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There has been a big change in the United Nation’s engagement with
the private sector, influenced by its stewardship of the
Millennium Development Goals (MDG). It was the urgent need to
enhance the contribution of the private sector in achieving the MDGs
that prompted Secretary General Kofi Annan to appoint a commission
to examine how the role of the private sector in this major global
effort could be maximised.
The Commission on the Private Sector and Development was convened to
answer two questions: How can the potential of the private sector
and entrepreneurship be unleashed in developing countries? How can
the existing private sector be engaged in meeting that challenge?
The Commission emphasised that the foundations for a sustainable
private sector lay in a supportive global and domestic macroeconomic
environment, adequate physical and social infrastructures, and the
existence of the rule of law.
Such a
foundation would be complemented by three additional factors:
entrepreneurship - indispensable if the domestic private sector is
to flourish; access to finance, knowledge and skills; and the
existence of a level playing field for firms competing in the
domestic market.
Social impact
is greatest where commercial interests, the pursuit of profit, and
development interests overlap. New business models are good examples
of what is already happening in developing countries (Casas Bahia in
Brazil, for example, has developed a unique business model providing
efficient retail services aimed at poorer customers) but they also
show the need for greater and broader action. New business models
are: low cost - companies adapt and modify technology solutions to
deliver services at a fraction of the developed country cost;
reflect a combination of international research and development and
local knowledge thus ensuring relevancy and appropriateness;
market-based, justifying actual investment, delivering reasonable
returns, and offering the potential for replication and scaling up,
the keys to long-term sustainability; and stimulate local economic
development, the driver of employment generation and equitable
growth.
What is needed
is an approach involving partnerships with poor people to innovate
and achieve sustainable scenarios where they are actively engaged
and the provision of products and services to them is profitable.
The potential market of over four billion people living on less than
two dollars a day presents clear opportunities for the private
sector as long as firms, governments, civil society organisations,
development agencies, and poor people work together with a shared
agenda.
The world’s
poor are also consumers living in high-cost economies. In Mumbai,
slum-dwellers pay 10 times more for medicine than middle class
people living in a different part of the city. The quality of goods
that many poor people purchase is substandard. An informal private
sector often fills the gap with goods of varying quality and costing
far more.
Informal
economies sustain most poor families in many countries, yet the
advantages of economies of scale and scope are missing. In many
slums, there are no health services, no public education and no
infrastructure.
Anywhere from
15pc (Senegal) to 90pc (Zimbabwe) of primary education is provided
in private schools. Some 63pc of health care expenditure in the
poorest countries is private.
An innovative
private sector can find ways to deliver low cost goods and services
to demanding consumers across all income ranges. Innovation might
arise from focusing on the poorest people, which would create cost
advantages from economies of scale; a firm could develop strong
distribution links with consumers in villages and be in a better
position to understand their needs; and firms could keep costs low
through outsourcing for greater flexibility.
The private
sector can alleviate poverty by contributing to economic growth and
empowering poor people by providing them with services and consumer
products thereby increasing choice and reducing prices. The first
creates employment and income growth whilst the second improves the
quality of life for poor people.
The more
interaction there is between the four billion people earning less
than 1,500 dollars a year and the private sector the more
opportunities there will be for direct involvement in the market
economy.
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