Private sector development

Private sector development (PSD) is a term in the international development industry to refer to a range of strategies for promoting economic growth and reducing poverty in developing countries by building private enterprises. This could be through working with firms directly, with membership organisations to represent them, or through a range of areas of policy and regulation to promote functioning, competitive markets. Supporters argue that PSD is an important part of poverty reduction. Whether as workers, subsistence farmers or entrepreneurs, most poor people already participate in markets. Strengthening these markets in ways that secure higher incomes for the poor is therefore seen by PSD advocates as a fair and efficient way to fight poverty. Earning a decent income in the private sector, it is argued, is also more dignifying than relying on hand-outs. An April 2013 EPS PEAKS paper found a strong and well-established case for donors to intervene in private markets to deliver subsidies for development purposes. The researcher found that the theoretical reasons for intervention were well established by the economics literature, but that the practical approaches and frameworks for delivering subsidies to private sector entities are more complex and less understood. The approaches that do exist vary widely. The researcher identified some key criteria that can be used to evaluate different approaches and instruments and gave examples of their usage by different donor institutions. In practical terms, they said that thoroughly-researched cost benefit analyses should be used to assess project impact and that it was vital that donors recognise that actively distorting a market outcome might have significant consequences, and that these need to be understood and analysed. Where entrepreneurship and markets are stifled by inappropriate regulation, excessive taxation, lack of fair competition, lack of voice or an unstable policy environment, growth and poverty reduction are likely to suffer.