector and
Development
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End formal and informal tying of aid and aid-supported
investments.
Ensure public procurement respect public policy goals to strengthen
local capacities in developing countries
Country ownership, Democratic and inclusive ownership of
development should be supported
Corporations, involved in developing countries, should elaborate a
code of conduct for their role in development projects and follow these
standards irrespective of the laws of the country concerned. All
corporations, involved in developing countries, should carry out a fair
and transparent Environmental and Social Impact Assessment
before the development project is launched.
Thagatchari
THANK
YOU